-----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, IBuat0Y7Fd/H/f7CLyPevigVmGh81LKh0MY58EJ6T9jauLTcvi1cQVq3WC9wx6EF 7HNmlBhcMPznzn/KlHnKsw== 0000860520-97-000007.txt : 19970312 0000860520-97-000007.hdr.sgml : 19970312 ACCESSION NUMBER: 0000860520-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPSCO INC CENTRAL INDEX KEY: 0000860520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 371260920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10628 FILM NUMBER: 97554200 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: 607 E ADAMS STREET CITY: SPRINGFIELD STATE: IL ZIP: 62739 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000018654 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 370211380 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20455 FILM NUMBER: 97554201 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: CENTRAL ILLINOIS PUBLIC SERVICE CO STREET 2: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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. 1-10628 CIPSCO INCORPORATED 37-1260920 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Class on Which Registered CIPSCO INCORPORATED Common Stock, without par value New York Stock Exchange Chicago Stock Exchange CENTRAL ILLINOIS PUBLIC SERVICE COMPANY None Securities registered pursuant to Section 12(g) of the Act: CIPSCO INCORPORATED, None CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, Cumulative Preferred Stock, par value $100 per share Depositary Shares, each representing one-fourth of a share of 6.625% Cumulative Preferred Stock, par value $100 per share Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Aggregate market value at February 1, 1997 of the voting stock held by non-affiliates of CIPSCO Incorporated (CIPSCO) - $1,225,131,400 - Common Stock, without par value. Number of shares outstanding of each of CIPSCO's classes of common stock at February 1, 1997: 34,069,542 shares of Common Stock, without par value. Aggregate market value at February 1, 1997 of the voting stock held by non-affiliates of Central Illinois Public Service Company (CIPS) - $20,124,700 - Cumulative Preferred Stock (par value $100 per share) [Note: Excludes value of 400,000 shares of Cumulative Preferred Stock for which CIPS has been unable to determine market value.] Number of shares outstanding of each of CIPS' classes of common stock at February 1, 1997: 25,452,373 shares of Common Stock, without par value (all owned by CIPSCO). Documents Incorporated By Reference: A portion of CIPSCO's Proxy Statement relating to its 1997 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. A portion of CIPS' Proxy Statement relating to its 1997 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. =========================================================================== CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE Item 1. Business CIPSCO Incorporated and its Subsidiaries . . . . . . 5 General . . . . . . . . . . . . . . . . . . . . . . 5 Merger. . . . . . . . . . . . . . . . . . . . . . . 5 Non-Utility Subsidiary - CIPSCO Investment Company . 6 General . . . . . . . . . . . . . . . . . . . . . . 6 Utility Subsidiary - Central Illinois Public Service Company. . . . . . . . . . . . . . . . . . 6 General . . . . . . . . . . . . . . . . . . . . . . 6 Revenues. . . . . . . . . . . . . . . . . . . . . . 7 Competition -- General. . . . . . . . . . . . . . . 9 Competition -- Electric Business. . . . . . . . . . 9 Competition -- Gas Business . . . . . . . . . . . . 12 Utility Industry. . . . . . . . . . . . . . . . . . 12 Construction Program and Financing. . . . . . . . . 12 Rate Matters. . . . . . . . . . . . . . . . . . . . 14 Electric Operations . . . . . . . . . . . . . . . . 15 Electric Power Sales/Participation Agreements . . . 16 Gas Operations. . . . . . . . . . . . . . . . . . . 17 Fuel. . . . . . . . . . . . . . . . . . . . . . . . 18 Regulation. . . . . . . . . . . . . . . . . . . . . 19 Environmental Matters . . . . . . . . . . . . . . . 19 Employees . . . . . . . . . . . . . . . . . . . . . 21 Cautionary Factors. . . . . . . . . . . . . . . . . 22 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 22 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 23 Item 4. Submission of Matters to a Vote of Security Holders . . 23 Executive Officers of the Registrants . . . . . . . . . 24 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . 26 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 28 Item 8. Financial Statements and Supplementary Data . . . . . . . 38 CIPSCO Consolidated Financial Statements. . . . . . . . . 38 Report of Independent Public Accountants. . . . . . . . . 42 Notes to Consolidated Financial Statements. . . . . . . . 43 CIPS Financial Statements . . . . . . . . . . . . . . . . 64 Report of Independent Public Accountants. . . . . . . . . 68 Notes to Financial Statements . . . . . . . . . . . . . . 69 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . 75 PART III Item 10. Directors and Executive Officers of the Registrants . . . 75 Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . 76 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . . . . 76 Item 13. Certain Relationships and Related Transactions. . . . . . 77 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 77 Signatures. . . . . . . . . . . . . . . . . . . . . . . . 90 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 92 Note: Information included herein which relates solely to CIPSCO Incorporated is provided solely by CIPSCO Incorporated and not by Central Illinois Public Service Company and shall be deemed not included in the Annual Report on Form 10-K of Central Illinois Public Service Company. PART I Item 1. Business CIPSCO INCORPORATED AND ITS SUBSIDIARIES GENERAL. CIPSCO Incorporated (CIPSCO) was incorporated in the State of Illinois on July 11, 1986. CIPSCO has two first-tier subsidiaries: CIPSCO Investment Company (CIC), an investment subsidiary, and Central Illinois Public Service Company (CIPS), an electric and gas public utility engaged in the sale of electricity and natural gas in portions of central and southern Illinois. CIPSCO and Subsidiaries are sometimes referred to as the "Company." Effective October 1, 1990, CIPSCO became the parent holding company of CIPS. CIPSCO owns 100% of the outstanding common stock of CIPS representing in excess of 96% of the voting securities of CIPS. CIPSCO's business is conducted through properties and employees of CIPS and CIPSCO reimburses CIPS for their use. Each of CIPSCO's officers is also an officer of CIPS. CIPSCO's principal executive office is located in Springfield, Illinois. CIPSCO is a public-utility holding company as defined in the Public Utility Holding Company Act of 1935 (the "Holding Company Act"), but is exempt, by virtue of an order issued September 18, 1990, from all the provisions of the Holding Company Act except provisions relating to the acquisition of securities of public utility companies. CIPSCO is not subject to regulation as a utility under the Illinois Public Utilities Act or the Federal Power Act. The ability of CIPSCO to pay dividends on its common stock is dependent upon distributions made to it by CIPS, CIC and on amounts earned by CIPSCO on its other investments. MERGER. On August 11, 1995, CIPSCO entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for a business combination (the "merger") with Union Electric Company ("UE"), of St. Louis, Missouri subject to approval of CIPSCO and UE shareholders and various regulatory approvals. Pursuant to the Merger Agreement, a new holding company - Ameren Corporation ("Ameren") - will become the parent of CIPS, UE and the other direct subsidiaries of CIPSCO. Ameren will be a registered holding company under the Holding Company Act. When the merger is completed, each outstanding share of common stock of CIPSCO will be converted into 1.03 shares of Ameren common stock and each outstanding share of common stock of UE will be converted into one share of Ameren common stock. The transaction is expected to be tax-free to shareholders for federal income tax purposes and to be accounted for as a "pooling of interests." Shareholders of both companies approved the Merger Agreement on December 20, 1995. Following certain regulatory approvals, the merger is expected to be effective by the end of 1997. On February 21, 1997, the Missouri Public Service Commission entered a final order approving the merger. Under this order, UE will continue its alternative regulation plan through 2001 providing for sharing of earnings resulting from, among other things, merger related savings. The order approves recovery of the merger-related expenses (but not the merger premium) over a 10 year period. The order requires UE to take steps to participate in or form an Independent System Operator to control operation, pricing and planning of its transmission system. On March 3, 1997, the Illinois Commerce Commission (the "Illinois commission") expanded the scope of issues to be considered in reopened proceedings on the merger which were ordered in January, 1997. The additional issues relate to treatment of affiliate transactions and preservation of the Illinois commission's jurisdiction in such matters in light of federal regulation of CIPS as part of a registered public utility holding company system. Hearings at the Federal Energy Regulatory Commission ("FERC") on the merger have concluded and the administrative law judge's proposed order is expected by April 30, 1997. Additional information relation to the merger can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations - Merger and in Notes 2 and 3 of the Notes to Consolidated Financial Statements included under Item 8 of this report. UE serves about 1,140,000 electric customers and 123,000 gas customers in Missouri and Illinois. At December 31, 1996 it had assets of $6.9 billion. For 1996, UE had electric revenues of about $2.2 billion, gas revenues of $99 million and net income of $291.6 million. Further information concerning UE is contained in its Annual Report on Form 10-K for the year ended December 31, 1996 and other reports to be filed with the Securities and Exchange Commission. See "Unaudited Pro Forma Combined Condensed Financial Information of CIPSCO and Union Electric" contained under Item 14 of this report for selected historical and unaudited pro forma combined condensed financial information of CIPSCO and UE. NON-REGULATED SUBSIDIARY - CIPSCO INVESTMENT COMPANY GENERAL. CIPSCO Investment Company (CIC), an Illinois corporation and the non-regulated subsidiary of CIPSCO, was incorporated on October 2, 1990. CIC was formed for the purpose of managing non-regulated investments and providing investment management services to CIPSCO and its affiliates. CIC's investment portfolio principally includes common stocks, mutual funds, hedged preferred and common stocks, equity interests in lease transactions and energy related projects. Investments are held in the four subsidiaries of CIC: CIPSCO Securities Company, CIPSCO Leasing Company, CIPSCO Energy Company and CIPSCO Venture Company. CIPSCO Securities Company invests in marketable securities, CIPSCO Leasing Company makes long- term investments in leveraged lease transactions, CIPSCO Energy Company makes investments in energy-related projects and CIPSCO Venture Company makes investments within the CIPS utility service territory. UTILITY SUBSIDIARY - CENTRAL ILLINOIS PUBLIC SERVICE COMPANY GENERAL. Central Illinois Public Service Company (CIPS), an Illinois corporation, was organized in 1902. CIPS is a public utility operating company engaged in the sale of electricity and natural gas in portions of central and southern Illinois. CIPS generates, transmits and distributes electricity and, through interchange agreements with other utility systems, purchases and sells power on a firm basis, in emergency situations or when economical to do so. CIPS sells and distributes natural gas which it purchases from natural gas producers and other suppliers and transports natural gas purchased by end-users directly from suppliers. The principal executive offices of CIPS are located in Springfield, Illinois. CIPS furnishes electric service to about 322,000 retail customers in 557 incorporated and unincorporated communities and adjacent suburban and rural areas. See Business - Electric Operations and - Electric Power Sales/Participation Agreements regarding certain electric power arrangements with other utility systems. CIPS also furnishes natural gas service to about 169,000 retail customers in 267 incorporated and unincorporated communities and adjacent suburban and rural areas and provides gas transportation service to about 425 end-users. CIPS furnishes both electric and natural gas service in 236 of the communities served by it. The territory served by CIPS, located in 66 counties in Illinois, has an estimated population of 820,000 and is devoted principally to agriculture and diversified industrial operations. Key industries include petroleum and petrochemical industries, food processing, metal fabrication and coal mining. The electric and gas utility business of CIPS is expected to provide the major portion of CIPSCO's assets and earnings for the foreseeable future. REVENUES. The total operating revenues of CIPS for the year 1996 were $886,186,000 of which about 82% was derived from the sale of electricity and about 18% from the sale of natural gas. The retail electric revenues were derived approximately as follows (percentage of total electric operating revenue): 31% from residential customers, 26% from commercial customers, 16% from industrial customers and 3% from public authorities and other. The electric revenues from sales for resale were derived approximately as follows (percentage of total electric operating revenue): 10% from power supply agreements, 11% from interchange sales (economy/emergency) and 3% from full requirements service for cooperatives and municipal customers. The natural gas revenues for the year 1996 were derived approximately as follows: 65% from residential customers, 23% from commercial customers, 7% from industrial customers and 5% from transportation service customers and miscellaneous. The sources of the operating revenues of CIPS for the years indicated were as follows: Electric 1996 1995 1994 (in thousands) Residential . . . . . . . . . . . . . . . $229,865 $230,103 $213,377 Commercial. . . . . . . . . . . . . . . . 186,836 180,831 178,723 Industrial. . . . . . . . . . . . . . . . 117,113 116,030 118,917 Public authorities and other. . . . . . . 20,028 19,828 13,799 -------- -------- -------- Total retail revenues . . . . . . . . 553,842 546,792 524,816 Power supply agreements . . . . . . . . . 71,142 70,333 78,613 Interchange sales (economy/emergency) . . 82,399 64,188 71,779 Cooperatives and municipals . . . . . . . 23,451 22,196 22,250 -------- -------- -------- Total sales for resale . . . . . . . . 176,992 156,717 172,642 Total electric operating revenues. . . $730,834 $703,509 $697,458 ======== ======== ======== Natural Gas 1996 1995 1994 (in thousands) Residential . . . . . . . . . . . . . . . $101,378 $ 85,202 $ 86,919 Commercial. . . . . . . . . . . . . . . . 35,039 28,234 30,577 Industrial. . . . . . . . . . . . . . . . 11,152 8,464 12,897 Transportation service. . . . . . . . . . 7,373 7,335 7,586 Miscellaneous . . . . . . . . . . . . . . 410 375 445 -------- -------- -------- Total gas operating revenues. . . . . . $155,352 $129,610 $138,424 ======== ======== ======== The portions of operating income of CIPS, before income taxes, attributable to electric operations were approximately $148,407,000 (90%) in 1996, $137,379,000 (92%) in 1995 and $147,070,000 (93%) in 1994. The portions of operating income, before income taxes, attributable to gas operations were approximately $15,817,000 (10%) in 1996, $12,192,000 (8%) in 1995, and $11,528,000 (7%) in 1994. Identifiable assets relating to electric and gas operations were as follows: 1996 1995 1994 (in thousands) Electric operations . . . . . . . . . . $1,505,767 $1,495,433 $1,469,601 Gas operations. . . . . . . . . . . . . 203,901 181,677 176,788 Other . . . . . . . . . . . . . . . . . 43,650 37,695 32,261 ---------- ---------- ---------- Total assets. . . . . . . . . . . . . $1,753,318 $1,714,805 $1,678,650 ========== ========== ========== COMPETITION -- ELECTRIC BUSINESS. Competition is increasing in the electric utility business. A description of some of the competitive factors, including state and federal restructuring efforts, and the potential impact of such matters on the Company and CIPS, are described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Regulation and Competition. Future regulatory, legislative, technological and economic changes can be expected to further increase competition in wholesale as well as retail markets. During 1996, CIPS had generating capacity sales agreements with other utility systems which represented approximately 520 megawatts or 18% of CIPS' total generating capacity. This reflects a reduction of 115 megawatts as a result of a scheduled contract reduction in 1995. Other agreements expire at various dates over the next several years. (See Business - Utility Subsidiary - Central Illinois Public Service Company - Electric Power Sales/Participation Agreements.) Although most of the contracts extend to the period 2007 to 2014, contracts representing about $17 million in annual revenues expire in 1999. When such contacts expire, CIPS may not be able to sell the available capacity or energy at the margins provided under the existing contracts. In addition to such wholesale power sales contracts, CIPS also has long-term transmission service agreements with certain customers. There are proceedings underway before the FERC regarding open access transmission tariffs for CIPS (to be applicable prior to the proposed merger with UE) and CIPS and UE, jointly (to be applicable after the proposed merger). CIPS' open access transmission tariffs to be effective before and after the proposed merger are expected to offer transmission at rates lower than those reflected in certain existing long-term transmission agreements. Certain customers under these long-term transmission agreements have attempted to challenge such agreements (and one such challenge is still pending) before FERC on the basis that the rates under these agreements are higher than those to be available under the open access tariffs. CIPS believes that its existing wholesale power sales agreements and transmission service agreements are just and reasonable and should not be altered by FERC. Competition in the interchange sales market (economy and emergency power), which is based primarily on price and availability of energy, has become much more intense in recent years. Approximately 11 percent of total electric operating revenues for 1996 were derived from interchange sales. In 1996, two Illinois electric utilities received approval from the Illinois commission for experimental "open access" programs which would provide certain customers within the authorized service area of each such utility the opportunity to obtain electric power from a supplier other than such utility. These pilot programs differ from the regulatory reform process (as described under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Regulation and Competition) in that they are temporary in nature and are approved under the existing Illinois Public Utilities Act. CIPS is monitoring the progress of both programs. The competitive pressures on CIPS' wholesale and retail business referred to above and in Management's Discussion could have a negative impact on revenues and earnings. In response to these pressures, CIPS is working closely with its wholesale, industrial and other customers to find mutually beneficial solutions to the challenges brought about by competition. CIPS initiated a new marketing function in 1995 and the Company and CIPS have taken a number of other steps in recent years to prepare for increasing competition and to reduce costs and increase sales in light of the factors outlined above and other circumstances. For example, CIPS has renegotiated several major coal supply contracts (see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Coal Contract Restructuring), instituted a business process re-engineering program and reduced its workforce through attrition and a voluntary separation program to reduce costs. Finally, the Company has entered into the Merger Agreement with UE to form a strategic alliance to enhance the Company's competitive positions. Certain of these initiatives are described further below. In order to assess the various opportunities emerging in the electric and natural gas energy marketplace and to implement strategies which take advantage of those opportunities, effective January 1, 1995, CIPS established a new marketing function. The efforts of this new function are being directed at product and service development programs, customer retention and economic development. As a result of the marketing efforts emphasized during the past two years, CIPS has introduced consumer products related to lighting and home safety, provided added customer service options and technical energy and industrial process service assistance. The CIPS economic development program has been expanded in recent years to include new customer and community development initiatives. Additional services to customers have included energy technology assistance and market development programs. CIPS works in partnership with communities throughout the service area to implement projects to respond to growth opportunities. This, in combination with the ongoing business development initiatives including industrial site location assistance, community profiles technical development services, and innovative industrial building design programs, is designed to maximize economic development throughout the CIPS territory. In January 1985, CIPS first received approval from the Illinois commission for an economic development rate. The rate is designed to encourage industrial expansion and stimulate job creation in the service territory of CIPS. Under the economic development rate, each qualifying electric customer receives lower incentive rates for incremental load for a maximum period of five years. In June 1986, CIPS received further approval which grants flexibility to renegotiate agreements to fit the specific needs of certain industrial prospects. The Illinois commission granted CIPS approval to offer qualifying customers the economic development rate through January 1, 2000. Since the rate was instituted in 1985, about 207 new or existing business expansions have led to the creation of over 11,475 new jobs in the CIPS service territory. In addition, on July 10, 1995, CIPS filed a tariff rider with the Illinois commission applicable to existing electric service customers billed on certain commercial and industrial rates. This rider allows CIPS to negotiate contractual rates with customers at rates equal to or greater than the incremental costs of serving that customer. Such contracts are intended for customers having the potential to utilize an energy source other than CIPS' electric service and/or where the total or partial loss of customer load is imminent. This will allow CIPS to maintain a positive contribution to fixed costs and avoid permanent loss of revenue. On August 7, 1996, the Company's new systemwide call center at Pawnee, Illinois became operational. The new facility will enable CIPS to provide better customer services regarding billing, credit, energy services and other matters. In addition to a general program of controlling costs, in 1987 CIPS initiated a major program of renegotiating long-term coal supply contracts. A major coal contract restructuring was completed early in 1997. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Coal Contract Restructuring). CIPS continues to evaluate opportunities to initiate further renegotiation efforts. This program has helped and will continue to help CIPS control its fuel costs. During 1996, CIPS continued its "business process re-engineering" program focusing on two major areas: field operations (including general office departments directly supporting field operations) and power generation (including general office departments directly supporting the power stations). Multi-disciplined teams were formed in early 1995 to study each of these areas, with the objective of significantly reducing costs, improving customer satisfaction, and achieving the Company's strategic goals. A pilot program in each area was initiated to confirm the effectiveness of various recommendations submitted by the teams. The field operations pilot program began in October 1995. A regional office concept in field operations replaces the division-based organizational structure whereby separate area and district offices reported to one of three division offices. At the power stations, a work area maintenance concept was initiated as a pilot program at the Meredosia Power Station in January, 1996. The Meredosia pilot program has been extended with the mutual consent of plant management and employees represented by International Union of Operating Engineers Local 148. Similarly, in January, 1997, the work area maintenance concept was initiated for a trial period of up to one year at the Coffeen Power Station. Further implementation of changes in these areas will occur in 1997. Early in 1995, CIPS instituted a voluntary separation program. Under the program, eligible employees could leave CIPS and receive a package of benefits. Of the employees eligible to participate, 151 accepted the offer. COMPETITION -- GAS BUSINESS. Competition in the natural gas industry is increasing. For a number of years, CIPS customers have had the ability to purchase natural gas from producers or other suppliers and transport that gas through the interstate pipelines and the CIPS system. CIPS collects a rate for transportation through its system. Policies of the FERC have increased the competitive nature of the gas business. In certain cases customers have the ability to receive their gas supply directly from pipelines and bypass the CIPS system. Illinois utilities, under special rate provisions authorized by the Illinois commission, are authorized to negotiate special contractual sales arrangements with their larger natural gas customers as a means of retaining such customers. CIPS has negotiated or is currently negotiating with a number of its larger industrial gas customers regarding flexible rates to address the more competitive environment in which CIPS is operating. While CIPS has had to provide lower rates to retain some customers, CIPS has used this same flexibility to obtain some new loads. UTILITY INDUSTRY. CIPS is experiencing some of the problems common to electric and gas utility companies, namely, increased competition for customers, increased construction costs, delays and uncertainties in the regulatory process and costs of compliance with environmental and other laws and regulations. CONSTRUCTION PROGRAM AND FINANCING. Total construction expenditures for CIPS for 1997 through 2001 are estimated at $482 million. For 1997, anticipated construction expenditures are $113 million for replacements and improvements and consist of about $51 million for electric production facilities, $11 million for electric transmission facilities, $42 million for electric distribution and general facilities, and $9 million for gas utility facilities. The projected 5-year amounts include up to $28 million for environmental compliance, including compliance with regulations under the Clean Air Act Amendments of 1990. Capital requirements for the 1997- 2001 period are expected to be met primarily through internally generated funds. In addition to funds required to refinance maturing short-term and long-term borrowings, external financing requirements are expected to total about $175 million for the 1997-2001 period which include amounts for projected construction expenditures and a coal contract restructuring payment. Such financing could consist of capital from the parent, the issuance of short-term debt, long-term debt or preferred stock, or any combination of the four. In addition, refinancings to lower the costs of capital also may occur, depending on market conditions. