-----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, Bd36KiK20mDiD/uQrFP8CqbymMPOXYEiDSeXSApuagBZWqCHZcBKnEZ51dsjNqTs 7/TitjxTGRJUi9LhWBc8bA== 0000860520-97-000017.txt : 19970815 0000860520-97-000017.hdr.sgml : 19970815 ACCESSION NUMBER: 0000860520-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10628 FILM NUMBER: 97663947 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20455 FILM NUMBER: 97663948 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1997 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; I.R.S. 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 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No _____ _____ Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: CIPSCO INCORPORATED Common stock, no par value, 34,069,542 shares outstanding July 31, 1997 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Common stock, no par value, 25,452,373 shares outstanding and held by CIPSCO INCORPORATED at July 31, 1997 CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CIPSCO INCORPORATED Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income Balance Sheets Statements of Cash Flows CONDENSED NOTES TO FINANCIAL STATEMENTS of CIPSCO Incorporated and Central Illinois Public Service Company Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for CIPSCO Incorporated and Central Illinois Public Service Company PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit Index Exhibit 12 The unaudited interim financial statements presented herein include the consolidated statements of CIPSCO Incorporated and Subsidiaries ("Company") as well as separate financial statements for Central Illinois Public Service Company ("CIPS"). The unaudited statements have been prepared by the Company and CIPS, respectively, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company and CIPS believe the disclosures are adequate to make the information presented not misleading. Both the Company's consolidated financial statements and the CIPS financial statements should be read in conjunction with the financial statements and notes thereto included in the combined Annual Report on Form 10-K of CIPSCO Incorporated and CIPS for the year ended December 31, 1996. In the opinion of the Company and CIPS, their respective interim financial statements filed as part of this Form 10-Q reflect all adjustments necessary to present fairly the results for the respective periods. Due to the effect of weather and other factors which are characteristic of CIPS' utility operations, financial results for the periods ended June 30, 1997 and 1996 are not necessarily indicative of trends for any twelve-month period. This financial and other information is not given in connection with any sale or offer to buy any security. 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 Quarterly Report on Form 10-Q of Central Illinois Public Service Company. Part I. FINANCIAL INFORMATION Item 1. Financial Statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Income For the Periods Ended June 30, 1997 and 1996 (in thousands except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ____________________ __________________ 1997 1996 1997 1996 ________ ________ ________ ________ Operating Revenues: Electric . . . . . . . . . . . . $168,153 $169,922 $329,015 $341,210 Gas. . . . . . . . . . . . . . . 24,287 20,941 85,425 85,359 Investment . . . . . . . . . . . 2,478 2,909 5,821 5,082 ________ ________ ________ ________ Total operating revenues. . . 194,918 193,772 420,261 431,651 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation . . 52,217 50,567 104,895 106,715 Purchased power. . . . . . . . . 6,616 11,810 11,550 24,931 Gas costs. . . . . . . . . . . . 14,665 11,484 54,994 52,681 Other operation. . . . . . . . . 38,178 34,572 78,082 69,207 Maintenance. . . . . . . . . . . 17,391 19,535 32,262 30,971 Depreciation and amortization. . 23,100 22,217 45,710 43,130 Taxes other than income taxes. . 13,100 13,371 29,168 29,384 ________ ________ ________ ________ Total operating expenses. . . 165,267 163,556 356,661 357,019 ________ ________ ________ ________ Operating Income . . . . . . . . . 29,651 30,216 63,600 74,632 ________ ________ ________ ________ Interest and Other Charges: Interest on long-term debt of subsidiary . . . . . . . . . . 8,582 8,281 16,382 16,560 Other interest charges . . . . . 855 484 1,484 927 Allowance for funds used during construction . . . . . . . . . 167 (150) (326) (175) Preferred stock dividends of subsidiary. . . . . . . . . . . 929 925 1,842 1,864 Miscellaneous, net . . . . . . . 180 860 253 1,062 ________ ________ ________ ________ Total interest and other charges . 10,713 10,400 19,635 20,238 ________ ________ ________ ________ Income Before Income Taxes . . . . 18,938 19,816 43,965 54,394 ________ ________ ________ ________ Income Taxes . . . . . . . . . . . 6,689 7,834 16,165 21,294 ________ ________ ________ ________ Net Income . . . . . . . . . . . . $ 12,249 $ 11,982 $ 27,800 $ 33,100 ======== ======== ======== ======== Average Shares of Common Stock Outstanding . . . . . . . . . . . 34,070 34,070 34,070 34,070 Earnings per Average Share of Common Stock . . . . . . . . . . $ .36 $ .35 $ .82 $ .97
The accompanying condensed notes to financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets June 30,1997 and December 31, 1996 (in thousands) June 30, December 31, 1997 1996 _____________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric................................ $2,286,097 $2,244,571 Gas..................................... 245,808 242,664 __________ __________ 2,531,905 2,487,235 Less-Accumulated depreciation........... 1,106,615 1,099,261 __________ __________ 1,425,290 1,387,974 Construction work in progress........... 43,692 70,150 __________ __________ 1,468,982 1,458,124 __________ __________ Current Assets: Cash.................................... 4,887 2,287 Temporary investments, at cost which approximates market.................... 3,124 3,983 Accounts receivable, net................ 67,810 74,693 Accrued unbilled revenues............... 28,860 30,126 Materials and supplies, at average cost. 38,402 38,806 Fuel for electric generation, at average cost........................... 27,374 21,610 Gas stored underground, at average cost. 8,776 13,361 Prepayments............................. 