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements and - Forward Looking Statements and -- Consolidated Results of Operations - Clean Air Act and - Coal Contract Restructuring.) CIPS continuously reviews its construction program, which may be affected by numerous factors, including availability and cost of capital, the rate of load growth, escalation of construction costs, Clean Air Act compliance strategies, changes in governmental and environmental regulations, customers' patterns of consumption and conservation of energy and the adequacy of rate relief. Load growth projections are subject to a number of uncertainties due to various influences on customer consumption, economic conditions and the effect of rates on consumption and peak load demand. CIPS has no electric generating units under construction. On June 30, 1995, CIPS filed its current "least cost resource" plan with the Illinois commission. The plan includes the 20-year generating unit plan of the utility. As demonstrated by the plan, CIPS is not expected to require additional generating capacity or demand-side resources during the 1996- 2016 planning period. Pursuant to the plan, CIPS will engage in several demand-side management activities intended to enhance its capability to deliver demand-side management resources in the future. Following consummation of the merger, CIPS and UE will each re-examine the timing of additional electric generation resources. For a discussion of the funds requirements for the period 1997-2001 and the assumptions as to the sources of funds to meet those requirements, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements. CIPS has filed shelf registration statements with the Securities and Exchange Commission, covering up to $200 million of first mortgage bonds and medium-term notes. CIPS currently has authority from the Illinois commission to issue or incur up to $200 million of first mortgage bonds, medium-term notes and bank borrowings outstanding at any time through December 31, 1998. Pursuant to this authority, in February 1997 CIPS entered into long-term credit facilities with banks providing for up to $75 million of borrowings. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - -- Capital and Financing Requirements. The issuance by CIPS of first mortgage bonds, medium-term notes and/or other secured debt securities, common stock, preferred stock and certain unsecured debt securities is subject to the receipt of necessary regulatory approvals. See Business - Utility Subsidiary - Central Illinois Public Service Company - Regulation. The Mortgage Indenture of CIPS, as presently operative, permits the issuance of additional first mortgage bonds up to 60% of available net expenditures for bondable property, provided the "net earnings" of CIPS (determined after deducting income taxes and otherwise as provided in the Mortgage Indenture) for a recent 12-month period equal at least twice the annual interest requirements on all first mortgage bonds outstanding (and on all equally secured and prior lien indebtedness) and on the bonds then to be issued. At December 31, 1996, the more restrictive of these requirements was the "net earnings" test. The "net earnings" of CIPS for the year ended December 31, 1996, so computed, were equal to 5.63 times the interest for one year on the aggregate amount of bonds outstanding under the Mortgage Indenture at December 31, 1996. Based on the "net earnings" of CIPS (so computed) for the year ended December 31, 1996, and the bonds outstanding under the Mortgage Indenture at December 31, 1996, CIPS could have issued about $480 million of additional first mortgage bonds under the foregoing interest coverage provision (assuming an annual interest rate of 7.75% on such bonds). The Articles of Incorporation of CIPS provide, in effect, that so long as any CIPS preferred stock is outstanding, CIPS shall not, without the requisite vote of the holders of preferred stock, unless the retirement of such stock is provided for, (a) issue any preferred or equal ranking stock (except to retire or in exchange for an equal amount thereof) unless the "gross income available for interest" of CIPS for a recent 12-month period is at least one and one-half (1-1/2) times the sum of (i) one year's interest on all funded debt and notes maturing more than 12 months after the date of issuance of such shares and (ii) one year's dividend requirement on all preferred stock to be outstanding after such issue, or (b) issue or assume any unsecured debt securities maturing less than two years from the date of issuance or assumption (except for certain refunding or retirement purposes) if immediately after such issuance or assumption the total amount of all such unsecured debt securities would exceed 20% of the sum of all secured debt securities and the capital and surplus of CIPS. For the year ended December 31, 1996, the "gross income available for interest" of CIPS equalled 3.13 times the sum of the annual interest charges and dividend requirements on all such funded debt, notes and preferred stock outstanding at December 31, 1996. Such "gross income available for interest" was sufficient under the test to support the issuance of additional preferred stock (assuming an annual dividend rate on such preferred stock of 6.50%) in an amount in excess of the maximum amount ($185 million) of authorized and unissued preferred stock under the Articles. RATE MATTERS. The most recent CIPS retail rate case before the Illinois commission resulted in electric and natural gas rate increases which became effective March 20, 1992. In its decision, the Illinois commission allowed a return on net original cost rate base of 9.77% (electric) and 9.88% (natural gas) reflecting a return on common equity of 12.28% (electric) and 12.50% (natural gas). In April 1993, CIPS began recovering amounts under environmental adjustment clause riders for the cleanup and restoration of former manufactured gas plant sites (environmental remediation sites). A total of $2.9 million was collected from customers through December 31, 1993 under the riders and no amounts have been collected since January 1994. The Illinois commission has initiated reconciliation proceedings to determine whether the costs incurred by CIPS for environmental remediation activities in 1993, 1994 and 1995 were prudently incurred costs and whether revenues collected under the riders can be reconciled with the level of prudent costs properly incurred for environmental remediation activities. The Illinois commission can order refunds to customers if it determines that costs incurred for environmental remediation activities were not prudently incurred or revenues collected under the riders were in excess of costs properly recoverable under the riders. Management believes that any costs properly incurred in connection with the sites that are not recovered from others will be recovered through the environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. See Note 4 to Consolidated Financial Statements. The Illinois commission conducts annual proceedings to determine whether the electric fuel and purchased gas charges collected by CIPS in each year pursuant to the applicable fuel adjustment and purchased gas adjustment clauses reflect the actual costs of electric fuel and natural gas prudently purchased in that year and to reconcile revenues collected under the clauses during the year with actual costs incurred. The Illinois commission can order refunds to customers if it determines that actual costs of fuel or purchased gas were less than the amounts charged to customers pursuant to the clauses or if it finds that CIPS was imprudent in its purchases of fuel or gas. The Illinois commission has completed its review of fuel adjustment and purchased gas adjustment charges for all years prior to 1994. No significant refunds or adjustments were required for those years. Fuel reconciliation proceedings for the years 1994 through 1996 are pending. The 1994 fuel reconciliation proceeding has been marked heard and taken by the Illinois commission. (See Business - Utility Subsidiary - Central Illinois Public Service Company - Fuel.) The most recent general rate increase of CIPS approved by the FERC became effective in 1984. There are currently no rate increase proceedings pending at the FERC, and CIPS has no plans for any such rate increase filings. All of CIPS' requirements sales to cooperatives and municipals for resale are through negotiated service agreements. As a result of the retail rate increase granted to CIPS in 1992 referred to above, a corresponding rate adjustment was granted by the FERC for certain customers who purchase power from CIPS for resale. This rate adjustment was provided for in the service agreements between CIPS and these customers. ELECTRIC OPERATIONS. Since 1977 CIPS has been a net off-system seller of electricity and during 1996 it generated 130% of its system requirements. The maximum gross system load to date on the CIPS electrical system, on a one-hour integrated basis, occurred on August 14, 1995, and was 2,319,000 kilowatts. Gross system load includes sales to electric cooperative and municipal customers (but excludes emergency and interchange sales). The 1996 maximum gross system load of 2,283,000 kilowatts was 1.6% less than the historical maximum gross system load of 2,319,000 which occurred in 1995. CIPS, Illinois Power Company and UE are parties to an Interconnection Agreement providing for the coordination and interconnected operation of their respective electric systems and the interchange of power and energy at rates and under conditions set forth therein, including the maintenance by the parties of minimum reserve capacity positions. The Agreement provides that CIPS will maintain a minimum 15% system reserve capacity. CIPS, Illinois Power and Union Electric are parties to an Interconnection Agreement with Tennessee Valley Authority (TVA) providing for the interconnection of the TVA system with the systems of the three companies to exchange economy and emergency power and for other working arrangements. In addition, CIPS has interconnection agreements with various other neighboring utilities, including Central Illinois Light Company, Commonwealth Edison Company, Indiana Michigan Power Company, Public Service Company of Indiana, Inc., IES Utilities, Inc. and Northern Indiana Public Service Company. These agreements provide for various interchanges, emergency services and other working arrangements. CIPS owns 20%, (Union Electric owns 40% and two other utilities own the remaining 40%) of the common stock of Electric Energy, Inc. (EEI). The owners, including CIPS, are entitled to receive from EEI varying amounts of power. Electric Energy, Inc. owns and operates a 1,015,000 kilowatt coal- fired power station located in Joppa, Illinois. CIPS is a member of the Mid-America Interconnected Network reliability council made up of utilities, public power generators, power marketers and others, which has as its purpose the promotion of maximum coordination of planning, construction and utilization of generation and transmission facilities on a regional basis in order to assure the reliability of electric bulk power supply in the area served. One municipal agency, one cooperative agency and one cooperative are engaged in the generation of electricity within, or in close proximity to, portions of the territory served by CIPS. Electric and magnetic fields (sometimes referred to as EMF) surround electric wires or conductors of electricity, such as electrical tools, household wiring and appliances and electric transmission and distribution lines, such as those owned by CIPS. A number of statistical and laboratory studies have investigated whether EMF pose human health risks. The United States Environmental Protection Agency (USEPA) stated in its December 1992 brochure "Questions and Answers about Electric and Magnetic Fields" that "Some epidemiological evidence is suggestive of an association between surrogate measurements of magnetic field exposure and certain cancer outcomes. Though the body of evidence cannot be dismissed, it is not complete enough at this time to draw meaningful conclusions." The nation's electric utilities, including CIPS, have participated in the sponsorship of millions of dollars of EMF research. CIPS has also agreed to participate in the National EMF Research and Public Information Dissemination Program, a 5-year $65 million effort headed by the United States Department of Energy aimed at furthering EMF research. Through its participation with Electric Power Research Institute, CIPS will continue its investigation and research with regard to the possible health effects posed by exposure to EMF. ELECTRIC POWER SALES/PARTICIPATION AGREEMENTS. As shown in the table below, CIPS currently has contracts with Norris Electric Cooperative, City of Newton, Village of Greenup and Mt. Carmel Public Utility Company for the sale of electric power. These contracts provide for firm full requirements service which obligates CIPS to maintain adequate system reserves to support the contracts, or to supply the requirements with off-system purchases. 1996 Peak Contract Demand Expiration Contract (Megawatts) Date Norris Electric Cooperative. . . . . . 60 MW 2007 City of Newton . . . . . . . . . . . . 8 MW 1999 Village of Greenup . . . . . . . . . . 3 MW 1999 Mt. Carmel Public Utility Co. . . . . 41 MW 2001 Since 1990, CIPS has entered into three successive agreements with Central Illinois Light Company ("CILCO") to sell to CILCO, Limited Term Power. These agreements provide for contract delivery periods and amounts as shown in the following table: Contract Delivery Amount Period (MW) June 1994 - May 1996. . . . 70 June 1996 - May 1997. . . . 80 June 1997 - May 1998. . . . 90 June 1998 - May 2002. . . . 150 June 2002 - May 2009. . . . 50 In addition, CIPS sells electric power to three power pooling agencies through negotiated capacity participation agreements identified in the following table. These agencies include Soyland Power Cooperative (Soyland), Illinois Municipal Electric Agency (IMEA) and Wabash Valley Power Association (WVPA). Maximum Capability Contract Entitlement Expiration Contract (Megawatts) Date Soyland. . . . . . . . . . . . . . . . 103 MW 1999 IMEA . . . . . . . . . . . . . . . . . 122 MW 2014 WVPA . . . . . . . . . . . . . . . . . 65 MW 2011 (See Business - Utility Subsidiary - Central Illinois Public Service Company - Competition -- Electric Business above.) GAS OPERATIONS. CIPS distributes and sells natural gas to 267 incorporated and unincorporated communities located in 41 counties of central and southern Illinois. The CIPS service territory is predominantly made up of small towns and rural areas. Of the communities served, only 5 have populations greater than 15,000. Customer density on the CIPS gas system is approximately 37 customers per mile of main. Six interstate pipelines pass through various portions of the CIPS service area: Panhandle Eastern Pipe Line Company, Texas Eastern Transmission Corporation, Natural Gas Pipeline Company, Texas Gas Transmission Company, Midwestern Gas Transmission Company and Trunkline Gas Company. CIPS has multiple interconnections with each of these pipelines, with the total of all such interconnections being 46. Most of the CIPS system is integrated by virtue of CIPS owned pipelines, or by transportation agreements with interstate pipelines. CIPS owns and operates four underground storage fields which provide a total peak day capacity of 34,500 thousand cubic feet per day (mcf/day). CIPS also operates one propane-air peak shaving facility which has a peak day capacity rating of 10,000 mcf/day. The peak day firm demand recorded by CIPS in 1996 was 302,550 mcf which was reached on February 2, 1996. This demand level is 5.2% less than the all-time peak demand of 319,033 mcf which occurred on December 24, 1983. During 1996, the CIPS throughput (total of sales and transportation) was 39.2 billion cubic feet (bcf) compared to 37.2 bcf experienced in 1995, the year of highest historical throughput prior to 1996. In 1996, CIPS transported 13.4 bcf of customer-owned gas which represented 34% of the total system throughput. Volumes of customer-owned gas transported in 1995 and 1994 were 14.5 bcf and 12.0 bcf, respectively. The average cost per mcf of natural gas purchased from all suppliers was about $3.53 in 1996, $3.04 in 1995 and $3.41 in 1994. The rate schedules of CIPS applicable to all of its gas sales include a uniform purchased gas adjustment clause, which permits CIPS to adjust its rates to its customers to reflect substantially all changes in the cost of purchased gas. (See Note 1 of Notes to Consolidated Financial Statements included under Item 8 of this report. See Business - Utility Subsidiary - Central Illinois Public Service Company - Rate Matters.) CIPS maintains a diversified portfolio of gas supply, transportation, leased storage and no-notice service contracts to reliably serve its gas customers. In addition, CIPS' owned storage and propane-air facilities provide additional reliability and flexibility to meet peak day and peak season requirements. In recent years CIPS has made investments to construct additional pipeline interconnections, increase CIPS owned storage capacity, improve reliability of existing storage facilities, modernize propane-air facilities and improve data acquisition capabilities. At the same time CIPS has reorganized and enhanced its gas supply planning and procurement functions. FUEL. Over 99% of the net kilowatthour generation of CIPS in 1996 was provided by coal-fired generating units and the remainder by an oil-fired unit. The average costs of fuel consumed by CIPS, per ton and per million Btu, for the periods shown were as follows: 1996 1995 1994 Per ton ($) . . . . . . . . . . . . 36.16 37.69 35.44 Per million Btu ($) . . . . . . . . 1.71 1.76 1.65 In 1996, approximately 20.1% of the coal purchased for electric generation was purchased on a spot basis at average delivered costs of $26.11 per ton and $1.19 per million Btu. The retail fuel adjustment clause (FAC) of CIPS is consistent with the uniform FAC mandated by the Illinois commission for all electric utilities as applicable to retail electric sales in Illinois. The FAC provides for the recovery of changes in electric fuel costs, including certain transportation costs of coal, in billings to retail customers. CIPS adjusts fuel expense to recognize over- or under-recoveries of allowable fuel costs. The cumulative effect is deferred on the Balance Sheet as a Current Asset or Current Liability, pending automatic reflection in future billings to customers. In 1992, CIPS received Illinois commission approval to include certain coal transportation costs in the FAC in accordance with the August 1991 modifications to the Illinois Public Utilities Act. CIPS also has contractual arrangements with certain other utility system customers which contain a fuel adjustment clause or provide for a sharing of fuel costs which permit CIPS to adjust its rates to such customers to reflect substantially all changes in the cost of fuel (including all transportation costs) used to supply those customers. The amount of coal supplies on hand at the generating stations of CIPS varies from time to time. CIPS generally attempts to maintain a 65-day supply. Approximately 80% of the annual coal requirements of the generating facilities of CIPS are being met by long-term coal contracts expiring at various dates from 1997 to 2010. As contracts approach their expiration, or when appropriate, CIPS evaluates alternative supply arrangements based on then current and expected market conditions for coal. CIPS believes there are adequate reserves reasonably available to supply its existing generating units with the quantity and quality of coal required for the foreseeable future. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements and - Consolidated Results of Operations - Clean Air Act and - Coal Contract Restructuring. REGULATION. CIPS is subject to regulation by the Illinois commission as to rates, accounting practices, issuance of certain securities and in other respects as provided by Illinois law. The Illinois commission may consider alternatives to rate-of-return regulation. Further deregulation and open access proposals are being made in the Illinois General Assembly. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Regulation and Competition. The Electric Supplier Act of Illinois permits utilities and electric cooperatives to delineate their respective service areas, subject to the approval of the Illinois commission, and gives the Illinois commission power to determine, pursuant to guidelines provided in the Act, whether a prospective electric customer will be furnished service by a public utility or by a cooperative. The FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, accounting practices, issuance or acquisition of certain securities and electric rates of CIPS for resale and interchange customers. CIPS has been classified as a "public utility" within the meaning of that Act. CIPS has been declared exempt from the federal Natural Gas Act. CIPS is presently exempt from all the provisions of the Public Utility Holding Company Act of 1935, except provisions thereof relating to the acquisition of securities of other public utility companies, until further action by the Securities and Exchange Commission, by virtue of an annual exemption statement filed by CIPS with the Commission pursuant to Rule 2 under the Act. See Business - CIPSCO Incorporated and Its Subsidiaries - Merger. ENVIRONMENTAL MATTERS. CIPS is subject to regulation with respect to air and water quality standards, standards relating to the discharge and disposal of solid and hazardous wastes and other environmental matters by various federal, state and local authorities. The Illinois Pollution Control Board (the "Board") has jurisdiction over all phases of environmental control by the State of Illinois and has authority to grant variances from environmental requirements. The Illinois Environmental Protection Agency (the "Agency") has authority to issue permits, investigate violations and recommend enforcement cases. The Illinois Attorney General has the authority to prosecute enforcement cases. The USEPA has jurisdiction to promulgate and enforce air and water quality standards in addition to those standards which relate to the discharge and disposal of solid and hazardous wastes. Air pollution control regulations promulgated by the Board impose restrictions on emissions of particulate, sulfur dioxide, nitrogen oxides and other air pollutants and require that CIPS obtain permits from the Agency for the construction and operation of its generating facilities in compliance with these regulations. CIPS has secured all necessary operating permits for all of its existing generating facilities and is in substantial compliance with the provisions contained therein. Future construction projects may require additional construction permits. Under the Clean Air Act Amendments each utility must have sufficient emission allowances, which are granted by the USEPA, to cover the amount of sulfur dioxide to be emitted each year from its generating stations. Any emission allowances in excess of a utility's needs for a year can be retained by it for future use or sold. CIPS' current compliance strategy relies on fuel-switching to lower sulfur coals supplemented with the purchases of emission allowances. CIPS believes an adequate supply of emission allowances will be available at a reasonable price for the foreseeable future. (See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations - Clean Air Act and - Coal Contract Restructuring.) USEPA has proposed revisions to the National Ambient Air Quality Standards for ozone and particulate matter which may result in the USEPA seeking additional reductions of sulfur dioxide and nitrogen oxide emissions from coal fired boilers. Because of the magnitude of these additional reductions, substantial costs could be incurred to meet future compliance obligations for CIPS' coal fired boilers. The proposed revisions are expected to be finalized in 1997. The revisions would be effective some time after the effective date of the Phase II acid rain control provisions of the Clean Air Act Amendments. Water pollution control regulations promulgated by the Board impose restrictions on effluent discharges, set water quality standards and require CIPS to obtain construction permits for certain facilities and National Pollutant Discharge Elimination System ("NPDES") permits for discharges into public waters. CIPS has secured all necessary NPDES permits for all of its generating units and is in substantial compliance with the currently effective provisions contained therein, except as noted in the following paragraph. On August 2, 1996, the Company received notice that the Illinois Attorney General had filed a complaint with the Board alleging various violations of wastewater discharge permit conditions at the Hutsonville Power Station. The allegations had been the subject of prior pre- enforcement conference letters. The complaint seeks monetary penalties and the award of attorney fees. The Company, the Agency, and the Attorney General are continuing to work on a plan to resolve these issues. While the Company cannot predict the final outcome of this matter, it does not believe that the final resolution will have a material adverse effect on financial position, results of operations or liquidity of the Company. Pollution control regulations promulgated by the Board impose restrictions on the discharge and disposal of solid and hazardous waste, and determine design standards to prevent contamination of groundwater. CIPS has secured all necessary permits and authorizations for disposal and is in substantial compliance with the provisions contained therein. Future construction projects may require additional authorizations or permits. On January 16, 1997, the Agency issued CIPS a notice of violation concerning an incident at the Newton Power Station. On September 9, 1996, a truck driver delivering sodium hydroxide mistakenly unloaded the caustic material into an acid storage tank. When the two chemicals mixed, a violent reaction occurred and the ensuing explosion discharged acid and caustic material into the environment. The Agency is seeking a thorough site investigation followed up by appropriate remedial actions. The site has been extensively cleaned up. The Company believes that sole responsibility for this incident rests with the trucking company and will vigorously defend any further action by the Agency. See the subcaption "Environmental Remediation Costs" under Note 4 of the Notes to Consolidated Financial Statements, included under Item 8 of this report, for information relating to costs incurred and to be incurred in connection with the remediation of certain sites where gas had been manufactured from coal and which contain potentially harmful materials. EMPLOYEES. The businesses of CIPSCO and CIC are conducted through the use of employees of CIPS, and CIPSCO and CIC reimburse CIPS for the cost of using those employees. The composition of the work force of CIPS at the payroll period nearest year-end 1996 and 1995 was as follows: Number of Employees Employee Group 1996 1995 Salaried. . . . . . . . . . . . . . . . . 980 1,053 IBEW - 702. . . . . . . . . . . . . . . . 877 922 IUOE - 148. . . . . . . . . . . . . . . . 454 453 ----- ----- Total . . . . . . . . . . . . . . . . . . 2,311 2,428 ===== ===== Contracts with IBEW - 702 and IUOE - 148 extend through June 30, 1999. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations -- Labor Issues and Note 4 of the Notes to Consolidated Financial Statements under the subcaption "Labor Issues" included under Item 8. Financial Statements and Supplementary Data for a discussion of matters involving those employees represented by labor unions. CAUTIONARY FACTORS. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for information concerning forward looking statements made in this Form 10-K. All statements made herein which are not historical facts are forward looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. In addition to those forward looking statements and cautionary factors referred to in Management's Discussion and Analysis, forward looking statements included in this Form 10-K include those relating to: 1. The expected effective date of the merger with UE; 2. The expected contribution of a major portion of CIPSCO's assets and earnings coming from CIPS; 3. The expected changes leading to increased competition; 4. CIPS' ability to make additional sales when existing contracts expire; 5. CIPS' belief that existing wholesale power sales agreements and transmission agreements are just and reasonable and should not be altered by FERC; 6. Estimated construction ependitures, sources of funds and financing requirements; 7. The expected recovery of environmental remediation expenses through rates; 8. The expected availability of fuel supplies and emmission allowances; 9. The anticipated outcome of identified environmental proceedings and litigation. All such statements are based on management's belief, judgment and analysis as well as assumptions made by and information available to management. In addition to any assumptions and other factors referred to specifically in connection with such forward looking statements, factors that could cause the Company's or CIPS' actual results to differ materially from those contemplated in any forward looking statements include, among others, those identified in Exhibit 99.03 hereto, which is incorporated herein by reference. Item 2. Properties. Currently, CIPSCO and CIC principally conduct their business through the use of the properties of CIPS. CIPSCO has no other material properties. The electric generating facilities of CIPS consist of the following: Estimated 1997 Summer Year Capability Station and Unit Fuel Installed (KW) Newton Unit 1 . . . . . . . . . Coal 1977 555,000 Unit 2 . . . . . . . . . Coal 1982 555,000 Coffeen Unit 1 . . . . . . . . . Coal 1965 340,000 Unit 2 . . . . . . . . . Coal 1972 560,000 Grand Tower Unit 3 . . . . . . . . . Coal 1951 82,000 Unit 4 . . . . . . . . . Coal 1958 104,000 Hutsonville Unit 3 . . . . . . . . . Coal 1953 76,000 Unit 4 . . . . . . . . . Coal 1954 77,000 Diesel Unit. . . . . . . Oil 1968 3,000 Meredosia Unit 1 . . . . . . . . . Coal 1948 62,000 Unit 2 . . . . . . . . . Coal 1949 62,000 Unit 3 . . . . . . . . . Coal 1960 215,000 Unit 4 . . . . . . . . . Oil 1975 168,000 --------- Total . . . . . . . . 2,859,000 ========= All of the generating stations are located in Illinois on land owned in fee by CIPS. At December 31, 1996, CIPS owned 13,051 pole miles of overhead electric lines and 997 miles of underground electric lines. At that date, CIPS also owned 4,620 miles of natural gas transmission and distribution mains, four underground gas storage fields and one propane-air gas plant used to supplement the available pipeline supply of natural gas during periods of abnormally high demands. Substantially all of the permanent fixed utility property of CIPS is subject to the lien of the Mortgage Indenture securing CIPS first mortgage bonds. Item 3. Legal Proceedings. CIPSCO is not involved in any material legal proceedings. With regard to CIPS, on December 22, 1995, a complaint was filed in the Circuit Court for the Seventh Judicial Circuit, Sangamon County, Illinois against CIPS and several other defendants. The complaint seeks unspecified monetary damages and alleges that, as a result of exposure to carcinogens contained in coal tar at the CIPS Taylorville gas plant site, plaintiffs' children had suffered from a rare form of childhood cancer known as "neuroblastoma." The plaintiffs in this complaint are the plaintiffs who on October 5, 1995 voluntarily dismissed claims in a similar complaint in the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois. On April 17, 1996, the Seventh Judicial Circuit Court, Sangamon County, Illinois granted approval of the petition by CIPS requesting transfer of this case to the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois. CIPS will vigorously defend the action and believes it has meritorious defenses. Management believes that final disposition of this matter will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Reference is made to the caption "Coal Contract Restructuring" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 4 of Notes to Consolidated Financial Statements for a discussion of the order of the Illinois commission approving a coal contract restructuring, including recovery through the automatic fuel adjustment clause ("FAC"), over a period estimated to be 72 months, of a $70 million restructuring charge and associated carrying costs. On February 28, 1997, a group of industrial customers who had intervened in the proceeding before the Illinois commission filed an appeal of the order with the Illinois Third District Appellate Court. The industrial customers have asked the court to reverse or remand that portion of the order authorizing CIPS to recover the restructuring charge through the FAC. If the customers were ultimately to prevail, CIPS would be required to cease FAC recovery of the restructuring charge, and could be required to refund any portion of the restructuring charge that had been collected through the FAC. Any such refund would most likely occur in the form of a credit in future FAC calculations. In such an event, CIPS could initiate a rate filing seeking new base rates designed to recover the restructuring charge. The outcome of any such rate filing cannot be predicted. Although CIPS believes the Illinois commission's order in this matter is lawful and proper and will vigorously defend its position that the Illlinois commission order be upheld as entered, it cannot predict the outcome of this matter. See Item 1. Business - Utility Subsidiary - Central Illinois Public Service Company - Rate Matters, - Gas Operations and - Environmental Matters with respect to certain matters involving CIPS. See also Item 1. Business - CIPSCO Incorporated and its Subsidiaries - Merger and Notes 3 and 4 of Notes to Consolidated Financial Statements included under Item 8 of this report. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders of either CIPSCO or CIPS during the three months ended December 31, 1996. Executive Officers of CIPSCO (ages at December 31, 1996). Name Age Positions Held C. L. Greenwalt 63 President and Chief Executive Officer of CIPSCO* and CIPS, and Chairman of the Board of CIC G. L. Rainwater 50 Executive Vice President of CIPSCO and CIPS W. A. Koertner 47 Vice President, Secretary and Chief Financial Officer of CIPSCO; Vice President Finance and Secretary of CIPS; President and Chief Executive Officer of CIC F. J. Kinsinger 57 Controller and Chief Accounting Officer of CIPSCO and CIPS and Controller of CIC R. C. Porter 40 Treasurer and Assistant Secretary of CIPSCO, and CIPS; Vice President, Chief Financial Officer, Treasurer and Secretary of CIC ______________________ * Mr. Greenwalt is a director of CIPSCO. The present term of office of the above executive officers extends to the first meeting of CIPSCO's Board of Directors after the next annual election of Directors, scheduled to be held on April 23, 1997. There is no family relationship between any executive officer and any other executive officer or any director. Each of the officers named above has been employed by CIPSCO and/or CIPS for more than the past five years in various executive capacities except as noted below. Executive Officers of CIPS (ages at December 31, 1996). Name Age Positions Held C. L. Greenwalt 63 President and Chief Executive Officer* G. L. Rainwater 50 Executive Vice President* W. A. Koertner 47 Vice President Finance and Secretary* C. D. Nelson 43 Vice President Corporate Services J. T. Birkett 59 Vice President Power Generation D. R. Patterson 60 Vice President Regional Operations G. W. Moorman 53 Vice President Regional Operations F. J. Kinsinger 57 Controller (Principal Accounting Officer)* R. C. Porter 40 Treasurer and Assistant Secretary* ______________________ * Mr. Greenwalt is a director of CIPS and is also an officer and director of CIPSCO. Mr. Rainwater, Mr. Koertner, Mr. Kinsinger and Mr. Porter are also officers of CIPSCO. The present term of office of the above executive officers extends to the first meeting of the Board of Directors of CIPS after the next annual election of Directors, scheduled to be held on April 23, 1997. There is no family relationship between any executive officer and any other executive officer or any director. All of the officers named above have been employed by CIPS in their present positions for more than the past five years except as indicated below: Mr. Rainwater began his employment with UE on September 1, 1979 in the Distribution Engineering Department. After having served in various capacities in the Corporate Planning Department at UE, Mr. Rainwater became General Manager of that department on July 1, 1988. On July 1, 1993, Mr. Rainwater was named Vice President Corporate Planning at UE and he served in that capacity through January 10, 1997 after which he began employment in the position of Executive Vice President of CIPSCO and CIPS effective January 13, 1997. Mr. Koertner served as Vice President Financial Services from August 1, 1989 to April 1, 1993, and as Vice President Corporate Services from April 1, 1993 to July 1, 1995 when he was named Vice President Finance and Secretary. Mr. Nelson served as Treasurer and Assistant Secretary from August 1, 1989 to December 3, 1996 when he was named Vice President Corporate Services. Mr. Nelson also served as Treasurer, Assistant Secretary and Assistant Controller of CIPSCO Incorporated from April 1, 1993 to December 3, 1996. Mr. Birkett served as Manager of Purchasing and Stores from March 1, 1985 to July 1, 1995 when he was named Vice President Power Generation. Mr. Patterson served as Western Division Manager from March 1, 1985 to July 1, 1995, and as Vice President Corporate Services from July 1, 1995 to October 1, 1996 when he was named Vice President Regional Operations. Mr. Moorman served as Vice President Power Supply from June 1, 1988 to October 1, 1996 when he was named Vice President Regional Operations. Mr. Kinsinger served as Assistant Controller in the Accounting Department from December 12, 1977 to June 4, 1996 when he was named Controller. Mr. Porter served as Revenue Contracts Supervisor in the Accounting Department from January 18, 1990 to March 18, 1992 and as Assistant Secretary in the Treasury Department from March 18, 1992 to July 31, 1995, at which time he was also named Assistant Treasurer, until August 1, 1995. Since August 1, 1995 he has served as Vice President, Chief Financial Officer, Treasurer and Secretary of CIC and was assigned the additional duties of Treasurer and Assistant Secretary of CIPS and CIPSCO on December 3, 1996. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. CIPSCO CIPSCO's common stock is publicly held and traded on both the New York Stock Exchange and the Chicago Stock Exchange. The table below sets forth, for the periods indicated, the dividends per share of common stock of CIPSCO and the high and low sales prices of the CIPSCO common stock as reported in New York Stock Exchange Composite listings. Quarter 1996 First Second Third Fourth Price Range High $41 1/4 $38 5/8 $38 1/2 $38 1/4 Low 37 1/8 35 7/8 34 7/8 34 7/8 Close 38 5/8 38 5/8 35 5/8 36 Cash dividends declared (cents) $ .51 $ .52 $ .52 $ .52 ======= ======= ======= ======= 1995 First Second Third Fourth Price Range High $29 1/2 $30 3/4 $34 1/2 $39 Low 27 28 1/2 28 3/4 34 3/8 Close 28 5/8 29 7/8 34 3/8 39 Cash dividends declared (cents) $ .50 $ .51 $ .51 $ .51 ======= ======= ======= ======= The number of CIPSCO common shareholders of record as of December 31, 1996, was 35,658. The market price for CIPSCO Common Stock increased in the third and fourth quarter of 1995 partially in response to the announcement of the Merger Agreement with UE. See Item 1. Business - CIPSCO Incorporated and its Subsidiaries - Merger. Consummation of the merger is subject to the receipt of all necessary regulatory approvals. CIPS All the common stock of CIPS, 25,452,373 shares, is owned by CIPSCO and is not publicly traded. The following table sets forth the cash distributions on common stock paid to CIPSCO by CIPS and CIC: 1996 1995 CIPS CIC CIPS CIC (in thousands) First Quarter $16,500 $ - $17,500 $ - Second Quarter 17,500 - 17,500 - Third Quarter 16,250 - 17,500 - Fourth Quarter 12,700 5,000 18,500 - DIVIDEND RESTRICTIONS CIPSCO and CIPS are subject to restrictions on the use of retained earnings for cash dividends on common stock as described in Note 8 of Notes to Consolidated Financial Statements included under Item 8 of this report. The ability of CIPSCO to pay dividends on its common stock is dependent upon distributions made to it by CIPS, CIC, and on amounts earned by CIPSCO on its other investments. Item 6. Selected Financial Data. CIPSCO For the Years Ended December 31, 1996 1995 1994 1993 1992 (in thousands, except per share data) Operating Revenues $ 896,715 $ 842,262 $ 844,615 $ 844,760 $ 739,877 Operating Income 173,009 156,742 165,345 170,735 142,986 Net Income 80,057 72,015 83,954 85,498 72,499 Earnings per common share 2.35 2.11 2.46 2.51 2.13 Dividends declared per common share 2.07 2.03 1.99 1.95 1.91 As of December 31, Total Assets $1,871,656 $1,827,911 $1,777,357 $1,757,750 $1,725,456 Long-Term Debt 421,227 478,926 474,619 494,323 503,700
CIPS For the Years Ended December 31, 1996 1995 1994 1993 1992 (in thousands) Operating Revenues $ 886,186 $ 833,119 $ 835,882 $ 834,556 $ 729,402 Operating Income 116,531 106,029 110,678 113,651 97,372 Net Income 77,393 70,631 81,913 84,011 72,601 Preferred Stock Dividends 3,721 3,850 3,510 3,718 4,549 Earnings for Common Stock 73,672 66,781 78,403 80,293 68,052 Common Stock Dividends 62,950 71,000 68,600 33,500* -* As of December 31, Total Assets $1,753,318 $1,714,805 $1,678,650 $1,668,462 $1,645,059 Long-Term Debt 421,228 478,926 474,619 494,323 503,700 * Reflects the repurchase of common shares of CIPS.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. MANAGEMENT'S DISCUSSION AND ANALYSIS CIPSCO Incorporated (CIPSCO or the Company) is a holding company incorporated under the laws of Illinois. Its principal subsidiary is Central Illinois Public Service Company (CIPS), an electric and natural gas utility. Another subsidiary, CIPSCO Investment Company (CIC), has subsidiaries engaged in non-regulated investing activities. Material changes in the consolidated financial condition and results of operations are primarily attributable to CIPS operations, except where noted. Merger On August 11, 1995, CIPSCO entered into an Agreement and Plan of Merger providing for a business combination (the merger) with Union Electric Company (UE) of St. Louis, Missouri, subject to the approval of shareholders of both companies and various regulatory agencies. As a result of the merger, a newly formed holding company - Ameren Corporation (Ameren) - will become the parent of CIPS, UE, and CIC. The merged entity is expected to realize $644 million in net savings over 10 years from combining certain operations of the two companies and is expected to adopt UE's dividend payment level, currently $2.54 per share. Shareholders of both companies approved the merger agreement on December 20, 1995. Following regulatory approvals, the merger is expected to be effective by the end of 1997. (See Notes 2 and 3 to Consolidated Financial Statements.) CIPSCO Incorporated The fundamental financial position of CIPSCO and its subsidiaries remained strong in 1996. CIPSCO's business activities are conducted by CIPS and CIC. A discussion of the financial condition of CIPS and CIC follows below. The total number of shares of common stock authorized under CIPSCO's articles of incorporation is 100 million. At year-end 1996, a total of 34,069,542 shares of common stock was outstanding, which was unchanged from 1995. No underwritten offerings of common stock are planned. Dividends paid to common stock shareholders during 1996 resulted in payout ratios of 88 percent of consolidated earnings and 41 percent of net cash provided by operating activities. CIPSCO is authorized to issue 4.6 million shares of preferred stock, none of which has been issued. There are no constraints in the CIPSCO articles of incorporation as to the amount of debt which may be issued. At year-end 1996 CIPSCO had $0.9 million of temporary investments and no debt outstanding. CIPSCO Investment Company At year-end 1996 there were $117 million of non-regulated investments managed by CIC and its subsidiaries. One subsidiary, CIPSCO Securities Company, manages marketable securities. At year-end 1996 it had $51 million invested in hedged portfolios of preferred and common stocks and other marketable securities. A second subsidiary, CIPSCO Leasing Company, invests in long-term leveraged lease transactions. At year-end 1996 it had $34 million invested in leased assets consisting of real estate and equipment. A third subsidiary, CIPSCO Energy Company, seeks energy-related investment opportunities. At year-end 1996 it had $28 million invested in leases, or interests in leases, of combustion turbine generating units and an interest in a partnership which owns a power sales agreement. A fourth subsidiary, CIPSCO Venture Company, invests primarily within the CIPS service territory. At year-end 1996 it had less than $1 million invested in real estate. At year-end 1996 CIC had $3 million of temporary investments and no short-term borrowings. Central Illinois Public Service Company FINANCIAL CONDITION. The utility's financial position remained fundamentally strong during 1996. Neither CIPSCO nor CIPS has had to raise additional capital through the sale of common stock to the general public since 1980. The long-range financial objectives for CIPS' capital structure are: a debt ratio of no more than 45 percent, a common equity ratio of no less than 45 percent, and a preferred equity ratio of no more than 10 percent. At December 31, 1996, the capitalization at CIPS consisted of 39 percent long-term debt, 54 percent common equity and 7 percent preferred stock. At year end, 25,452,373 shares of CIPS common stock were outstanding, all of which were held by CIPSCO. CAPITAL AND FINANCING REQUIREMENTS. Construction expenditures were $106 million in 1996. Of that amount, $93 million and $13 million related to improvements and replacements to the electric and natural gas systems, respectively. For the 12 months ended December 31, 1996, 95 percent of CIPS' total capital requirements was provided from internal sources. Construction expenditures are expected to be about $113 million in 1997. Of that amount, $104 million is scheduled for electric facilities, while gas system expenditures are estimated at $9 million. For the five-year period 1997-2001, construction expenditures are estimated at $482 million. This is $25 million less than was spent in the preceding five years. The projected five-year amounts include up to $28 million for environmental compliance, including compliance with the Clean Air Act Amendments of 1990. Capital requirements for the 1997-2001 period are expected to be met primarily through internally generated funds. In addition to funds required to refinance maturing short-term and long-term borrowings, external financing requirements are expected to total about $175 million for the 1997-2001 period which include amounts for projected construction expenditures and a coal contract restructuring payment. Such financing could consist of capital from the parent, the issuance of short-term debt, long-term debt or preferred stock, or any combination of the four. In addition, refinancings to lower the costs of capital also may occur, depending on market conditions. CIPS currently has authority from the Illinois Commerce Commission (Illinois commission) to issue or incur up to $200 million of first mortgage bonds, medium-term notes and bank borrowings through December 31, 1998. Registration statements covering $200 million of first mortgage bonds and medium-term notes have been filed with the Securities and Exchange Commission. Capital and financing requirements may be affected by such factors as the coal contract restructuring, availability and cost of capital, load growth, changes in construction expenditures, changes in Clean Air Act compliance strategies, regulatory and legislative developments, changes in environmental regulations and other governmental activities. FINANCING FLEXIBILITY AND LIQUIDITY. The utility's ability to finance its construction program and to provide for other capital needs at reasonable cost is dependent upon its ability to earn a fair return on capital. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit. Flexibility also is provided by the parent corporation which is capable of providing additional capital if circumstances warrant. Securities issued by the utility are subject to regulatory approvals. The utility's mortgage indenture limits the amount of first mortgage bonds which may be issued. At December 31, 1996, CIPS could have issued about $480 million of additional first mortgage bonds under the indenture, assuming an annual interest rate of 7.75 percent. CIPS' articles of incorporation limit amounts of preferred stock which may be issued. Assuming a preferred dividend rate of 6.50 percent, the utility could have issued all $185 million of authorized but unissued preferred stock as of year-end. At year-end 1996 CIPS had no temporary investments and $58 million of short-term borrowings. CONSOLIDATED RESULTS OF OPERATIONS EARNINGS. Net income and earnings per share improved by 11 percent in 1996 to $80.1 million and $2.35, respectively, following declines of 14 percent in 1995. The return on average common equity for 1996 was 12.2 percent compared with 11.1 percent in 1995 and 13.1 percent in 1994. The improvement in net income, earnings per share and return on average common equity in 1996 is a result of increased sales, lower maintenance costs and fewer unusual costs in 1996 than 1995. Merger-related expenses reduced earnings 15 cents per common share in 1996. Costs related to a workforce reduction, merger-related expenses, and the write off of certain system development costs reduced earnings 34 cents per common share in 1995. INVESTMENT REVENUES. Investment revenues are comprised of income from temporary investments, long-term marketable securities, leveraged leases and partnership income. Investment revenues increased 15 percent in 1996 due principally to gains on marketable securities. Investment revenues increased in 1995 due to additional investments and increased earnings from marketable securities. ELECTRIC OPERATIONS. Electric kilowatthour sales increased 5 percent in 1996 primarily due to an increase in interchange sales. Cooling degree days were 11 percent lower than in 1995 and 7 percent lower than average. However, heating degree days were 6 percent above 1995, and 8 percent above average. Total electric kilowatthour sales declined 2 percent in 1995 due principally to a decline in wholesale kilowatthour sales and discontinued sales to two industrial customers who ceased operations. A capacity participation agreement with one of CIPS' wholesale customers called for a 115-megawatt reduction for the customer starting in 1995. This reduced wholesale power supply participation revenues for CIPS by $8.7 million. The electric margins for the three years ended December 31, were: ELECTRIC MARGIN 1996 1995 1994 (millions of dollars) Electric revenues $731 $704 $697 Less: Revenue taxes (25) (25) (24) Fuel (221) (189) (196) Purchased power (53) (59) (55) Electric margin $432 $431 $422 ==== ==== ==== The 1996 electric margin was favorably impacted by colder weather early in the year which increased sales to residential and commercial customers and a 14 percent increase in interchange sales to other utilities and brokers. The 1995 electric margin improved primarily because warmer weather during July and August increased residential and commercial sales and provided opportunities for interchange sales. Fuel costs were $1.71 per million Btu in 1996, $1.76 in 1995 and $1.65 in 1994. Purchased power amounts fluctuated between years according to system requirements and sales opportunities. GAS OPERATIONS. Therms sold and transported increased 5 percent in 1996 due principally to colder weather. Heating degree days for 1996 were 6 percent higher than in 1995 and 8 percent above average. The gas margins for the three years ended December 31, were: GAS MARGIN 1996 1995 1994 (millions of dollars) Gas revenues $155 $130 $138 Less: Revenue taxes (7) (7) (7) Gas costs (96) (74) (85) Gas margin $ 52 $ 49 $ 46 ==== ==== ==== The 1995 gas margin was favorably impacted by colder weather as evidenced by a 6 percent increase in heating degree days from the prior year. Gas costs fluctuated according to system requirements in each year. The average price paid for gas from suppliers increased nearly five cents per therm in 1996 and decreased more than three and one-half cents per therm in 1995. OPERATING EXPENSES. Other operation expenses declined 6 percent in 1996. The decline results from unusual costs in 1995 which included $5.8 million related to a voluntary separation program and $5.7 million related to write offs of system development costs. Other operation expenses increased 11 percent in 1995 over 1994 primarily due to these costs. The following table shows other operation expenses for the years ended December 31, adjusted for unusual costs. OTHER OPERATION EXPENSES 1996 1995 1994 (millions of dollars) Other operation $147 $155 $140 Voluntary separation - (6) - Write off of system costs - (6) - Merger-related system costs (2) - - Other operation, adjusted $145 $143 $140 ==== ==== ==== Maintenance expense changes between years are due to normal planning and scheduling of major power plant maintenance outages. Depreciation and amortization expense increases primarily are related to property additions. Income taxes reflect the changes in pre-tax income between years. Taxes other than income taxes change primarily in relation to changes in retail revenues. Miscellaneous, net, reflects $2.0 million of merger transaction costs (not tax deductible) and $2.9 million of merger transition costs in 1996. Miscellaneous, net, reflects $4.7 million of merger transaction costs (not tax deductible) in 1995. CHANGES IN CONSOLIDATED BALANCE SHEET ACCOUNTS. Significant changes in the balance sheet accounts at December 31, 1996, compared to balances at December 31, 1995 are: fuel for electric generation declined 49 percent during 1996 due to increased burn of coal inventories resulting primarily from higher electric sales; gas stored underground increased 37 percent due to both higher gas prices and greater net volumes of gas injected into storage; regulatory assets increased due to undepreciated plant costs plus cost of removal being reflected as a regulatory asset attributable to the retirement of the Newton Unit 1 scrubber, and increases in recoverable costs for environmental remediation; other liabilities increased due to inclusion of scrubber removal costs and increases in recoverable costs for environmental remediation. CLEAN AIR ACT. In 1996, CIPS adopted a revised compliance strategy to meet the requirements of the Clean Air Act Amendments of 1990. The new strategy relies primarily on switching to a lower sulfur coal at its generating units rather than increased scrubbing and use of higher sulfur coal at its Newton Unit 1. The estimated capital costs of compliance are included in the CIPS five-year construction forecast. COAL CONTRACT RESTRUCTURING. In June 1996, CIPS and a major coal supplier for the Newton and Grand Tower power stations signed a letter of intent calling for a restructuring of their existing long-term contract. Under the restructuring, CIPS paid the supplier a $70 million restructuring charge plus interest from November 1, 1996 to the payment date on February 13, 1997; will be able to purchase low-sulfur, out-of-state coal at market prices through the supplier (in substitution for the high-sulfur Illinois coal CIPS was obligated to purchase under the original contract); and received options for future purchases of low-sulfur, out-of-state coal from the supplier in 1997 through 1999 at set negotiated prices. By switching to low-sulfur coal, CIPS will be able to discontinue operating the Newton Unit 1 scrubber. The benefits of the restructuring include lower-cost coal; avoidance of significant capital expenditures to renovate the scrubber; and elimination of scrubber operating and maintenance costs (offset by scrubber retirement expenses). The net benefits of the restructuring are expected to exceed $100 million over the next 10 years. In December 1996, the Illinois commission entered an order approving the switch to out-of-state coal, recovery of the restructuring charge plus associated carrying costs through the fuel adjustment clause over six years, and continued recovery in rates of the undepreciated scrubber investment plus costs of removal. The order approving the restructuring will be subject to appeal through mid-March 1997. Any such appeal would likely result in lengthy further proceedings. (See Note 4 to Consolidated Financial Statements.) REGULATION AND COMPETITION. The electric utility industry is becoming more competitive due to market forces and a changing regulatory and legislative environment. To maintain market position in this environment and to take advantage of opportunities presented through increased competition, CIPS may from time to time consider and implement various business strategies, including the restructuring of its wholesale and retail business operations. Increased competition has reduced margins on certain wholesale and retail electricity and gas sales and further reductions can be expected in the future. Large gas and electric customers often have the ability to choose alternative energy supplies. Deregulation will bring choice to additional customers. To the extent CIPS is unable to reduce costs, increase efficiency and attract new sales, these competitive pressures could negatively affect future revenues and earnings. On April 24, 1996, the Federal Energy Regulatory Commission (FERC) issued Orders 888 and 889. Citing a goal of enhancing competition in the wholesale market for generation sales, Order 888 requires transmission- owning utilities, such as CIPS, to provide transmission access and service to others in a manner similar and comparable to that which the utility has by virtue of transmission ownership. Order 888 implements the provisions of the National Energy Policy Act of 1992 which were designed to promote competition in the wholesale and generation segments of the electric utility industry. CIPS has filed an open access transmission tariff in compliance with Order 888. In addition, CIPS and UE have filed tariffs covering the combined system to be effective upon completion of the merger. Order 889 sets forth the standards of conduct and information requirements that must be put in place and observed by transmission-owning public utilities doing business under the open access rule. These include establishment by each utility of an open access, same-time information system, or OASIS. This system will provide information, on a real-time basis, needed by the utility's customers to apply for and obtain transmission service. Using OASIS, the utility must obtain transmission service for its own use in the same manner its customers will obtain such service. This will help mitigate market power through control of transmission facilities. CIPS is implementing the requirements of Order 889. Additional changes in federal energy policy leading to further deregulation can be expected. Deregulation efforts also are increasing at the state level. In July 1995, legislation was passed authorizing the Illinois commission, after hearings, to approve a public utility's petition to operate under alternative forms of regulation. The Illinois commission can now consider, on a trial basis, alternatives to rate-of-return regulation which could reward or penalize utilities based on performance. CIPS plans to make an alternative regulation filing after completing the merger with UE, to establish a mechanism for sharing merger-related and other savings between ratepayers and shareholders. On November 18, 1996, the Illinois Coalition for Responsible Electricity Choice, which includes CIPS, most other Illinois utilities, business and consumer groups, submitted a retail competition proposal to the Illinois State Legislative Reference Bureau. The proposal contemplates a phase-in of direct access beginning in the year 2000 and continuing until 2005 for all retail customers. Other deregulation proposals urge faster transition to full deregulation and certain groups are urging adoption of federal legislation that would mandate nationwide retail open access. Although the final design and impact of federal and state regulatory policies and legislation relating to wholesale and retail wheeling are not known, CIPS is actively planning its transition to a competitive environment. Deregulation also could force utilities to change accounting methods. Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for Effects of Certain Types of Regulation," applies to regulated entities whose rates are designed to recover costs of providing service to customers through the ratemaking process. CIPS periodically reviews the criteria of SFAS No. 71 to ensure that continuing application is appropriate. Changes in regulation or in the competitive environment for regulated services could cause CIPS to no longer be eligible to apply SFAS No. 71 to established regulatory assets and liabilities. CIPS has evaluated the possibility that SFAS No. 71 would no longer apply to it, along with various factors and conditions that are expected to impact future cost recovery, and currently believes that its net regulatory assets are probable of future recovery. (See Note 3 to Consolidated Financial Statements.) ENVIRONMENTAL REMEDIATION COSTS. CIPS has identified 13 former manufactured gas plant sites which may contain potentially harmful materials. In 1990, one site was added to the United States Environmental Protection Agency Superfund list. The utility is implementing an approved long-term remedial plan for the site. Since 1987, the costs related to studies and remediation at these sites, associated legal and litigation expenses and certain carrying charges are being accrued and deferred rather than expensed currently. This is being done pending recovery of these expenses from rates, insurance carriers, other parties or a combination of these. Management believes that costs properly incurred in connection with the sites that are not recovered from others will be recovered through environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. (See Note 4 to Consolidated Financial Statements.) LABOR ISSUES. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 have filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the 1993 lockout by CIPS. The Peoria Regional Office of the NLRB has issued complaints against CIPS concerning its lockout. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $16 million. An administrative law judge of the NLRB has ruled that the lockout was unlawful. On July 23, 1996, the Company appealed to the NLRB. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. CIPS successfully negotiated renewed contracts with both unions in 1996 which extend through June 30, 1999. (See Note 4 to Consolidated Financial Statements.) FORWARD LOOKING STATEMENTS. This report includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made herein which are not based on historical facts are forward looking and, accordingly, involve risks and uncertainties that could cause actual results to differ materially from those discussed. Such forward looking statements include those under Management's Discussion and Analysis relating to (i) the timing of regulatory approvals and consummation of the merger with UE, (ii) the long-range financial objectives for the capital structure of CIPS, (iii) amounts of future construction expenditures, sources of funds to meet capital requirements and financing requirements, (iv) anticipated benefits of the coal contract restructuring, (v) levels of capital and operating costs needed to comply with environmental requirements, (vi) the anticipated impact of competitive conditions and deregulation on revenues, earnings and margins, (vii) the anticipated recovery of manufactured gas plant site cleanup costs and associated legal and litigation expenses through environmental rate riders and (viii) anticipated results of the NLRB proceedings regarding the legality of the lockout of union employees by CIPS. Such statements are based on management's belief, judgment and analysis as well as assumptions made by and information available to management at the date hereof. In addition to any assumptions and cautionary factors referred to specifically in this report in connection with such forward looking statements, factors that could cause actual results to differ materially from those contemplated by the forward looking statements include (i) the speed and the nature of increased competition and deregulation in the electric and gas utility industry, (ii) economic or weather conditions affecting future sales and margins, (iii) changing energy prices, (iv) availability and cost of capital, (v) unanticipated or adverse decisions in regulatory proceedings or litigation, (vi) changes in laws and other governmental actions, and (vii) other matters detailed from time to time in the Company's or CIPS' reports filed with the Securities and Exchange Commission. Customer usage of electricity and natural gas varies with weather conditions, general business conditions, the state of the economy and the cost of energy services. The level of sales also is impacted by conditions in the interchange market. OTHER MATTERS. Rates for retail electric and gas service are regulated by the Illinois commission. Non-retail electric rates are regulated by FERC. The utility's rates are designed to recover operating costs including traditional depreciation and capital costs on utility plant investment. Changes in the cost of fuel for electric generation and gas costs generally are reflected in billings to customers on a timely basis through fuel and purchased gas adjustment clauses. Inflation continues to be a factor affecting operations, earnings, shareholders' equity and financial performance. Item 8. Financial Statements and Supplementary Data. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1996 1995 1994 (in thousands, except per share data) Operating Revenues: Electric $ 730,812 $ 703,483 $ 697,427 Gas 155,348 129,606 138,418 Investment 10,555 9,173 8,770 ------- ------- ------- Total operating revenues 896,715 842,262 844,615 Operating Expenses: Fuel for electric generation 220,936 188,731 196,324 Purchased power 53,279 59,495 55,543 Gas costs 96,228 74,054 85,043 Other operation 146,588 155,368 140,068 Maintenance 61,461 67,996 65,176 Depreciation and amortization 87,397 83,263 81,099 Taxes other than income taxes 57,817 56,613 56,017 ------- ------- ------- Total operating expenses 723,706 685,520 679,270 Operating Income 173,009 156,742 165,345 Interest and Other Charges: Interest on long-term debt of subsidiary 33,118 32,871 32,842 Other interest charges 4,633 898 378 Allowance for funds used during construction (861) (962) (919) Preferred stock dividends of subsidiary 3,721 3,850 3,510 Miscellaneous, net 2,784 2,298 (3,502) Total interest and other charges 43,395 38,955 32,309 ------ ------ ------ Income Before Income Taxes $ 129,614 $ 117,787 $ 133,036 Income taxes 49,557 45,772 49,082 Net Income $ 80,057 $ 72,015 $ 83,954 ========== ========== ========== Average Shares of Common Stock Outstanding 34,070 34,070 34,107 Earnings per Average Share of Common Stock $ 2.35 $ 2.11 $ 2.46
The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 1996 1995 1994 (in thousands, except per share data) Balance, beginning of year $ 294,720 $ 290,801 $ 277,040 Add (deduct): Net income 80,057 72,015 83,954 Common stock dividends ($2.07, $2.03 and $1.99 per share, respectively) (70,524) (69,161) (67,874) Other 529 1,065 (2,319) --------- --------- --------- Balance, end of year $ 304,782 $ 294,720 $ 290,801 The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 Assets (in thousands) Utility Plant, at original cost: Electric $2,244,571 $2,296,402 Gas 242,664 229,118 --------- --------- 2,487,235 2,525,520 Less - Accumulated depreciation 1,099,261 1,132,355 --------- --------- 1,387,974 1,393,165 Construction work in progress 70,150 72,490 --------- --------- 1,458,124 1,465,655 --------- --------- Current Assets: Cash 2,287 1,088 Temporary investments, at cost which approximates market 3,983 7,147 Accounts receivable, net 74,693 65,267 Accrued unbilled revenues 30,126 27,234 Materials and supplies, at average cost 38,806 40,246 Fuel for electric generation, at average cost 21,610 42,634 Gas stored underground, at average cost 13,361 9,774 Prepayments 14,403 10,649 Other current assets 7,704 8,197 --------- --------- 206,973 212,236 Investments and Other Assets: Marketable securities 51,293 45,967 Leveraged leases and energy investments 62,017 59,114 Regulatory assets 64,754 19,851 Other 28,495 25,088 --------- --------- 206,559 150,020 --------- --------- $1,871,656 $1,827,911 ========= ========= Capitalization and Liabilities Capitalization: Common shareholders' equity: Common stock, no par value, authorized shares, 100,000,000; outstanding 34,069,542 shares $ 356,812 $ 356,812 Retained earnings 304,782 294,720 ---------- ---------- 661,594 651,532 Preferred stock of subsidiary 80,000 80,000 Long-term debt of subsidiary 421,227 478,926 ---------- ---------- 1,162,821 1,210,458 ---------- ---------- Current Liabilities: Long-term debt of subsidiary due within one year 58,000 - Short-term borrowings 57,768 47,921 Accounts payable 62,774 60,603 Accrued wages 10,294 9,335 Accrued taxes 13,692 11,266 Accrued interest 8,432 9,525 Other 49,302 33,265 ---------- ---------- 260,262 171,915 ---------- ---------- Deferred Credits: Accumulated deferred income taxes 341,373 325,181 Investment tax credits 48,885 52,234 Regulatory liabilities, net 58,315 68,123 ---------- ---------- 448,573 445,538 $1,871,656 $1,827,911 ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1996 1995 1994 (in thousands) OPERATING ACTIVITIES: Net income $ 80,057 $ 72,015 $ 83,954 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 87,397 83,263 81,099 Allowance for equity funds used during construction (AFUDC) (378) (889) (630) Deferred income taxes, net 7,219 10,577 19,891 Investment tax credit amortization (3,349) (3,361) (3,367) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues (12,318) 5,562 2,156 Fuel for electric generation 21,024 (12,329) (4,259) Other inventories (2,147) 2,964 2,175 Prepayments (3,754) 276 (783) Other assets (6,941) (6,724) 5,955 Accounts payable and other 6,208 8,359 (5,433) Accrued wages, taxes and interest 2,292 (1,744) (3,082) Other (2,285) (9,581) 626 ---------- ---------- ---------- Net cash provided by operating activities 173,025 148,388 178,302 ---------- ---------- ---------- INVESTING ACTIVITIES: Utility construction expenditures, excluding AFUDC (105,740) (102,820) (95,682) Allowance for borrowed funds used during construction (483) (73) (289) Changes in temporary investments 3,164 (3,864) (489) Long-term marketable securities (4,881) (866) (2,843) Long-term leveraged leases and energy investments (2,903) (9,181) (7,717) ---------- ---------- ---------- Net cash used in investing activities (110,843) (116,804) (107,020) ---------- ---------- ---------- FINANCING ACTIVITIES: Common stock dividends paid (70,524) (69,161) (67,874) Proceeds from issuance of long-term debt of subsidiary - 20,000 - Repayment of long-term debt of subsidiary - (16,000) (20,000) Retirement of common stock - - (1,020) Proceeds from short-term borrowings 9,847 32,936 14,985 Issuance expense, discount and premium (306) (234) (40) ---------- ---------- ---------- Net cash used in financing activities (60,983) (32,459) (73,949) ---------- ---------- ---------- Net increase (decrease) in cash 1,199 (875) (2,667) Cash at beginning of year 1,088 1,963 4,630 ---------- ---------- ---------- Cash at end of year $ 2,287 $ 1,088 $ 1,963 =========== =========== =========== Supplemental disclosures of cash flow information: Cash payments during the year: Interest, net of amounts capitalized $ 36,512 $ 31,490 $ 30,714 Income taxes $ 47,053 $ 40,147 $ 34,264
The accompanying notes to consolidated financial statements are an integral part of these statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CIPSCO Incorporated and Subsidiaries: We have audited the accompanying consolidated balance sheets of CIPSCO Incorporated (an Illinois corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CIPSCO Incorporated and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois January 31, 1997 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of CIPSCO Incorporated (CIPSCO or the Company), a holding company, Central Illinois Public Service Company (CIPS), a combination electric and gas utility, and CIPSCO Investment Company (CIC) engaged in non-regulated investing activities. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. Certain items previously reported for years prior to 1996 have been reclassified to conform with the current-year presentation. The operating revenues of all investment activities are included under the caption Operating Revenues, "Investment." Operating expenses are included under the appropriate captions as shown on the Consolidated Statements of Income. Concentration of Credit Risk. CIPS is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diversified retail base of about 322,000 residential, commercial and industrial customers in 557 communities. CIPS also is engaged in the purchase, transport, distribution and sale of natural gas to a diversified retail base of approximately 169,000 residential, commercial and industrial customers in 267 communities. The combined electric and gas service territory has an area of approximately 20,000 square miles in central and southern Illinois and has an estimated population of approximately 820,000. Credit risk is spread over the diversified retail base of electric and gas customers from which approximately four-fifths of total operating revenues were derived in 1996. Furthermore, CIPS has wholesale power supply agreements and power service agreements with seven other utilities, cooperatives, municipal associations and municipalities, and engages in the purchase and sale of interchange power with about 50 other utilities and utility power marketers, from which approximately one-fifth of total operating revenues was derived in 1996. See Note 5 to Consolidated Financial Statements for a discussion of receivables related to leveraged lease investments. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Regulation. CIPS is a public utility subject to regulation by the Illinois Commerce Commission (Illinois commission) and the Federal Energy Regulatory Commission (FERC). The utility maintains its accounts in accordance with the Uniform System of Accounts as prescribed by these agencies. Its accounting policies conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process. (See Note 3 to Consolidated Financial Statements.) Operating Revenues. CIPS accrues an estimate of electric and gas revenues for service rendered but unbilled at the end of each accounting period. Investment revenues are comprised of interest on temporary investments and income from long-term marketable securities, leveraged leases and partnership income. Utility Plant. Utility plant in service is stated at original cost. Substantially all of the utility plant of CIPS is subject to the lien of its first mortgage bond indenture. Additions to utility plant include the cost of contracted services, material, labor, overheads and an allowance for funds used during construction. Maintenance and repair of property and replacement of minor items of property are charged to operating expenses. Property retired is removed from utility plant accounts and charged to accumulated depreciation. Allowance for Funds Used During Construction (AFUDC). AFUDC is included in Construction Work in Progress (CWIP) and represents the cost of financing that construction. AFUDC does not represent a current source of cash funds. The inclusion of AFUDC in CWIP affords the opportunity to earn a return on the cost of construction capital after the related asset is placed in service and included in the rate base. The AFUDC rate, based on a formula prescribed by FERC, on a before-tax basis, was 7.7 percent for 1996 and 9 percent for the years 1995 and 1994. Depreciation. Depreciation expense is based on remaining life straight- line rates (composite, approximately 3.5 percent for 1996, 3.3 percent for 1995, and 3.4 percent for 1994) applied to the various classes of depreciable property. Fuel and Gas Costs. CIPS adjusts fuel expense to recognize over- or under- recoveries from customers of allowable fuel costs through the uniform fuel adjustment clause (FAC). The FAC provides for the current recovery of changes in the cost of fuel for electric generation in billings to customers. Monthly, the difference between revenues recorded through application of the FAC and recoverable fuel costs is recorded as a current asset or liability, pending reflection in future billings to customers, with a corresponding decrease or increase in cost of fuel for electric generation. The uniform purchased gas adjustment clause (PGA) provides a matching of gas costs with revenues. Monthly, the difference between revenues recorded through application of the PGA and recoverable gas costs is recorded as a current asset or liability with a corresponding decrease or increase in the gas cost. The Illinois commission conducts annual reconciliation proceedings with respect to each year's FAC and PGA revenues and has completed its review for all years prior to 1994. Reconciliation proceedings for 1994 through 1996 are pending. Income Taxes and Investment Tax Credits. CIPSCO and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the individual companies, based on their respective taxable income or loss. Investment tax credits are being amortized over the estimated average useful lives of the related properties. The Company uses the liability method of accounting for deferred income taxes. The liability method requires the establishment of deferred tax liabilities and assets for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. Deferred income taxes are recorded resulting from the use of accelerated depreciation methods, rapid amortization, repair allowance and certain other temporary differences in recognition of income and expense for tax and financial statement purposes. (See Note 12 to Consolidated Financial Statements.) Cash and Temporary Investments. Temporary investments principally consist of U.S. Treasury obligations. For purposes of Consolidated Statements of Cash Flows, temporary investments are not considered cash equivalents. Marketable Securities. CIC holds a portfolio consisting primarily of common and preferred stocks that are substantially hedged with futures and options. (See Note 13 to Consolidated Financial Statements.) All securities are publicly traded. The investments and related hedging instruments are managed by professional investment managers in an overall managed portfolio strategy. Common stocks consist of investments that are representative of the Standard & Poor's 100 Index. Preferred stocks consist of perpetual and sinking fund issues primarily of public utilities, utility holding companies, commercial banks and bank holding companies. The portfolio also includes investments in limited partnerships which pool money from multiple investors to invest in a variety of investment vehicles, principally marketable securities. The investments in common and preferred stocks and the options and futures used to hedge these investments are measured at market value on the Consolidated Balance Sheets, with the change in value reflected in the Consolidated Income Statements. For hedged investments, the investment and related hedging instrument have been combined on the Consolidated Balance Sheets. Note 2. MERGER AGREEMENT On August 11, 1995, the Company entered into an Agreement and Plan of Merger with Union Electric Company (UE), and Ameren Corporation (Ameren), a newly formed, jointly owned entity, pursuant to which among other things, the Company will be merged with Ameren. Pursuant to the merger agreement, CIPS, UE and CIC will be wholly-owned operating subsidiaries of Ameren. As a result of the merger, each outstanding share of the Company's common stock will be converted into 1.03 shares of common stock of Ameren, or cash in lieu of fractional shares. Each outstanding share of UE's common stock will be converted into one share of Ameren common stock. The preferred stock of CIPS and UE will remain outstanding and unchanged. The merger is expected to be tax-free for federal income tax purposes and will be accounted for under the "pooling of interests" method of accounting. With the execution and delivery of the merger agreement, the Company and UE entered into stock option agreements, pursuant to one of which the Company granted UE the right, upon the terms and subject to the conditions set forth therein, to purchase up to 6,779,838 shares of the Company's common stock at a price of $37.02 per share. Pursuant to the other stock option agreement, UE granted the Company the right, upon the terms and subject to the conditions set forth therein, to purchase up to 6,983,233 shares of UE's common stock at a price of $35.94 per share. These options will expire upon consummation of the merger. After the merger, Ameren will become a registered public utility holding company under the Public Utility Holding Company Act of 1935. In December 1995, the merger was approved by the shareholders of CIPSCO and UE. The merger is conditioned upon, among other things, receipt of certain regulatory and governmental approvals. (See Note 3 to Consolidated Financial Statements.) The following unaudited pro forma financial information at December 31, reflects the effects of combining CIPSCO and UE into Ameren under the pooling-of-interests method of accounting. (unaudited) (in thousands, except per share data) 1996 1995 1994 Total revenues $3,333,505 $3,240,923 $3,269,471 Net income 371,684 372,872 391,459 Earnings per share $ 2.71 $ 2.72 $ 2.85 The pro forma financial information consolidates the financial results of Electric Energy, Inc. (EEI), which will be 60 percent owned by Ameren subsequent to the merger as a result of the current ownership interest in EEI by CIPS and UE. Note 3. REGULATORY MATTERS CIPS and UE filed joint applications for approval of the merger with the Illinois commission and FERC. UE has filed an application for approval of the transaction with the Missouri Public Service Commission (Missouri commission). In those applications, CIPS and UE are requesting a sharing between ratepayers and shareholders, over the 10-year period following the merger, of merger savings, net of merger premium and merger expenses. On July 12, 1996, UE, the Missouri commission staff, the Missouri Office of Public Counsel, several customer groups and others filed a joint agreement with the Missouri commission that recommends approval of the merger. On September 25, 1996, the Missouri commission ordered that additional information be filed in the proceeding. On November 7, 1996, a Hearing Examiner for the Illinois commission issued a proposed order in connection with the Company's and UE's merger proceedings. In the proposed order, the Hearing Examiner recommended that the merger be approved subject to conditions. In addition, the Hearing Examiner recommended that a decision on the Company's and UE's proposals for sharing the merger savings be made after the merger. Under the proposed order, the Company and UE would be required to file a rate case or alternative regulation plan within one year after closing the merger. At that time, an appropriate sharing of net merger savings between stockholders and customers would be determined. On January 27, 1997, the Illinois commission reopened the proceedings to take additional evidence on the issue of market power. On October 16, 1996, the FERC set the proposed merger for hearing. The FERC directed the presiding administrative law judge in the case to issue a proposed order no later than April 30, 1997. On December 18, 1996, the FERC issued Order 592 relating to its merger policy. The Company believes its proposed merger with UE meets the criteria set forth in Order 592, but the effect of this order on the timing of the administrative law judge's proposed order is uncertain. In October 1996 the Company and UE filed an application with the Securities and Exchange Commission for approval of the merger pursuant to the Public Utility Holding Company Act of 1935. At this time, the Company expects to receive all required regulatory approvals and to complete the merger by the end of 1997. Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for Effects of Certain Types of Regulation," applies to regulated entities whose rates are designed to recover the cost of providing service to customers through the ratemaking process. SFAS No. 71 allows certain costs that would normally be reflected in net income to be deferred on the balance sheet as regulatory assets. These costs are then amortized as the related amounts are reflected in rates. Under current accounting pronouncements, if a loss becomes probable, any unamortized balance, net of tax, would reduce net income. The Company continually assesses the recoverability of its regulatory assets and currently believes there would be no adverse impact on results of operations, financial position, or liquidity if CIPS were to discontinue SFAS No. 71. SFAS No. 71 also provides for the recognition of regulatory liabilities, which represent probable future reduction in revenues associated with amounts that are to be credited to customers through the regulatory process. At December 31, 1996 and 1995 the Company had recorded the following regulatory assets and regulatory liabilities: 1996 1995 (in thousands) Regulatory Assets: Undepreciated plant costs $ 40,876 $ - Unamortized costs related to reacquired debt 12,208 13,397 Deferred environmental remediation costs 11,174 5,018 Take-or-pay costs 496 1,436 Regulatory Assets $ 64,754 $ 19,851 ======== ======== Regulatory Liabilities: SFAS 109 - Income taxes, net $ 57,957 $ 67,669 Clean Air Act allowances, net 358 454 Regulatory Liabilities, net $ 58,315 $ 68,123 ======== ======== Note 4. COMMITMENTS AND CONTINGENCIES Environmental Remediation Costs. The utility has identified 13 sites where it and certain of its predecessors and other affiliates previously operated facilities that manufactured gas from coal. This manufacturing produced various potentially harmful by-products which may remain on some sites. One site was added to the United States Environmental Protection Agency Superfund list in 1990. A ground water pump-and-treat remediation program being conducted by CIPS at the Superfund site has received applicable approvals. CIPS has received cash settlements from certain of its insurance carriers for, among other things, costs incurred by CIPS in connection with the manufactured gas plant sites. In addition, in 1993 CIPS collected $2.9 million for such costs under environmental adjustment clause rate riders (riders) approved by the Illinois commission. Costs relating to studies and remediation at the 13 sites and associated legal and litigation expenses are being accrued and deferred rather than expensed currently. This is being done pending recovery through rates or from other parties. Through December 31, 1996, $49 million had been deferred representing costs incurred and estimates for costs of completing studies at various sites and an estimate of future remediation costs to be incurred at the Superfund and other sites. The total of the costs deferred, net of recoveries from insurers and through the riders, was $11 million at December 31, 1996. The Illinois commission has initiated a reconciliation proceeding to review CIPS' environmental remediation activities in 1993, 1994 and 1995 and to determine whether the revenues collected under the riders in 1993 were consistent with the amount of remediation costs prudently and properly incurred. Amounts found to have been incorrectly included under the riders would be subject to refund. This proceeding is expected to indicate what incurred or accrued costs are appropriate to defer for future rider recovery and how insurance recoveries should be allocated to such environmental cost. Management believes that costs properly incurred in connection with the sites that are not recovered from others will be recovered through environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Coal Contract Restructuring. In June, 1996, CIPS and a major coal supplier for Newton and Grand Tower power stations signed a letter of intent calling for a restructuring of their existing long-term contract. Under the restructuring, CIPS would pay the supplier a $70 million restructuring charge (plus interest from November 1, 1996); would be able to purchase at market prices low-sulfur, out-of-state coal through the supplier (in substitution for the high-sulfur Illinois coal CIPS is obligated to purchase under the original contract); and would receive options for future purchases of low-sulfur, out-of-state coal from the supplier in 1997 through 1999 at set negotiated prices. By switching to low-sulfur coal, CIPS will be able to discontinue operating the Newton Unit 1 scrubber. The benefits of the restructuring include lower cost coal, avoidance of significant capital expenditures to renovate the scrubber, and elimination of scrubber operating and maintenance costs (offset by scrubber retirement expenses). The net benefits of restructuring are expected to exceed $100 million over the next 10 years. In December 1996, the Illinois commission entered an order approving the switch to out-of-state coal, recovery of the restructuring charge plus associated carrying costs through the fuel adjustment clause over six years, and continued recovery in rates of the undepreciated scrubber investment plus costs of removal. CIPS has determined that the order is satisfactory, and thus intends to pay the restructuring charge and otherwise implement the restructuring. The order, however, will be subject to possible appeal through mid-March 1997. Any appeal would likely result in further lengthy proceedings. Labor Issues. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued complaints against CIPS concerning its lockout. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $16 million. An administrative law judge of the NLRB has ruled that the lockout was unlawful. On July 23, 1996, the Company appealed to the NLRB. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Other Issues. CIPS is involved in other legal and administrative proceedings before various courts and agencies with respect to rates, taxes, gas and electric fuel cost reconciliations, service area disputes, environmental torts and other matters. Although unable to predict the outcome of these matters, management believes that appropriate liabilities have been established and that final disposition of these actions will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Note 5. LEVERAGED LEASES CIC and its subsidiaries are the lessors in several leveraged lease arrangements involving interests in a natural gas liquids plant, natural gas processing equipment, a commercial jet aircraft, retail department store properties and combustion turbine generating units. These leases expire in various years from 1999 through 2013. The aggregate residual values are estimated to be 42 percent of the aggregate cost. CIC's aggregate equity investment represents 22 percent of the aggregate purchase price of the properties. The remaining 78 percent was financed by nonrecourse debt provided by lenders who have been granted, as their sole remedy in the event of default by the lessees, an assignment of rentals due under the leases and a security interest in the leased properties. The following is a summary of the components of CIC's net investment in leveraged leases at December 31: 1996 1995 1994 (in thousands) Rentals receivable (net of nonrecourse debt) $ 22,247 $ 23,282 $ 24,894 Estimated residual value of leased property 64,598 64,598 64,599 -------- -------- -------- Unearned and deferred income (30,422) (34,870) (39,560) Investment in leveraged leases 56,423 53,010 49,933 Deferred taxes (35,432) (30,771) (25,817) -------- -------- -------- Net investment $ 20,991 $ 22,239 $ 24,116 ======== ======== ======== The following is a summary of the components of income from leveraged leases for the years ended December 31: 1996 1995 1994 (in thousands) Income before income taxes $ 4,415 $ 4,677 $ 4,664 Income tax expense (1,771) (1,868) (1,874) -------- -------- -------- Income from leveraged leases $ 2,644 $ 2,809 $ 2,790 ======== ======== ======== Note 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS CIPS sponsors a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and employees' final average pay. Pension costs are accrued on a current basis in accordance with actuarial determinations. The pension plan is funded in compliance with income tax regulations and federal funding requirements. CIPS uses a September 30 measurement date for its valuation of pension plan assets and liabilities. The utility also provides certain employees with pension benefits which exceed the qualified plan limits imposed by federal tax law. Funded Status of Pension Plan (in thousands) 1996 1995 1994 Fair value of plan assets* $253,326 $221,013 $188,449 -------- -------- -------- Accumulated benefit obligations:** Vested benefits 147,858 121,181 120,032 Nonvested benefits 22,976 20,989 3,644 Effect of projected future compensation levels (based on 4.5% annual increases in 1996 and 1995, and 4.8% in 1994) 40,774 38,830 38,974 -------- -------- -------- Total projected benefit obligation 211,608 181,000 162,650 -------- -------- -------- Plan assets in excess of projected benefit obligation $ 41,718 $ 40,013 $ 25,799 ======== ======== ======== ________________________ * Plan assets are invested in common and preferred stocks, bonds, money market instruments and real estate. ** The assumed weighted average discount rate was 7.50% for 1996 and 1995, and 7.75% for 1994. Pension Plan Assets in Excess of Projected Benefit Obligation (in thousands) 1996 1995 1994 Plan assets in excess of projected benefit obligation $ 41,718 $ 40,013 $ 25,799 Unrecognized transition asset (being amortized over 18.2 years) (3,473) (3,936) (4,399) Unrecognized net gain (39,824) (33,690) (23,146) Unrecognized prior service cost 11,557 5,167 5,679 -------- -------- -------- Prepaid pension costs at September 30 9,978 7,554 3,933 Expense, net of funding October to December 1,504 207 (80) -------- -------- -------- Prepaid pension costs at December 31 $ 11,482 $ 7,761 $ 3,853 ======== ======== ======== Components of Net Pension Expense (in thousands) 1996 1995 1994 Service cost (present value of benefits earned during the year) $ 7,282 $ 6,873 $ 8,053 Interest cost on projected benefit obligation 13,433 12,497 10,846 Actual return on plan assets (expected long-term rate of return was 8.5% for 1996 and 8.0% for 1995 and 1994) (30,603) (34,364) (6,795) Deferred investment gains (losses) 14,365 20,658 (6,242) Amortization of the unrecognized prior service cost 372 372 61 Amortization of the transition amount (463) (463) (463) -------- -------- -------- Net pension expense $ 4,386 $ 5,573 $ 5,460 ======== ======== ======== CIPS recognizes the cost of providing postretirement medical and life insurance benefits over the employees' service periods. CIPS is funding the medical benefits under two Voluntary Employee Beneficiary Association trusts (VEBA), and a 401(h) account established within the CIPS retirement income trust. CIPS sponsors postretirement plans providing medical and life benefits for certain of its retirees and their eligible dependents. The medical plan pays percentages of eligible medical expenses incurred by covered retirees, after a deductible has been met and after taking into account payment by Medicare or other providers. Currently, participants become eligible for coverage if they retire from CIPS after meeting age and years- of-service eligibility requirements. The life insurance plan continues for all retirees who have been in the plan as employees for 10 years or more. CIPS uses a September 30 measurement date for its valuation of postretirement assets and liabilities. Funded Status of Postretirement Benefit Plans (in thousands) 1996 1995 1994 Fair value of plan assets* $ 71,083 $ 49,385 $ 26,874 -------- -------- -------- Accumulated benefit obligations: Retirees 51,535 50,030 47,494 Fully eligible active employees 19,039 17,577 15,407 Other active employees 64,302 75,595 64,188 -------- -------- -------- Total accumulated benefit obligations 134,876 143,202 127,089 -------- -------- -------- Accumulated benefit obligations in excess of plan assets (63,793) (93,817) (100,215) Unrecognized prior service costs - 191 - Unrecognized transition obligation (being amortized over 20 years) 87,103 98,878 104,695 Unrecognized net gain (including changes in assumptions) (38,579) (23,855) (21,307) -------- -------- -------- Accrued postretirement benefit cost at September 30 (15,269) (18,603) (16,827) Expense, net of funding, October to December 13,557 14,711 14,906 -------- -------- -------- Accrued postretirement benefit cost at December 31 $ (1,712) $ (3,892) $ (1,921) ======== ======== ======== * Plan assets are invested in common and preferred stocks, bonds, money market instruments and real estate. Components of Postretirement Benefit Cost (in thousands) 1996 1995 1994 Service costs on benefits earned $ 4,461 $ 3,809 $ 4,108 Interest costs on accumulated benefit obligations 10,564 10,307 8,918 Actual return on plan assets (8,620) (8,390) (212) Deferred investment gains (losses) 3,510 5,304 (1,601) Amortization of transition amounts 5,816 5,816 5,816 -------- -------- -------- Postretirement benefit cost $ 15,731 $ 16,846 $ 17,029 ======== ======== ======== For purposes of calculating the postretirement benefit obligation it is assumed that health-care costs will increase by 9.8 percent in 1997, and that the rate of increase thereafter (the health-care cost trend rate) will decline to 4.5 percent in 2005 and subsequent years. The health-care cost trend rate has a significant effect on the amounts reported for costs each year as well as on the accumulated postretirement benefit obligation. To illustrate, increasing the assumed health-care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 30, 1996 by $22.6 million and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost $2.9 million annually. The weighted-average discount rate used to determine the accumulated postretirement benefit obligation was 7.5 percent in 1996 and 1995, and 8.25 percent in 1994. The expected long-term rate of return on plan assets was 8.5 percent in 1996 and 8 percent in 1995 and 1994. Note 7. PREFERRED STOCK At December 31, 1996 and 1995 there were 4.6 million shares of CIPSCO preferred stock authorized and unissued. There were 2 million shares of CIPS cumulative preferred and 2.6 million shares of CIPS preferred without par value (aggregate stated value not to exceed $65 million) authorized, of which 800,000 shares of CIPS cumulative preferred stock are outstanding. The Board of Directors has the authority to fix and determine the relative rights and preferences of the authorized and unissued shares. The CIPS cumulative preferred stock, par value of $100 per share, is generally redeemable at the option of CIPS on 30 days notice at the redemption prices shown below: 1996 1995 Current Amount Amount Redemption (in (in Series Price(a) Shares thousands) thousands) 4.00% $101.00 150,000 $ 15,000 $ 15,000 4.25% 102.00 50,000 5,000 5,000 4.90% 102.00 75,000 7,500 7,500 4.92% 103.50 50,000 5,000 5,000 5.16% 102.00 50,000 5,000 5,000 1993 Auction(b) 100.00 300,000 30,000 30,000 6.625% 100.00(c) 125,000 12,500 12,500 ------- -------- -------- 800,000 $ 80,000 $ 80,000 ======= ======== ======== _________________________ (a) Plus accrued dividends, if any. (b) Dividend rate for each dividend period (currently every 49 days) is set at a then current market rate according to an auction procedure. The rate at December 31, 1996 was 3.87%. (c) Not redeemable prior to October 1, 1998. Note 8. COMMON SHAREHOLDERS' EQUITY Common Stock. In December 1994, CIPSCO purchased 38,164 shares from shareholders who held less than 100 shares. The repurchase reduced common stock and retained earnings. Retained Earnings. CIPSCO is subject to restrictions on the use of retained earnings for cash dividends on common stock applicable to all corporations under the Illinois Business Corporation Act. CIPS is subject to the same restrictions, as well as those contained in its mortgage indenture and articles of incorporation. At December 31, 1996, 1995 and 1994, no amount of retained earnings was restricted. Note 9. LINES OF CREDIT AND SHORT-TERM BORROWINGS External financing needs may be met from the sale of commercial paper or short-term borrowings from banks. CIPSCO and CIC have joint bank lines of credit of $30 million. The banks are compensated for these lines of credit. CIPS has arrangements for bank lines of credit which totaled $77.5 million at December 31, 1996. CIPS compensates banks for these lines of credit. The bank lines of credit are for corporate purposes including the support of commercial paper borrowings. At December 31, 1996 there were no short-term borrowings under the lines of credit by CIPSCO, CIC, or CIPS; however, CIPS did have $57.8 million at December 31, 1996 and $47.9 million at December 31, 1995 in commercial paper outstanding. Note 10. LONG-TERM DEBT OF SUBSIDIARY Sinking fund requirements were satisfied in 1996 and 1995 by the application of net expenditures for bondable property in an amount equal to 166-2/3 percent of the annual requirement. There are no future sinking fund requirements. Long-term debt outstanding at December 31, was: 1996 1995 Amount Amount (in thousands) First Mortgage Bonds: Series L, 5 7/8% due 5/1/1997 $ 15,000 $ 15,000 Series W, 7 1/8% due 5/15/1999 50,000 50,000 Series W, 8 1/2% due 5/15/2022 33,000 33,000 Series X, 6 1/8% due 7/1/1997 43,000 43,000 Series X, 7 1/2% due 7/1/2007 50,000 50,000 Series Y, 6 3/4% due 9/15/2002 23,000 23,000 Series Z, 6% due 4/1/2000 25,000 25,000 Series Z, 6 3/8% due 4/1/2003 40,000 40,000 Series 1995-1, 6.49% due 6/1/2005 20,000 20,000 -------- -------- $299,000 $299,000 -------- -------- Pollution Control Loan Obligations: 1990 Series A, 7.60% due 3/1/2014 $ 20,000 $ 20,000 1990 Series B, 7.60% due 9/1/2013 32,000 32,000 1993 Series A, 6 3/8% due 1/1/2028 35,000 35,000 1993 Series B-1, 4 3/8% due 6/1/2028 17,500 17,500 1993 Series B-2, 5.90% due 6/1/2028 17,500 17,500 1993 Series C-1, 4.20% due 8/15/2026 35,000 35,000 1993 Series C-2, 5.70% due 8/15/2026 25,000 25,000 -------- -------- $182,000 $182,000 Unamortized Net Debt Premium and Discount (1,773) (2,074) Maturities Due Within One Year (58,000) - -------- -------- $421,227 $478,926 ======== ======== Interest rates on the 1993 Series B-1 and 1993 Series C-1 bonds will be adjusted to a then current market rate on June 1, 1998 and August 15, 1998, respectively. Interest rates on the 1993 Series B-2 and 1993 Series C-2 bonds are subject to redetermination at the option of CIPS commencing June 1, 2003 and August 15, 2003, respectively. Maturities of CIPS' long-term debt through 2001 are as follows: Principal Amount (in thousands) 1997 $58,000 1998 - 1999 50,000 2000 25,000 2001 - Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1996 and 1995 of each class of financial instruments for which it is practicable to make such estimates. Cash and Temporary Investments. The carrying amounts approximate fair value because of the short-term maturity of these instruments. Marketable Securities. The fair value is based on quoted market prices obtained from dealers or investment managers. Financial Derivatives. The fair value was estimated using market values of options, calls and futures contracts on organized exchanges. Short-term Borrowings. The carrying amounts approximate fair value due to their short-term maturities. Preferred Stock of Subsidiary. The fair value was estimated using market values provided by independent pricing services. Long-term Debt of Subsidiary. The fair value was estimated using market values provided by independent pricing services. The estimated fair values of the Company's financial instruments as of December 31, are shown below: 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value (in thousands) Marketable securities $ 50,510 $ 50,510 $ 45,950 $ 45,950 Financial derivatives 783 783 17 17 Preferred stock 80,000 65,381 80,000 66,108 Long-term debt 421,227 430,375 478,926 501,826 Current portion long-term debt 58,000 58,105 - - Note 12. INCOME TAXES The Company uses the liability method of accounting for deferred income taxes. Income tax expense includes provisions for deferred taxes to reflect the effect of temporary differences between the time certain costs are recorded for financial reporting and when they are deducted for income tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes and a portion of the regulatory assets and liabilities are also reversed. Investment tax credits have been deferred and will continue to be credited to income over the lives of the related property. The components of federal and state income tax provisions and investment tax credits at December 31, were: 1996 1995 1994 (in thousands) Current - federal $ 41,509 $ 31,676 $ 29,048 - state 8,905 6,020 4,534 -------- -------- -------- 50,414 37,696 33,582 -------- -------- -------- Deferred - federal 1,138 8,500 14,738 - state 1,354 2,937 4,129 -------- -------- -------- 2,492 11,437 18,867 -------- -------- -------- Amortization of investment tax credits (3,349) (3,361) (3,367) -------- -------- -------- Total income tax expense $ 49,557 $ 45,772 $ 49,082 ======== ======== ======== Reconciliations with statutory federal income tax rates at December 31, were: 1996 1995 1994 Effective income tax rate 37.2% 37.6% 35.9% Amortization of investment tax credits 2.5 2.8 2.5 Tax exempt interest and dividends 1.5 1.6 1.6 State income tax rate, net of federal income tax benefits (5.0) (4.8) (4.0) Non-deductible merger expenses (0.6) (1.4) - Other, net (0.6) (0.8) (1.0) ------ ------ ------ Statutory federal income tax rate 35.0% 35.0% 35.0% ====== ====== ====== The accumulated deferred income taxes as set forth below and in the Consolidated Balance Sheets arise from the following temporary differences at December 31: 1996 1995 (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $330,577 $320,677 Investment tax credits (19,502) (20,831) Regulatory liabilities, net (22,990) (26,843) Leveraged leases 35,432 30,771 Other 17,856 21,407 -------- -------- Accumulated deferred income taxes per consolidated balance sheets $341,373 $325,181 ======== ======== Deferred tax assets (included in prepayments) $ 10,928 $ 6,787 ======== ======== Note 13. DERIVATIVE FINANCIAL INSTRUMENTS CIC has limited involvement with derivative financial instruments which include futures contracts, purchased options and written options in combination with purchased options. These instruments are used to hedge the market risk associated with CIC's common and preferred stock investments. (See Note 1 to Consolidated Financial Statements.) CIC does not hold or issue these instruments for trading purposes. Financial futures contracts are for U.S. Treasury obligations and options contracts are for S & P Indexes and U.S. Treasury obligations. Futures and options contracts have terms that are one year or less and have little credit risk as these instruments are traded on organized exchanges. CIC bears the risk of unfavorable price changes associated with futures and options which are intended to hedge the opposite change in the market value of the common and preferred stocks. Note 14. SFAS NO. 121 Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" became effective on January 1, 1996. SFAS No. 121 requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. SFAS No. 121 did not have an impact on the financial position, results of operations or liquidity of the Company or CIPS upon adoption. Note 15. SEGMENTS OF BUSINESS CIPSCO's primary subsidiary, CIPS, is a public utility engaged in the sale of electricity which it generates, transmits and distributes. CIPS also sells natural gas, which it purchases from producers and suppliers and distributes through its system, and transports customer-owned natural gas. The investments of CIPSCO and subsidiaries include temporary investments and long-term investments including marketable securities, leveraged leases and energy investments. The following is a summary of operations: Years Ended December 31, 1996 1995 1994 (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 730,812 $ 703,483 $ 697,427 Operating expenses, excluding provision for income taxes 582,427 566,130 550,386 ---------- ---------- ---------- Pretax operating income 148,385 137,353 147,041 ---------- ---------- ---------- Gas operations: Operating revenues 155,348 129,606 138,418 Operating expenses, excluding provision for income taxes 139,535 117,418 126,896 ---------- ---------- ---------- Pretax operating income 15,813 12,188 11,522 ---------- ---------- ---------- Investments: Operating revenues 10,555 9,173 8,770 Operating expenses, excluding provision for income taxes 1,744 1,972 1,988 ---------- ---------- ---------- Pretax investment income 8,811 7,201 6,782 ---------- ---------- ---------- Total $ 173,009 $ 156,742 $ 165,345 ---------- ---------- ---------- Less interest and other charges 43,395 38,955 32,309 Less income taxes 49,557 45,772 49,082 ---------- ---------- ---------- Net income per Consolidated Statements of Income $ 80,057 $ 72,015 $ 83,954 ========== ========== ========== Depreciation and amortization expense: Electric $ 79,699 $ 75,869 $ 74,496 Gas 7,238 6,803 6,100 Corporate 460 591 503 ---------- ---------- ---------- Total $ 87,397 $ 83,263 $ 81,099 ========== ========== ========== INVESTMENT INFORMATION Identifiable assets: Electric $1,505,767 $1,495,433 $1,469,601 Gas 203,901 181,677 176,788 Temporary investments 3,983 7,147 5,875 Marketable securities 51,293 45,967 43,929 Leveraged leases and energy investments 62,017 59,114 49,933 Corporate 44,695 38,573 31,231 ---------- ---------- ---------- Total $1,871,656 $1,827,911 $1,777,357 ========== ========== ========== Construction expenditures: Electric $ 93,007 $ 90,151 $ 82,673 Gas 13,594 13,631 13,928 ---------- ---------- ---------- Total $ 106,601 $ 103,782 $ 96,601 ========== ========== ========== Note 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The fluctuations in quarterly results is primarily due to the seasonal nature of the utility business of CIPS. Cash Earnings Dividends Book Total Total Per Per Value Operating Operating Net Common Common (end of Quarters Revenues Income Income Share Share period) (in thousands, except per share data) 1996 First $237,879 $44,416 $21,118 (1) $0.62 (1) $0.51 $19.25 Second 193,772 30,216 11,982 (2) 0.35 (2) 0.52 19.08 Third 237,281 70,244 35,418 (3) 1.04 (3) 0.52 19.60 Fourth 227,783 28,133 11,539 (4) 0.34 (4) 0.52 19.42 1995 First $210,462 $28,252 $12,568 (5) $0.37 (5) $0.50 $18.90 Second 183,944 29,158 12,886 0.38 0.51 18.80 Third 243,863 77,089 41,731 1.22 0.51 19.52 Fourth 203,993 22,243 4,830 (6) 0.14 (6) 0.51 19.12
(1) Includes $.7 million of merger costs which reduced net income by $.7 million and earnings by 2 cents per share. (2) Includes $1.3 million of merger costs which reduced net income by $1.1 million and earnings by 3 cents per share. (3) Includes $2.3 million of merger costs and system conversion costs which reduced net income by $1.6 million and earnings by 5 cents per share. (4) Includes $2.8 million of merger costs and system conversion costs which reduced net income by $1.7 million and earnings by 5 cents per share. (5) Includes $5.8 million of voluntary separation program expenses which reduced net income by $3.5 million and earnings by 10 cents per share. (6) Includes $10.4 million of merger-related transaction expenses and write off of system development expenses which reduced net income by $8.2 million and earnings by 24 cents per share. Item 8. Financial Statements and Supplementary Data. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF INCOME Years Ended December 31, 1996 1995 1994 (in thousands) Operating Revenues: Electric $ 730,834 $ 703,509 $ 697,458 Gas 155,352 129,610 138,424 ---------- ---------- ---------- Total operating revenues 886,186 833,119 835,882 ---------- ---------- ---------- Operating Expenses: Fuel for electric generation 220,936 188,731 196,324 Purchased power 53,279 59,495 55,543 Gas costs 96,228 74,054 85,043 Other operation 145,332 154,014 138,622 Maintenance 61,458 67,994 65,172 Depreciation and amortization 86,937 82,672 80,596 Taxes other than income taxes 57,792 56,588 55,984 Income taxes 47,693 43,542 47,920 ---------- ---------- ---------- Total operating expenses 769,655 727,090 725,204 ---------- ---------- ---------- Operating Income 116,531 106,029 110,678 ---------- ---------- ---------- Other Income and Deductions: Allowance for equity funds used during construction 378 889 630 Nonoperating income taxes 407 (941) (603) Miscellaneous, net (2,652) (1,695) 4,119 ---------- ---------- ---------- Total other income and deductions (1,867) (1,747) 4,146 ---------- ---------- ---------- Income Before Interest Charges 114,664 104,282 114,824 ---------- ---------- ---------- Interest Charges: Interest on long-term debt 33,118 32,871 32,842 Other interest charges 4,636 853 358 Allowance for borrowed funds used during construction (483) (73) (289) ---------- ---------- ---------- Total interest charges 37,271 33,651 32,911 Net Income 77,393 70,631 81,913 Preferred stock dividends 3,721 3,850 3,510 ---------- ---------- ---------- Earnings for Common Stock $ 73,672 $ 66,781 $ 78,403 ========== ========== ========== The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF RETAINED EARNINGS Years Ended December 31, 1996 1995 1994 (in thousands) Balance, beginning of year $ 449,137 $ 453,463 $ 443,741 Add (deduct): Net income 77,393 70,631 81,913 Dividends: Preferred stock (3,721) (3,850) (3,510) Common Stock (62,950) (71,000) (68,600) Other 83 (107) (81) --------- --------- --------- Balance, end of year $ 459,942 $ 449,137 $ 453,463 The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY BALANCE SHEETS December 31, 1996 1995 (in thousands) ASSETS Utility Plant, at original cost: Electric $2,244,571 $2,296,402 Gas 242,664 229,118 ---------- ---------- 2,487,235 2,525,520 Less--Accumulated depreciation 1,099,261 1,132,355 ---------- ---------- 1,387,974 1,393,165 Construction work in progress 70,150 72,490 ---------- ---------- 1,458,124 1,465,655 ---------- ---------- Current Assets: Cash 2,261 1,006 Accounts receivable, net 74,761 65,574 Accrued unbilled revenues 30,126 27,234 Materials and supplies, at average cost 38,806 40,246 Fuel for electric generation, at average cost 21,610 42,634 Gas stored underground, at average cost 13,361 9,774 Prepayments 14,323 10,268 Other current assets 7,704 8,226 ---------- ---------- 202,952 204,962 ---------- ---------- Other Assets: Regulatory Assets 64,754 19,851 Other Assets 27,488 24,337 ---------- ---------- 92,242 44,188 ---------- ---------- $1,753,318 $1,714,805 ========= ========= CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity: Common stock, no par value, authorized 45,000,000 shares; outstanding 25,452,373 shares $ 121,282 $ 121,282 Retained earnings 459,942 449,137 ---------- ---------- 581,224 570,419 Preferred stock 80,000 80,000 Long-term debt 421,228 478,926 ---------- ---------- 1,082,452 1,129,345 ---------- ---------- Current Liabilities: Long-term debt due within one year 58,000 - Short-term borrowings 57,768 47,921 Accounts payable 62,243 60,791 Accrued wages 10,279 9,320 Accrued taxes 13,943 11,155 Accrued interest 8,432 9,525 Other 49,301 33,264 ---------- ---------- 259,966 171,976 ---------- ---------- Deferred Credits: Accumulated deferred income taxes 303,700 293,127 Investment tax credits 48,885 52,234 Regulatory liabilities, net 58,315 68,123 ---------- ---------- 410,900 413,484 ---------- ---------- $1,753,318 $1,714,805 ========= ========= The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF CASH FLOWS Years Ended December 31, 1996 1995 1994 (in thousands) OPERATING ACTIVITIES: Net income $ 77,393 $ 70,631 $ 81,913 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 86,937 82,672 80,596 Allowance for equity funds used during construction (AFUDC) (378) (889) (630) Deferred income taxes, net 1,600 4,575 14,146 Investment tax credit amortization (3,349) (3,361) (3,367) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues (12,079) 5,362 2,195 Fuel for electric generation 21,024 (12,329) (4,259) Other inventories (2,147) 2,964 2,175 Prepayments (4,055) 571 (992) Other assets (6,656) (6,942) 6,061 Accounts payable and other 5,489 8,667 (5,438) Accrued wages, taxes and interest 2,654 (2,204) (3,111) Other (1,909) (8,884) 1,129 -------- -------- -------- Net cash provided by operating activities 164,524 140,833 170,418 -------- -------- -------- INVESTING ACTIVITIES: Construction expenditures, excluding AFUDC (105,740) (102,820) (95,682) Allowance for borrowed funds used during construction (483) (73) (289) -------- -------- -------- Net cash used in investing activities (106,223) (102,893) (95,971) -------- -------- -------- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt - 20,000 - Repayment of long-term debt - (16,000) (20,000) Proceeds from short-term borrowings 9,847 32,936 14,985 Dividends paid: Preferred stock (3,637) (3,956) (3,510) Common stock (62,950) (71,000) (68,600) Issuance expense, discount and premium (306) (234) (40) ------- ------- ------- Net cash used in financing activities (57,046) (38,254) (77,165) ------- ------- ------- Net increase (decrease) in cash 1,255 (314) (2,718) Cash at beginning of year 1,006 1,320 4,038 ------- ------- ------- Cash at end of year $ 2,261 $ 1,006 $ 1,320 ======= ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 36,512 $ 31,490 $ 30,693 Income taxes $ 50,960 $ 45,550 $ 39,829 The accompanying notes to financial statements are an integral part of these statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Central Illinois Public Service Company: We have audited the accompanying balance sheets of Central Illinois Public Service Company (an Illinois corporation and a wholly owned subsidiary of CIPSCO Incorporated) as of December 31, 1996 and 1995, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Illinois Public Service Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois January 31, 1997 Notes to Financial Statements Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The information contained in Note 1 of Notes to Consolidated Financial Statements beginning on page 43 is incorporated herein by reference (except for the caption "Principles of Consolidation", the second paragraph under the caption "Concentration of Credit Risk", the second paragraph under the caption "Operating Revenues" and the caption "Marketable Securities" which are not included herein). Note 2. MERGER AGREEMENT The information contained in Note 2 of Notes to Consolidated Financial Statements beginning on page 46 is incorporated herein by reference. Note 3. REGULATORY MATTERS The information contained in Note 3 of Notes to Consolidated Financial Statements beginning on page 47 is incorporated herein by reference. Note 4. COMMITMENTS AND CONTINGENCIES The information contained in Note 4 of Notes to Consolidated Financial Statements beginning on page 49 is incorporated herein by reference. Note 5. LEVERAGED LEASES Not applicable. Note 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS The information contained in Note 6 of Notes to Consolidated Financial Statements beginning on page 52 is incorporated herein by reference. Note 7. PREFERRED STOCK The information contained in Note 7 of Notes to Consolidated Financial Statements beginning on page 56 is incorporated herein by reference. Note 8. COMMON SHAREHOLDERS' EQUITY Common Stock. The authorized common stock, no par value, for CIPS was 45,000,000 shares as of December 31, 1996, 1995 and 1994. All outstanding shares were exchanged with CIPS shareholders for CIPSCO Incorporated stock on October 1, 1990. Common shares were neither retired nor issued during the three year period ended December 31, 1996. CIPSCO Incorporated holds all CIPS common shares. Retained Earnings. CIPS is subject to restrictions on the use of retained earnings for cash dividends on common stock applicable to all corporations under the Illinois Business Corporation Act, as well as those contained in its mortgage indenture and articles of incorporation. At December 31, 1996, 1995 and 1994, no amount of retained earnings was restricted. Note 9. LINES OF CREDIT AND SHORT-TERM BORROWINGS CIPS has arrangements for bank lines of credit which totaled $77.5 million at December 31, 1996. CIPS compensates banks for these lines of credit. The bank lines of credit are for corporate purposes including the support of certain commercial paper borrowings. At December 31, 1996 there were no short-term borrowings from the lines of credit at CIPS, however, CIPS did have $57.8 million at December 31, 1996 and $47.9 million at December 31, 1995 in commercial paper outstanding. Note 10. LONG-TERM DEBT The information contained in Note 10 of Notes to Consolidated Financial Statements beginning on page 57 is incorporated herein by reference. Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1996 and 1995 of each class of financial instruments for which it is practicable to make such estimates. Short-Term Borrowings. The carrying amounts approximate fair value due to their short-term maturities. Preferred Stock. The fair value was estimated using market values provided by independent pricing services. Long-Term Debt. The fair value was estimated using market values provided by independent pricing services. The estimated fair values of CIPS' financial instruments as of December 31, are shown below: 1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value (in thousands) Preferred stock $ 80,000 $ 65,381 $ 80,000 $ 66,108 Long-term debt 421,227 430,375 478,926 501,826 Current portion long-term debt 58,000 58,105 - - Note 12. INCOME TAXES CIPS uses the liability method of accounting for deferred income taxes. Income tax expense includes provisions for deferred taxes to reflect the effect of temporary differences between the time certain costs are recorded for financial reporting and when they are deducted for income tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes and a portion of the regulatory assets and liabilities are also reversed. Investment tax credits have been deferred and will continue to be credited to income over the lives of the related property. The components of federal and state income tax provisions and investment tax credits at December 31, were: 1996 1995 1994 (in thousands) Current - federal $ 44,139 $ 34,384 $ 32,826 - state 9,708 6,892 5,271 -------- -------- -------- 53,847 41,276 38,097 Deferred - federal (3,201) 3,813 10,084 - state 396 1,814 3,106 -------- -------- -------- (2,805) 5,627 13,190 -------- -------- -------- Amortization of investment tax credits (3,349) (3,361) (3,367) -------- -------- -------- Total 47,693 43,542 47,920 Nonoperating income taxes: Current (382) 1,420 687 Deferred (25) (479) (84) -------- -------- -------- (407) 941 603 -------- -------- ------- Total income taxes $ 47,286 $ 44,483 $ 48,523 ======== ======== ======== Reconciliations with statutory federal income tax rates at December 31, were: 1996 1995 1994 Effective income tax rate 37.9% 38.6% 37.2% Amortization of investment tax credits 2.7 2.9 2.6 Tax exempt interest and dividends .7 .7 .7 State income tax rate, net of federal income tax benefits (5.2) (4.9) (4.2) Non-deductible merger expense (0.6) (1.5) - Other, net (0.5) (0.8) (1.3) ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% ==== ==== ==== The accumulated deferred income taxes as set forth below and in the Balance Sheets arise from the following temporary differences at December 31: 1996 1995 (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $330,577 $320,677 Investment tax credits (19,502) (20,831) Regulatory liabilities, net (22,990) (26,843) Other 15,615 20,124 -------- -------- Accumulated deferred income taxes per Balance Sheets $303,700 $293,127 ======== ======== Deferred tax assets (included in prepayments) $ 10,874 $ 6,444 ======== ======== Note 13. DERIVATIVE FINANCIAL INSTRUMENTS Not applicable. Note 14. SFAS NO. 121 The information contained in Note 14 of Notes to Consolidated Financial Statements beginning on page 61 is incorporated herein by reference. Note 15. SEGMENTS OF BUSINESS CIPS is a public utility engaged in the sale of electricity which it generates, transmits and distributes. CIPS also sells natural gas, which it purchases from producers and suppliers and distributes through its system, and transports customer-owned natural gas. The following is a summary of operations: Years Ended December 31, 1996 1995 1994 (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 730,834 $ 703,509 $ 697,458 Operating expenses, excluding provision for income taxes 582,427 566,130 550,388 ---------- ---------- ---------- Pretax operating income 148,407 137,379 147,070 ---------- ---------- ---------- Gas operations: Operating revenues 155,352 129,610 138,424 Operating expenses, excluding provision for income taxes 139,535 117,418 126,896 ---------- ---------- ---------- Pretax operating income 15,817 12,192 11,528 ---------- ---------- ---------- Total 164,224 149,571 158,598 ---------- ---------- ---------- Plus other income and deductions (1,867) (1,747) 4,146 Less interest charges 37,271 33,651 32,911 Less income taxes 47,693 43,542 47,920 Less preferred stock dividends 3,721 3,850 3,510 ---------- ---------- ---------- Earnings for common stock $ 73,672 $ 66,781 $ 78,403 ========== ========== ========== Depreciation expense: Electric $ 79,699 $ 75,869 $ 74,496 Gas 7,238 6,803 6,100 ---------- ---------- ---------- Total $ 86,937 $ 82,672 $ 80,596 ========== ========== ========== INVESTMENT INFORMATION Identifiable assets: Electric $1,505,767 $1,495,433 $1,469,601 Gas 203,901 181,677 176,788 Corporate 43,650 37,695 32,261 ---------- ---------- ---------- Total $1,753,318 $1,714,805 $1,678,650 ========== ========== ========== Construction expenditures: Electric $ 93,007 $ 90,151 $ 82,673 Gas 13,594 13,631 13,928 ---------- ---------- ---------- Total $ 106,601 $ 103,782 $ 96,601 ========== ========== ========== Note 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The fluctuation in the quarterly results is primarily due to the seasonal nature of the electric and gas utility business. Total Total Common Operating Operating Earnings for Stock Quarters Revenues (a) Income (a) Common Stock (a) Dividends (in thousands) 1996 First $235,714 $29,758 $19,653 (1) $16,500 Second 190,871 20,680 10,271 (2) 17,500 Third 234,904 45,282 34,029 (3) 16,250 Fourth 224,698 20,812 9,720 (4) 12,700 1995 First $208,883 $20,869 $11,803 (5) $17,500 Second 182,110 19,873 11,653 17,500 Third 241,449 49,227 40,368 17,500 Fourth 200,677 16,060 2,957 (6) 18,500 (a) The quarterly amounts for total operating revenues, total operating income and earnings for common stock may not add to the total for the year due to rounding. (1) Includes $.7 million of merger costs which reduced earnings for common stock by $.7 million. (2) Includes $1.3 million of merger costs which reduced earnings for common stock by $1.1 million. (3) Includes $2.3 million of merger costs and system conversion costs which reduced earnings for common stock by $1.6 million. (4) Includes $2.8 million of merger costs and system conversion costs which reduced earnings for common stock by $1.7 million. (5) Includes $5.8 million of voluntary separation program expenses which reduced earnings for common stock by $3.5 million. (6) Includes $10.4 million of merger-related transaction expenses and write off of system development expenses which reduced earnings for common stock by $8.2 million. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None for CIPSCO or CIPS. PART III Item 10. Directors and Executive Officers of the Registrants. CIPSCO The information required by Item 10 relating to each person who is a nominee for election as director at CIPSCO's 1997 Annual Meeting of Shareholders is to be set forth in CIPSCO's definitive proxy statement (the "CIPSCO Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with CIPSCO's 1997 Annual Meeting of Shareholders. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Director Information" in the CIPSCO Proxy Statement. Information required by Item 10 relating to executive officers of CIPSCO is set forth under a separate caption "Executive Officers of CIPSCO" in Part I hereof. CIPS The information required by Item 10 relating to each person who is a nominee for election as director at CIPS' 1997 Annual Meeting of Shareholders is to be set forth in CIPS' definitive proxy statement (the "CIPS Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with CIPS' 1997 Annual Meeting of Shareholders. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Director Information" in the CIPS Proxy Statement. Information required by Item 10 relating to executive officers of CIPS is set forth under a separate caption "Executive Officers of CIPS" in Part I hereof. Item 11. Executive Compensation. CIPSCO The information required by Item 11 is to be set forth in the CIPSCO Proxy Statement. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Executive Compensation" and -- "Directors' Compensation" appearing in the CIPSCO Proxy Statement; provided, however, that no part of the information appearing under the portion of the CIPSCO Proxy Statement entitled "Election of Directors -- Compensation Committee Report on Executive Compensation" or -- "Total Return Summary Based on Initial Investment of $100 on December 31, 1991" is deemed to be filed as part of this Form 10-K Annual Report. CIPS The information required by Item 11 is to be set forth in the CIPS Proxy Statement. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Executive Compensation" and -- "Directors' Compensation" appearing in the CIPS Proxy Statement; provided, however, that no part of the information appearing under the portion of the CIPS Proxy Statement entitled "Election of Directors -- Compensation Committee Report on Executive Compensation" or - -- "Total Return Summary Based on Initial Investment of $100 on December 31, 1991" is deemed to be filed as part of this Form 10-K Annual Report. Item 12. Security Ownership of Certain Beneficial Owners and Management. CIPSCO The information required by Item 12 is to be set forth in the CIPSCO Proxy Statement. Such information is incorporated herein by reference to the material appearing under the captions "Voting Securities Beneficially Owned by Principal Holders, Directors, Nominees and Executive Officers" and "Election of Directors -- Director Information" appearing in the CIPSCO Proxy Statement. CIPS The information required by Item 12 is to be set forth in the CIPS Proxy Statement. Such information is incorporated herein by reference to the material appearing under the captions "Voting Securities Beneficially Owned by Principal Holders, Directors, Nominees and Executive Officers" and "Election of Directors -- Director Information" appearing in the CIPS Proxy Statement. Item 13. Certain Relationships and Related Transactions. CIPSCO AND CIPS CIPSCO is the parent company of CIPS. At December 31, 1996, CIPSCO owned 100% of the common stock of CIPS (representing 96% of the voting shares of CIPS). There are situations where CIPS interacts with its affiliated companies through the use of shared facilities, common employees and other business relationships. In these situations, CIPS receives payment in accordance with regulatory requirements for the services provided to affiliated companies. Each individual who is a member of the Board of Directors of CIPSCO is also a member of the Board of Directors of CIPS. Each of the officers of CIPSCO is also an officer of CIPS. PART IV CIPSCO AND CIPS Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Page of this report on Form 10-K Pro CIPSCO CIPS Forma (a) 1. Financial statements Statements of Income for the years ended December 31, 1996, 1995 and 1994. . . . . . . . 38 64 - Statements of Retained Earnings for the years ended December 31, 1996, 1995 and 1994 . . . . 38 64 - Balance Sheets - December 31, 1996 and 1995 . . 39 65 - Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. . . . . . . . 40 66 - Report of Independent Public Accountants. . . . 42 68 - Notes to Financial Statements . . . . . . . . . 43 69 - The CIPSCO consolidated financial statements, including notes, are not included in the CIPS Annual Report on Form 10-K. (a) 2. Schedules supporting financial statements. . . . - - - All Financial Statement Schedules have been omitted as not applicable or not required or because the information required to be shown therein is included in the financial statements or notes thereto. (a) 3. Unaudited Pro Forma Combined Condensed Financial Information of CIPSCO And Union Electric Balance Sheet - December 31, 1996 . . . . . . - - 84 Statements of Income for the years ended December 31, 1996, 1995 and 1994. . . . . . - - 85 Notes to Unaudited Pro Forma Combined Condensed Financial Statements. . . . . . . - - 88 Applicable to Form 10-K of CIPSCO CIPS (a) 4. Exhibits 2.01 Agreement and Plan of Merger, dated as of August 11, 1995, by and among CIPSCO Incorporated, Union Electric Company, Ameren Corporation and Arch Merger Inc. (Exhibit 2(a) filed with CIPSCO's and CIPS' Form 10-Q/A (Amendment No. 1) for the quarter ended June 30, 1995.) Incorporated by Reference. . . . . . . X X 3.01 Amended and Restated Articles of Incorporation of CIPSCO. (Exhibit 3.01 filed with CIPSCO's 1990 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . . . . . . . . . X 3.02 Restated Articles of Incorporation of CIPS. (Exhibit 3(b) filed with CIPS' Form 10-Q for the quarter ended March 31, 1994.) Incorporated by Reference . . . . . . . . . . . . . . . . . . . X 3.03 Bylaws of CIPSCO (Exhibit 3.02 filed with CIPSCO's 1993 Annual Report on Form 10-K.) Incorporated by Reference. . . . . . . . . . . . . . . . . . . . . X 3.04 Bylaws of CIPS (Exhibit 3(c) filed with CIPS' Form 10-Q for the quarter ended March 31, 1994.) Incorporated by Reference. . . . . . . . . . . . . X Applicable to Form 10-K of Exhibits (Continued) CIPSCO CIPS 4 Indenture of Mortgage or Deed of Trust dated October 1, 1941, from CIPS to Continental Illinois National Bank and Trust Company of Chicago and Edmond B. Stofft, as Trustees. (Exhibit 2.01 in File No. 2-60232.) Supplemental Indentures dated, respectively September 1, 1947, January 1, 1949, February 1, 1952, September 1, 1952, June 1, 1954,February 1, 1958, January 1, 1959, May 1, 1963, May 1, 1964, June 1, 1965, May 1, 1967, April 1, 1970, April 1, 1971, September 1, 1971, May 1, 1972, December 1, 1973, March 1, 1974, April 1, 1975, October 1, 1976, November 1, 1976, October 1, 1978, August 1, 1979, February 1, 1980, February 1, 1986, May 15, 1992, July 1, 1992, September 15, 1992, April 1, 1993, and June 1, 1995 between CIPS and the Trustees under the Indenture of Mortgage or Deed of Trust referred to above (Amended Exhibit 7(b) in File No. 2-7341; Second Amended Exhibit 7.03 in File No. 2-7795; Second Amended Exhibit 4.07 in File No. 2-9353; Amended Exhibit 4.05 in file No. 2-9802; Amended Exhibit 4.02 in File No. 2-10944; Amended Exhibit 2.02 in File No. 2-13866; Amended Exhibit 2.02 in File No. 2-14656; Amended Exhibit 2.02 in File No. 2-21345; Amended Exhibit 2.02 in File No. 2-22326; Amended Exhibit 2.02 in File No. 2-23569; Amended Exhibit 2.02 in File No. 2-26284; Amended Exhibit 2.02 in File No. 2-36388; Amended Exhibit 2.02 in File No. 2-39587; Amended Exhibit 2.02 in File No. 2-41468; Amended Exhibit 2.02 in File No. 2-43912; Exhibit 2.03 in File No. 2-60232; Amended Exhibit 2.02 in File No. 2-50146; Amended Exhibit 2.02 in File No. 2-52886; Second Amended Exhibit 2.04 in File No. 2-57141; Amended Exhibit 2.04 in File No. 2-57557; Amended Exhibit 2.06 in File No. 2-62564; Exhibit 2.02(a) in File No. 2-65914; Amended Exhibit 2.02(a) in File No. 2-66380; and Amended Exhibit 4.02 in File No. 33-3188; Exhibit 4.02 to Form 8-K dated May 15, 1992; Exhibit 4.02 to Form 8-K dated July 1, 1992; Exhibit 4.02 to Form 8-K dated September 15, 1992; Exhibit 4.02 to Form 8-K dated March 30, 1993; Exhibit 4.03 to Form 8-K dated June 5, 1995.) Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . X X Applicable to Form 10-K of CIPSCO CIPS Page(s) Exhibits (Continued) 10.01 Form of Deferred Compensation Agreement for Directors (Exhibit 10.01 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference. . . . . . X X - 10.02 Amended Form of Deferred Compensation Agreement for Directors (Exhibit 10.02 filed with CIPSCO's and CIPS' 1993 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . . . . . . X X - 10.03 Form of Management Continuity Agreement (Exhibit 10.05 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.04 Form of Director's Retirement Income Plan (Exhibit 10.06 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference . . . . . . . . . . . X X - 10.05 Form of Management Incentive Plan (Exhibit 10.09 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference . . . . . . . . . . . . . . . . . . X X - 10.06 Form of Excess Benefit Plan (Exhibit 10.10 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.07 Amendment to Form of Excess Benefit Plan (Exhibit 10.07 filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.08 Form of Special Executive Retirement Plan (Exhibit 10.11 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.09 Amendment to Form of Special Executive Retirement Plan (Exhibit 10.09 filed with CIPSCO's and CIPS' 1995 Annual Report on Form 10-K.) Incorporated by Reference . . . X X - 10.10 Stock Option Agreement, dated as of August 11, 1995, by and between CIPSCO Incorporated and Union Electric Company. (Exhibit 10(a) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference . . . . . . . . . . . X X - Applicable to Form 10-K of CIPSCO CIPS Page(s) Exhibits (Continued) 10.11 Stock Option Agreement, dated as of August 11, 1995, by and between Union Electric Company and CIPSCO Incorporated. (Exhibit 10(b) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference . . . . . . . . . . . X X - 12.01 Computation of Ratio of Earnings to Fixed Charges - CIPSCO. . . . . . . . . . . . . . . . X 92 12.02 Computation of Ratio of Earnings to Fixed Charges - CIPS. . . . . . . . . . . . . . . . . X 93 21 Subsidiaries of CIPSCO and CIPS . . . . . . . . X X 94 23.01 Consent of Independent Public Accountants - CIPSCO. . . . . . . . . . . . . . . . . . . . . X 95 23.02 Consent of Independent Public Accountants - CIPS. . . . . . . . . . . . . . . . . . . . . . X 96 24.01 Powers of Attorney - CIPSCO . . . . . . . . . . X 97-103 24.02 Powers of Attorney - CIPS . . . . . . . . . . . X 104-110 27.1 Financial Data Schedule of CIPSCO*. . . . . . . X - 27.2 Financial Data Schedule of CIPS*. . . . . . . . X - 99.01 Description of Capital Stock - CIPSCO . . . . . X 111-113 99.02 Description of Capital Stock - CIPS . . . . . . X 114-115 99.03 Cautionary Factors regarding Forward Looking Statements. . . . . . . . . . . . . . . . . . . X X 116-117 Exhibits 10.01 through 10.11 are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) hereof. * Included in electronic filing only. The following instruments defining the rights of holders of certain unregistered long-term debt of CIPS have not been filed with the Securities and Exchange Commission but will be furnished upon request. 1. Loan Agreement dated as of March 1, 1990, between CIPS and the Illinois Development Finance Authority (IDFA) in connection with the IDFA's $20,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series A due March 1, 2014 and $32,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series B due September 1, 2013. 2. Loan Agreement dated January 1, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000, 6-3/8% Pollution Control Revenue Refunding Bonds (Central Illinois Public Service Company Project) 1993 Series A, due January 1, 2028. 3. Loan Agreement dated June 1, 1993, between CIPS and IDFA in connection with IDFA's $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-1 due June 1, 2028 and $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-2 due June 1, 2028. 4. Loan Agreement dated August 15, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-1 due August 15, 2026 and $25,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-2 due August 15, 2026. 5. CIPS Credit Agreements (effective February 12, 1997) with various banks providing $75,000,000 of unsecured long-term lines of credit. (b) Reports on Form 8-K Registrant CIPSCO and CIPS Date of Report Item Reported December 23, 1996 Item 5. Other Events. Reports information regarding CIPS' coal contract restructuring, legislative issues related to utility restructuring in Illinois, competitive pressure affecting energy sales, and cautionary statements, assumptions and other factors related to forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF CIPSCO AND UNION ELECTRIC The following unaudited pro forma financial information combines the historical balance sheets and statements of income of CIPSCO and Union Electric, including their respective subsidiaries, after giving effect to the merger. The unaudited pro forma combined condensed balance sheet at December 31, 1996 gives effect to the merger as if it had occurred at December 31, 1996. The unaudited pro forma combined condensed statements of income for each of the three years ended December 31, 1996, 1995 and 1994 give effect to the merger as if it had occurred at the beginning of the periods presented. These statements are prepared on the basis of accounting for the merger as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the pro forma financial information does not give effect to the expected synergies of the transaction. The following pro forma financial information has been prepared from, and should be read in conjunction with, the historical financial statements and related notes thereto of CIPSCO and Union Electric. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the merger been consummated on the date, or at the beginning of the periods, for which the merger is being given effect nor is it necessarily indicative of future operating results or financial position. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT DECEMBER 31, 1996 (Thousands of Dollars) Pro Forma As Reported (Note 1) Adjustments Pro Forma ASSETS UE CIPSCO (Notes 2, 9) Combined Property and plant Electric $ 8,630,628 $ 2,244,571 $ 376,896 $ 11,252,095 Gas 185,867 242,664 - 428,531 Other 35,965 - - 35,965 ____________ ____________ __________ _____________ 8,852,460 2,487,235 376,896 11,716,591 Less accumulated depreciation and amortization 3,656,890 1,099,261 267,895 5,024,046 ____________ ____________ __________ _____________ 5,195,570 1,387,974 109,001 6,692,545 Construction work in progress: Nuclear fuel in process 96,147 - - 96,147 Other 90,953 70,150 1,311 162,414 ____________ ____________ __________ _____________ Total property and plant, net 5,382,670 1,458,124 110,312 6,951,106 Regulatory assets: Deferred income taxes (Note 6) 692,171 42,035 - 734,206 Other 178,760 64,754 - 243,514 ____________ ____________ __________ _____________ Total regulatory assets 870,931 106,789 - 977,720 Other assets: Unamortized debt expense 10,591 2,871 591 14,053 Nuclear decommissioning trust fund 96,601 - - 96,601 Investments in nonregulated activities - 113,310 - 113,310 Other 27,377 25,624 (2,399) 50,602 _____________ ___________ ___________ ____________ Total other assets 134,569 141,805 (1,808) 274,566 Current assets: Cash and temporary investments 4,897 6,270 4,715 15,882 Accounts receivable, net 192,868 56,473 19,344 268,685 Unbilled revenue 76,190 30,126 - 106,316 Materials and supplies, at average cost - Fossil fuel 63,651 34,971 7,531 106,153 Other 94,517 38,806 4,630 137,953 Other 50,516 40,327 3,343 94,186 ____________ ___________ __________ _____________ Total current assets 482,639 206,973 39,563 729,175 ____________ ___________ __________ _____________ Total Assets $ 6,870,809 $ 1,913,691 $ 148,067 $ 8,932,567 ============ =========== ========== ============= CAPITAL AND LIABILITIES Capitalization: Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372 Other stockholders' equity (Note 2) 1,844,182 304,782 866,059 3,015,023 ____________ ___________ __________ _____________ Total common stockholders' equity 2,354,801 661,594 - 3,016,395 Preferred stock of subsidiary 219,121 80,000 - 299,121 Long-term debt 1,798,671 421,227 130,000 2,349,898 ____________ ___________ __________ _____________ Total capitalization 4,372,593 1,162,821 130,000 5,665,414 Minority interest in consolidated subsidiary - - 3,534 3,534 Accumulated deferred income taxes 1,318,404 341,373 (6,682) 1,653,095 Accumulated deferred investment tax credits 160,342 48,885 - 209,227 Regulatory liability 203,822 100,350 - 304,172 Accumulated provision for nuclear decommissioning 98,274 - - 98,274 Other deferred credits and liabilities 156,913 35,737 4,733 197,383 Current liabilities: Current maturity of long-term debt 73,966 58,000 - 131,966 Short-term debt 11,300 57,768 - 69,068 Accounts payable 170,383 62,774 13,600 246,757 Wages payable 39,966 10,294 - 50,260 Taxes accrued 95,478 13,692 8 109,178 Interest accrued 45,173 8,432 416 54,021 Other 124,195 13,565 2,458 140,218 ____________ ___________ __________ _____________ Total current liabilities 560,461 224,525 16,482 801,468 ____________ ___________ __________ _____________ Total Capital and Liabilities $ 6,870,809 $ 1,913,691 $ 148,067 $ 8,932,567 ============ =========== ========== =============
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1996 (Thousands of Dollars Except Shares and Per Share Amounts) CIPSCO (As UE Reported) Pro Forma (As Reported) (Notes Adjustments Pro Forma (Notes 1,4,10) 1,4) (Notes 2,9) Combined _____________ _________ _________ ___________ OPERATING REVENUES: Electric $ 2,160,815 $ 730,812 $ 175,313 $ 3,066,940 Gas 99,064 155,348 - 254,412 Other 485 10,555 1,113 12,153 _____________ _________ _________ ___________ Total operating revenues 2,260,364 896,715 176,426 3,333,505 OPERATING EXPENSES: Operations Fuel and purchased power 512,832 274,215 93,158 880,204 Gas Costs 64,548 96,228 - 160,776 Other 379,106 146,588 18,304 543,998 _____________ _________ _________ ___________ 956,485 517,031 111,462 1,584,978 Maintenance 223,632 61,461 17,110 302,203 Depreciation and amortization 241,298 87,397 15,665 344,360 Income taxes (Note 7) 197,369 49,557 7,943 254,869 Other taxes 213,266 57,817 1,951 273,034 _____________ _________ _________ ___________ Total operating expenses 1,832,050 773,263 154,131 2,759,444 OPERATING INCOME 428,314 123,452 22,295 574,061 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6,492 378 - 6,870 Minority interest in consolidated subsidiary - - (4,875) (4,875) Miscellaneous, net (4,293) (2,784) (7,413) (14,490) _____________ __________ ________ __________ Total other income and deductions, net 2,199 (2,406) (12,288) (12,495) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 430,513 121,046 10,007 561,566 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 132,644 37,751 10,007 180,402 Allowance for borrowed funds used during construction (7,007) (483) - (7,490) Preferred dividends of subsidiaries (Note 8) 13,249 3,721 - 16,970 _____________ _________ _________ ___________ Net interest charges and preferred dividends 138,886 40,989 10,007 189,882 NET INCOME $ 291,627 $ 80,057 $ - $ 371,684 ============== ========= ========== =========== EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.86 $2.35 $2.71 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,069,542 1,022,086 137,215,462 ============ ========== ========= ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1995 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Notes 1,4,10)(Notes 1,3,4) (Notes 2,9) Combined _____________ __________ __________ ____________ OPERATING REVENUES: Electric $ 2,154,109 $ 703,483 $ 155,935 $ 3,013,527 Gas 87,814 129,606 - 217,420 Other 441 9,173 362 9,976 _____________ __________ __________ ____________ Total operating revenues 2,242,364 842,262 156,297 3,240,923 OPERATING EXPENSES: Operations Fuel and purchased power 504,815 248,226 70,910 823,951 Gas Costs 51,251 74,054 - 125,305 Other 367,870 155,368 19,148 542,386 _____________ __________ __________ ____________ 923,936 477,648 90,058 1,491,642 Maintenance 221,609 67,996 17,941 307,546 Depreciation and amortization 233,237 83,263 15,747 332,247 Income taxes (Note 7) 209,541 45,772 7,857 263,170 Other taxes 212,145 56,613 1,912 270,670 _____________ __________ __________ ____________ Total operating expenses 1,800,468 731,292 133,515 2,665,275 OPERATING INCOME 441,896 110,970 22,782 575,648 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6,827 889 - 7,716 Minority interest in consolidated subsidiary - - (4,558) (4,558) Miscellaneous, net (5,981) (2,298) (7,908) (16,187) _____________ ___________ _________ ____________ Total other income and deductions, net 846 (1,409) (12,466) 13,029 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 442,742 109,561 10,316 562,619 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 134,741 33,769 10,316 178,826 Allowance for borrowed funds used during construction (6,106) (73) - (6,179) Preferred dividends of subsidiaries (Note 8) 13,250 3,850 - 17,100 _____________ ___________ _________ ___________ Net interest charges and preferred dividends 141,885 37,546 10,316 189,747 NET INCOME $ 300,857 $ 72,015 $ - $ 372,872 ============= =========== ========= =========== EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.95 $2.11 $2.72 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,069,542 1,022,086 137,215,462 ============ ========== ========== ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1994 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Note 1) (Note 1) (Notes 2,9) Combined _____________ _____________ __________ ____________ OPERATING REVENUES: Electric $ 2,137,355 $ 697,427 $ 200,730 $ 3,035,512 Gas 86,109 138,418 - 224,527 Other 474 8,770 188 9,432 _____________ _____________ __________ ___________ Total operating revenues 2,223,938 844,615 200,918 3,269,471 OPERATING EXPENSES: Operations Fuel and purchased power 497,384 251,867 113,166 862,417 Gas Costs 60,096 85,043 - 145,139 Other 375,570 140,068 19,952 535,590 _____________ _____________ __________ ___________ 933,050 476,978 133,118 1,543,146 Maintenance 197,760 65,176 19,076 282,012 Depreciation and amortization 226,045 81,099 13,776 320,920 Income taxes (Note 7) 206,421 49,082 9,739 265,242 Other taxes 210,476 56,017 1,929 268,422 _____________ _____________ __________ ___________ Total operating expenses 1,773,752 728,352 177,638 2,679,742 OPERATING INCOME 450,186 116,263 23,280 589,729 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 5,767 630 - 6,397 Minority interest in consolidated subsidiary - - (5,554) (5,554) Miscellaneous, net 403 3,502 (8,297) (4,392) ____________ _____________ ___________ ___________ Total other income and deductions, net 6,170 4,132 (13,851) (3,549) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 456,356 120,395 9,429 586,180 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 141,112 33,220 9,429 183,761 Allowance for borrowed funds used during construction (5,513) (289) - (5,802) Preferred dividends of subsidiaries (Note 8) 13,252 3,510 - 16,762 _____________ _____________ ___________ _________ Net interest charges and preferred dividends 148,851 36,441 9,429 194,721 NET INCOME $ 307,505 $ 83,954 $ - $ 391,459 ============= ============= =========== ========= EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $3.01 $2.46 $2.85 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,106,585 1,023,198 137,253,617 ============ =============== =========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. Reclassifications were made to certain "as reported" account balances reflected in CIPSCO's and Union Electric's financial statements to conform to this reporting presentation (See Notes 6, 7 and 8). All other financial statement presentation and accounting policy differences were immaterial and were not adjusted in the pro forma combined condensed financial statements. 2. The pro forma combined condensed financial statements reflect the conversion of each share of Union Electric Common Stock ($5 par value) outstanding into one share of Ameren Common Stock ($.01 par value) and the conversion of each share of CIPSCO Common Stock (no par value) outstanding into 1.03 shares of Ameren Common Stock, as provided in the Merger Agreement. The pro forma combined condensed financial statements are presented as if the companies were combined during all periods included therein. 3. CIPSCO's net income for the year ended December 31, 1995 included pre- tax charges of $5.8 million for the voluntary separation program, and a pretax charge of $5.7 million for merger-related write-offs involving previously deferred system development costs. 4. The allocation between Union Electric and CIPSCO and their customers of the estimated cost savings, resulting from the merger, net of the costs incurred to achieve such savings, will be subject to regulatory review and approval. Merger-related costs (which include transaction costs and costs to achieve such savings) are currently estimated to be approximately $73 million (including fees for financial advisors, attorneys, accountants, consultants, filings, printing, system integration, relocation, etc.). None of these estimated cost savings or the costs to achieve such savings have been reflected in the pro forma combined condensed financial statements. However, net income for the twelve months ended December 31, 1996 and 1995, included merger-related costs of $7.9 million and $9 million, net of income taxes, for Union Electric, and $4.9 million and $4.7 million, net of income taxes, for CIPSCO, respectively. 5. Intercompany transactions (including purchased and exchanged power transactions) between Union Electric and CIPSCO during the periods presented were not material and, accordingly, no pro forma adjustments were made to eliminate such transactions. 6. CIPSCO's regulatory asset related to deferred income taxes was reclassified from the regulatory liability account balance to conform to this reporting presentation. 7. CIPSCO's income taxes are reflected as operating expenses to conform to this reporting presentation. 8. Currently, the Union Electric Preferred Stock is not issued by a subsidiary; subsequent to the merger, the Union Electric Preferred Stock will be issued by a subsidiary of Ameren. As a result, Union Electric's preferred dividend requirements have been reclassified to conform to this reporting presentation. 9. Pro forma adjustments have been made to consolidate the financial results of Electric Energy, Inc. (EEI), which will, in substance, be a 60% owned subsidiary of Ameren subsequent to the merger. Union Electric and CIPSCO hold 40% and 20% ownership interests, respectively, in EEI and account for these investments under the equity method of accounting. All intercompany transactions between Union Electric, CIPSCO and EEI have been eliminated. 10. Net income for the twelve months ended December 31, 1996 and 1995 included credits for Missouri electric customers which reduced revenues and pre-tax income of Union Electric by $47 and $30 million, respectively. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIPSCO Incorporated (Registrant) By /s/ C. L. GREENWALT _____________________________________ C. L. Greenwalt President and Chief Executive Officer Date: March 10, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Principal Executive Officer: /s/ C. L. GREENWALT C. L. GREENWALT President and Chief Executive Officer and Director Principal Financial Officer: /s/ W. A. KOERTNER W. A. KOERTNER Vice President, Chief Financial Officer, Secretary, and as Attorney-in-Fact* Principal Accounting Officer: /s/ F. J. KINSINGER F. J. KINSINGER Controller and Chief Accounting Officer JOHN L. HEATH* Director ROBERT W. JACKSON* Director GORDON R. LOHMAN* Director RICHARD A. LUMPKIN* Director HANNE M. MERRIMAN* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 10, 1997 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (Registrant) By /s/ C. L. GREENWALT _____________________________________ C. L. Greenwalt President and Chief Executive Officer Date: March 10, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Principal Executive Officer: /s/ C. L. GREENWALT C. L. GREENWALT President and Chief Executive Officer and Director Principal Financial Officer: /s/ W. A. KOERTNER W. A. KOERTNER Vice President and Secretary, and as Attorney-in-Fact* Principal Accounting Officer: /s/ F. J. KINSINGER F. J. KINSINGER Controller JOHN L. HEATH* Director ROBERT W. JACKSON* Director GORDON R. LOHMAN* Director RICHARD A. LUMPKIN* Director HANNE M. MERRIMAN* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 10, 1997 EX-12.01 2 Exhibit 12.01 CIPSCO INCORPORATED AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1996 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1996 1995 1994 1993 1992 Net income. . . . $ 80,057 $ 72,015 $ 83,954 $ 85,498 $ 72,499(c) Add--Federal and state income taxes: Current (a) . . 50,414 37,696 33,582 41,320 5,380 Deferred (net). 2,492 11,437 18,867 13,907 38,707 Deferred investment tax credits, net (3,349) (3,361) (3,367) (3,366) (3,336) --------- --------- -------- --------- --------- 49,557 45,772 49,082 51,861 40,751 Net income before income taxes. . 129,614 117,787 133,036 137,359 113,250 Add--Fixed charges Interest on long-term debt (b). . . . 31,409 31,168 31,164 32,823 35,534 Interest on provision for revenue refunds - - - - (803) Other interest. . 4,633 898 378 603 398 Amortization of net debt premium, discount, expense and loss (b). . . 1,709 1,703 1,678 1,598 863 Preferred stock dividends of subsidiary. . . 3,721 3,850 3,510 3,718 4,549 --------- --------- --------- --------- --------- 41,472 37,619 36,730 38,742 40,541 Earnings as defined . . . . . $171,086 $155,406 $169,766 $176,101 $153,791 ========= ========= ========= ========= ========= Fixed charges . . $ 41,472 $ 37,619 $ 36,730 $ 38,742 $ 40,541 Adjustment to pre-tax basis . . 2,303 2,447 2,052 2,255 2,557 --------- --------- --------- --------- --------- $ 43,775 $ 40,066 $ 38,782 $ 40,997 $ 43,098 Ratio of earnings to fixed charges adjusted to pre-tax basis . 3.91 3.88 4.38 4.30 3.57 ========= ========= ========= ========= ========= _________________________
(a) Federal portion and state portion are shown separately in Notes to Consolidated Financial Statements. (b) Combined as interest charges on long-term debt on Consolidated Statements of Income. (c) Includes revenues collected subject to refund. EX-12.02 3 Exhibit 12.02 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1996 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1996 1995 1994 1993 1992 Net income. . . . . $ 77,393 $ 70,631 $ 81,913 $ 84,011 $ 72,601(c) Add--Federal and state income taxes: Current (a) . . . 53,847 41,276 38,097 50,441 6,110 Deferred (net). . (2,805) 5,627 13,190 1,674 33,998 Investment tax credit amortization. . . (3,349) (3,361) (3,367) (3,366) (3,336) Income tax applicable to nonoperating activities. . . . (407) 941 603 631 2,989 ------- ------- ------- ------- -------- 47,286 44,483 48,523 49,380 39,761 Net income before income taxes. . . . 124,679 115,114 130,436 133,391 112,362 Add--Fixed charges Interest on long-term debt (b) 31,409 31,168 31,164 32,823 35,534 Interest on provision for revenue refunds . - - - - (803) Other interest. . 4,636 853 358 479 392 Amortization of net debt premium, discount, expense and loss (b). . . 1,709 1,703 1,678 1,598 863 ------- -------- -------- -------- -------- 37,754 33,724 33,200 34,900 35,986 Earnings as defined . . . . . $162,433 $148,838 $163,636 $168,291 $148,348 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges. 4.30 4.41 4.93 4.82 4.12 Earnings required for preferred dividends: Preferred stock dividends . . . $ 3,721 $ 3,850 $ 3,510 $ 3,718 $ 4,549 Adjustment to pre-tax basis . 2,273 2,425 2,079 2,185 2,491 -------- -------- -------- -------- -------- $ 5,994 $ 6,275 $ 5,589 $ 5,903 $ 7,040 Fixed charges plus preferred stock dividend requirements . $ 43,748 $ 39,999 $ 38,789 $ 40,803 $ 43,026 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges plus preferred stock dividend requirements . 3.71 3.72 4.22 4.12 3.45 _________________________
(a) Federal portion and state portion are shown separately in Notes to Financial Statements. (b) Combined as interest charges on long-term debt on Statements of Income. (c) Includes revenues collected subject to refund. EX-21 4 Exhibit 21 SUBSIDIARIES OF CIPSCO AND CIPS State or Jurisdiction Name of Incorporation ____ _____________________ CIPSCO Incorporated Illinois Central Illinois Public Service Company Illinois Illinois Steam Inc. Illinois CIPS Energy Inc. Illinois Electric Energy, Inc.* Illinois CIPSCO Investment Company Illinois CIPSCO Securities Company Illinois CIPSCO Leasing Company Illinois CLC Aircraft Leasing Company Illinois CLC Leasing Company A Illinois CLC Leasing Company B Illinois CLC Leasing Company C Illinois CIPSCO Energy Company Illinois CEC-PGE-G Co. Illinois CEC-PGE-L Co. Illinois CEC-APL-G Co. Illinois CEC-APL-L Co. Illinois CEC-PSPL-G Co. Illinois CEC-PSPL-L Co. Illinois CEC-MPS-G Co. Illinois CEC-MPS-L Co. Illinois CEC-ACE-G Co. Illinois CEC-ACE-L Co. Illinois CEC-ACLP Co. Illinois CIPSCO Venture Company Illinois * Central Illinois Public Service Company owns 20% of the common stock of EEI. EX-23.01 5 Exhibit 23.01 CIPSCO CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in and incorporated by reference in this Form 10-K, into Central Illinois Public Service Company's previously filed Registration Statements File Nos. 33-29384 and 33-31475 and CIPSCO Incorporated's previously filed Registration Statement File No. 33-32936. ARTHUR ANDERSEN LLP Chicago, Illinois, March 10, 1997 EX-23.02 6 Exhibit 23.02 CIPS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in and incorporated by reference in this Form 10-K, into Central Illinois Public Service Company's previously filed Registration Statements File Nos. 33-29384, 33-31475, 33-59674, 33-45506, 33-56063 and 333-18473 and CIPSCO Incorporated's previously filed Registration Statement File No. 33-32936. ARTHUR ANDERSEN LLP Chicago, Illinois, March 10, 1997 EX-99.01 7 Exhibit 99.01 DESCRIPTION OF CAPITAL STOCK - CIPSCO General. The authorized capital stock of CIPSCO consists of 4,600,000 shares of Preferred Stock, without par value, issuable in series, of which none are outstanding and 100,000,000 shares of Common Stock without par value of which 34,069,542 shares were outstanding at December 31, 1996. The following statements, unless the context otherwise indicates, are brief summaries of the substance or general effect of certain provisions of CIPSCO's Amended and Restated Articles of Incorporation ("CIPSCO Articles") and the CIPS Restated Articles of Incorporation and the resolutions establishing series of Preferred Stock (collectively, the "CIPS Articles"), and of the CIPS Mortgage Indenture securing outstanding First Mortgage Bonds of CIPS. Such statements make use of defined terms and are not complete; they are subject to all the provisions of the CIPSCO Articles, the CIPS Articles or the CIPS Mortgage Indenture, as the case may be. Preferred Stock. The CIPSCO Articles grant the Board of Directors of CIPSCO the authority to determine how shares of Preferred Stock may be divided into and issued in series, and on what terms and for what consideration such shares shall be issued. In addition, the CIPSCO Articles grant the Board the authority to fix and determine the following relative rights and preferences of shares of each such series of Preferred Stock: (1) the distinctive designation of, and the number of shares that constitute, such series and the "stated value" or "nominal value," if any, thereof; (2) the rate or rates of dividend (or method of determining the rate or rates) applicable to shares of such series; (3) the price at which, and the terms and conditions on which, shares of such series may be redeemed by CIPSCO; (4) the amount payable upon shares of such series in the event of the involuntary liquidation of CIPSCO; (5) the amount payable upon shares of such series in the event of the involuntary liquidation of CIPSCO; (6) sinking fund provisions for the redemption or purchase of shares of such series; (7) the terms and conditions on which shares of such series may be converted, if such shares are issued with the privilege of conversion; (8) the voting rights (including, but not limited to, any special voting rights), if any, of the holders of shares of such series, provided that in no event shall any share of Preferred Stock be entitled to more than a number of votes equal to the amount determined by dividing the amount payable on such share (exclusive of accrued dividends) in the event of the involuntary liquidation of CIPSCO by $100. Dividend Rights. Dividends are payable on CIPSCO's Common Stock if and when declared by the Board of Directors of CIPSCO and no restrictions are placed on the declaration of dividends by the CIPSCO Articles. The ability of CIPSCO to pay dividends is dependent upon distributions made to it by CIPS, CIC and amounts earned by CIPSCO on its other investments. Whenever dividends on all outstanding shares of the CIPS Preferred Stock of all series for all previous quarter-yearly dividend periods and the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, and whenever all amounts required to be set aside for any sinking fund for the redemption or purchase of shares of the CIPS Preferred Stock for all previous periods or dates shall have been paid or set aside, and subject to the limitations summarized below, the Board of Directors of CIPS may declare dividends on the CIPS Common Stock out of any surplus or net profits of the Company legally available for the purpose. The CIPS Mortgage Indenture provides, in effect, that CIPS will not declare or pay any dividends (other than in stock) on its Common Stock, or make any other distribution on or purchase any CIPS Common Stock, unless the total amount charged or provided for maintenance, repairs and depreciation of the mortgaged properties subsequent to December 31, 1940, plus the surplus earned during the period and remaining after any such dividend, distribution or purchase, shall equal at least 15% of the total utility operating revenues of CIPS for the period, after deducting from such revenues the cost of electricity and gas purchased for resale. The CIPS Articles provide in effect that, so long as any Preferred Stock is outstanding, the total amount of all dividends or other distributions on CIPS Common Stock (other than in stock) that may be paid, and purchases of CIPS Common Stock that may be made, during any 12-month period shall not exceed (a) 75% of the net income of CIPS (as defined) for the 12-month period next preceding each such dividend, distribution or purchase, if the ratio of "common stock equity" to "total capital" (as defined) is 20% to 25%, or (b) 50% of such net income if such ratio is less than 20%. If such ratio is in excess of 25%, no such dividends may be paid or distributions or purchases made that would reduce such ratio to less than 25% except to the extent permitted by clauses (a) and (b). At December 31, 1996, no amount of retained earnings was restricted as to the payment of dividends on CIPS Common Stock under the foregoing provisions of the CIPS Mortgage Indenture or the CIPS Articles. Voting Rights. Under Illinois law and the CIPSCO Articles, each share of Common Stock of CIPSCO is entitled to one vote on each matter voted on at all meetings of shareholders, with the right of cumulative voting in the election of directors and, in accordance with Illinois law, the right to vote as a class on certain questions. Preferred Stock may have such voting rights as are established by the Board of Directors subject to the provisions of the CIPSCO Articles described under "Preferred Stock" above. Preemptive Rights. Holders of CIPSCO's capital stock have no preemptive subscription rights. Liquidation Rights. In the event of any liquidation or dissolution of CIPSCO, holders of CIPSCO Common Stock are entitled to share ratably in the net assets and profits of CIPSCO remaining after the payment in full to the holders of the CIPSCO Preferred Stock of the aggregate preferential amount payable in respect of such Preferred Stock in any such event. Miscellaneous. The Transfer Agent for the CIPSCO Common Stock is Illinois Stock Transfer Company, Chicago, Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago, Illinois. CIPSCO reserves the right to increase, decrease or reclassify its authorized capital stock or any class or series thereof, and to amend or repeal any provisions in the CIPSCO Articles, in the manner prescribed by law; and all rights conferred on shareholders in the CIPSCO Articles are subject to this reservation. EX-99.02 8 Exhibit 99.02 DESCRIPTION OF CAPITAL STOCK - CIPS General. The authorized capital stock of Central Illinois Public Service Company (CIPS) consists of 2,000,000 shares of Cumulative Preferred Stock, par value $100 per share, issuable in series, of which 800,000 shares are outstanding; 2,600,000 shares of Cumulative Preferred Stock without par value, issuable in series, of which no shares are outstanding (both such classes of preferred stock being hereinafter collectively referred to as the "Preferred Stock"); and 45,000,000 shares of Common Stock without par value of which 25,452,373 shares were outstanding (all of which were held by CIPSCO) at December 31, 1996. The following statements, unless the context otherwise indicates, are brief summaries of the substance or general effect of certain provisions of CIPS' Restated Articles of Incorporation and the resolutions establishing series of Preferred Stock (collectively, the "Articles"), and of its Mortgage Indenture securing its outstanding First Mortgage Bonds. Such statements make use of defined terms and are not complete; they are subject to all the provisions of the Articles or the Mortgage Indenture, as the case may be. Dividend Rights. Whenever dividends on all outstanding shares of the Preferred Stock of all series for all previous quarter-yearly dividend periods and the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, and whenever all amounts required to be set aside for any sinking fund for the redemption or purchase of shares of the Preferred Stock for all previous periods or dates shall have been paid or set aside, and subject to the limitations summarized below, the Board of Directors of CIPS may declare dividends on the CIPS Common Stock out of any surplus or net profits of CIPS legally available for the purpose. Currently, none of the series of the Preferred Stock have a sinking fund for the redemption or purchase of shares of such series. The Mortgage Indenture provides, in effect, that CIPS will not declare or pay any dividends (other than in stock) on CIPS Common Stock, or make any other distribution on or purchase any Common Stock, unless the total amount charged or provided for maintenance, repairs and depreciation of the mortgaged properties subsequent to December 31, 1940, plus the surplus earned during the period and remaining after any such dividend, distribution or purchase, shall equal at least 15% of CIPS' total utility operating revenues for the period, after deducting from such revenues the cost of electricity and gas purchased for resale. The Articles provide in effect that, so long as any Preferred Stock is outstanding, the total amount of all dividends or other distributions on CIPS Common Stock (other than in stock) that may be paid, and purchases of Common Stock that may be made, during any 12-month period shall not exceed (a) 75% of CIPS' net income (as defined) for the 12-month period next preceding each such dividend, distribution or purchase, if the ratio of "common stock equity" to "total capital" (as defined) is 20% to 25%, or (b) 50% of such net income if such ratio is less than 20%. If such ratio is in excess of 25%, no such dividends may be paid or distributions or purchases made that would reduce such ratio to less than 25% except to the extent permitted by clauses (a) and (b). At December 31, 1996, no amount of retained earnings was restricted as to the payment of dividends on CIPS Common Stock under the foregoing provisions of the Mortgage Indenture or the Articles. Voting Rights. Under Illinois law, each share of stock of CIPS, common and preferred, is entitled to one vote on each matter voted on at all meetings of shareholders, with the right of cumulative voting in the election of directors and the right to vote as a class on certain questions. The Articles give to holders of Preferred Stock certain special voting rights designed to protect their interests with respect to specified corporate action, including certain amendments to the Articles, the issuance of Preferred Stock or parity stock, the issuance or assumption of certain unsecured indebtedness, and mergers, consolidations or sales or leases of substantially all of CIPS' assets. Preemptive Rights. Holders of CIPS Common Stock have no preemptive subscription rights. Liquidation Rights. In the event of any liquidation or dissolution of CIPS, holders of Common Stock are entitled to share ratably in the net assets and profits of CIPS remaining after the payment in full to the holders of the CIPS Preferred Stock of the aggregate preferential amount payable in respect of the Preferred Stock in any such event. Miscellaneous. The Transfer Agent for the CIPS Common Stock is Illinois Stock Transfer Company, Chicago, Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago, Illinois. CIPS reserves the right to increase, decrease or reclassify its authorized capital stock or any class or series thereof, and to amend or repeal any provisions in the Articles; and all rights conferred on shareholders in the Articles are subject to this reservation. EX-99.03 9 EXHIBIT 99.03 The following are cautionary statements, assumptions and other factors that could cause CIPSCO's or CIPS' actual results to differ materially from those contemplated in any forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 1. Increased competition in the utility industry including effects of: decreasing margins as a result of competitive pressures; industry restructuring initiatives; inability to recover in rates a return on investments made under traditional regulation; legislation or regulatory initiatives (such as retail wheeling or open access) designed to increase competition and the presence of new competitors entering the CIPS service territory, including other traditional utilities, non-utility generators, power marketers, power brokers and others. These factors could result in lower revenues and earnings. 2. Economic conditions affecting customers' businesses producing changes in demand for their products or services or changes in their cost structures causing fluctuations in the amount of energy purchased from CIPS. These factors could have a significant impact on the economic health of the CIPS service territory, which (in turn) could have an adverse impact on revenues and earnings. 3. Financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Federal Energy Regulatory Commission and the Illinois Commerce Commission. These could adversely affect reported results. 4. Availability or cost of capital, which may be affected by, or may affect, interest rates, market perceptions of the utility and energy- related industries, the Company or any of its subsidiaries or changes in security ratings of the Company or CIPS. Increases in capital costs, without corresponding increases in revenues, would adversely affect earnings. 5. Unusual weather conditions; catastrophic weather-related events; unscheduled generation outages; unanticipated changes in the cost or availability of fuel or gas supply due to higher demand, shortages or transportation problems; or electric transmission system or gas pipeline constraints. The foregoing could adversely affect operating results. 6. Economic conditions including significant fluctuations in the rate of inflation. Increased costs caused by inflation, without corresponding increases in revenues would adversely affect earnings. 7. Changes in monetary, fiscal, tax or environmental policies of governments or governmental agencies, which may significantly affect costs of capital, expense levels or costs of compliance with existing or future environmental requirements. Such increases in costs, without corresponding increases in revenues, would adversely affect earnings. 8. Employee workforce factors including changes in collective bargaining agreements with union employees, or work stoppages, which may increase costs or reduce revenues. 9. Significant changes in policies of regulatory agencies with jurisdiction over CIPS' rates, which may adversely affect revenues and earnings. 10. Costs and other effects of legal and administrative proceedings, settlements, investigations and claims, including but not limited to those described in Note 4 of the Notes to Consolidated Financial Statements in the Company's and CIPS' Annual Report on Form 10-K for the year ended December 31, 1996, under the caption Commitments and Contingencies. Neither the Company nor CIPS undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. EX-24.01 10 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Robert W. Jackson _______________________________ (SEAL) Robert W. Jackson Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Richard A. Lumpkin _______________________________ (SEAL) Richard A. Lumpkin Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 EX-24.02 11 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Robert W. Jackson _______________________________ (SEAL) Robert W. Jackson Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Richard A. Lumpkin _______________________________ (SEAL) Richard A. Lumpkin Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1996, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 3rd day of December, 1996. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 3rd day of December, 1996. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 EX-27.2 12
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. 0000018654 CIPS 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 PER-BOOK 1,458,124 0 202,952 64,754 27,488 1,753,318 121,282 0 459,942 581,224 0 80,000 421,228 0 0 57,768 58,000 0 0 0 555,098 1,753,318 886,186 47,693 721,962 769,655 116,531 (1,867) 114,664 37,271 73,672 3,721 77,393 62,950 33,118 164,524 0 0 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE.
EX-27.1 13
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. 0000860520 CIPSCO Inc. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 PER-BOOK 1,458,124 113,310 206,973 64,754 28,495 1,871,656 356,812 0 304,782 661,594 0 80,000 421,227 0 0 57,768 58,000 0 0 0 593,067 1,871,656 896,715 49,557 723,706 773,263 123,452 (2,784) 120,668 36,890 83,778 3,721 80,057 70,524 33,118 173,025 2.35 2.35 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDENDS OF SUBSIDIARY
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