12,425 14,403 Other current assets.................... 7,976 7,704 __________ __________ 199,634 206,973 __________ __________ Regulatory Assets......................... 129,844 64,754 __________ __________ Investments and Other Assets: Marketable securities................... 54,090 51,293 Leveraged leases and energy investments. 63,708 62,017 Other................................... 28,946 28,495 __________ __________ 146,744 141,805 __________ __________ $1,945,204 $1,871,656 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity............. $ 653,735 $ 661,594 Preferred stock of subsidiary........... 80,000 80,000 Long-term debt of subsidiary............ 570,379 421,227 __________ __________ 1,304,114 1,162,821 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year........................ - 58,000 Short-term borrowings................... 55,481 57,768 Accounts payable........................ 44,493 62,774 Accrued wages........................... 11,177 10,294 Accrued taxes........................... 14,735 13,692 Accrued interest........................ 9,587 8,432 Other................................... 59,099 49,302 __________ __________ 194,572 260,262 __________ __________ Deferred Credits: Accumulated deferred income taxes....... 340,609 341,373 Investment tax credits.................. 47,218 48,885 Regulatory liabilities, net............. 58,691 58,315 __________ __________ 446,518 448,573 __________ __________ $1,945,204 $1,871,656 ========== ==========
The accompanying condensed notes to financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Periods Ended June 30, 1997 and 1996 (in thousands) (unaudited) Six Months Ended June 30, _________________________ 1997 1996 __________ __________ Operating Activities: Net income............................. $ 27,800 $ 33,100 Adjustments to reconcile net income to net cash provided (used in): Depreciation and amortization........ 45,710 43,130 Allowance for equity funds used during construction (AFUDC)......... (144) (77) Deferred income taxes, net........... (764) 95 Investment tax credit amortization... (1,667) (1,674) Coal contract restructuring charge... (71,795) - Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues........... 8,149 (9,874) Fuel for electric generation......... (5,764) 8,622 Other inventories.................... 4,989 2,648 Prepayments.......................... 1,978 1,247 Other assets......................... (723) (3,417) Accounts payable and other liabilities......................... (8,484) 10,966 Accrued wages, taxes and interest.... 3,081 4,368 Other.................................. 2,697 559 __________ __________ Net cash provided by (used in) operating activities................ 5,063 89,693 __________ __________ Investing Activities: Utility construction expenditures, excluding AFUDC....................... (50,869) (38,208) Allowance for borrowed funds used during construction................... (182) (98) Changes in temporary investments....... 859 (1,640) Long-term marketable securities........ (2,797) (2,466) Long-term leveraged leases and energy investments........................... (1,691) (1,129) __________ __________ Net cash used in investing activities.......................... (54,680) (43,541) __________ __________ Financing Activities: Common stock dividends paid............ (35,773) (35,092) Proceeds from issuance of long-term debt of subsidiary.................... 152,000 - Repayment of long-term debt of subsidiary............................ (61,000) - Repayment of short-term borrowings..... (2,287) (9,439) Issuance expense, discount and premium. (723) (12) __________ __________ Net cash provided by (used in) financing activities................ 52,217 (44,543) __________ __________ Net increase (decrease) in cash........ 2,600 1,609 Cash at beginning of period............ 2,287 1,088 __________ __________ Cash at end of period.................. $ 4,887 $ 2,697 ========== ========== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized. $ 17,184 $ 16,273 Income taxes......................... $ 21,617 $ 22,802
The accompanying condensed notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income For the Periods Ended June 30, 1997 and 1996 (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, __________________ __________________ 1997 1996 1997 1996 ________ ________ ________ ________ Operating Revenues: Electric . . . . . . . . . . . $168,159 $169,929 $329,027 $341,224 Gas. . . . . . . . . . . . . . 24,288 20,942 85,427 85,361 ________ ________ ________ ________ Total operating revenues. . 192,447 190,871 414,454 426,585 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation . 52,217 50,567 104,895 106,715 Purchased power . . . . . . . 6,616 11,810 11,550 24,931 Gas costs . . . . . . . . . . 14,665 11,484 54,994 52,681 Other operation . . . . . . . 37,879 34,250 77,430 68,541 Maintenance . . . . . . . . . 17,391 19,534 32,261 30,969 Depreciation and amortization . . . . . . . . 22,979 22,090 45,471 42,876 Taxes other than income taxes . . . . . . . . . . . . 13,089 13,363 29,150 29,371 Income taxes: Current . . . . . . . . . . 8,047 8,896 20,567 25,486 Deferred, net . . . . . . . (1,315) (966) (4,438) (3,748) Deferred investment tax credits, net. . . . . . . . (834) (837) (1,667) (1,674) ________ ________ ________ ________ Total operating expenses. . 170,734 170,191 370,213 376,148 ________ ________ ________ ________ Operating Income . . . . . . . . 21,713 20,680 44,241 50,437 ________ ________ ________ ________ Other Income and Deductions: Allowance for equity funds used during construction. . . (74) 66 144 77 Nonoperating income taxes. . . (139) (40) (339) (338) Miscellaneous, net . . . . . . (144) (829) (170) (1,000) ________ ________ ________ ________ Total other income and deductions . . . . . . . . (357) (803) (365) (1,261) ________ ________ ________ ________ Income Before Interest Charges . 21,356 19,877 43,876 49,176 ________ ________ ________ ________ Interest Charges: Interest on long-term debt . . 8,582 8,281 16,382 16,560 Other interest charges . . . . 850 484 1,480 927 Allowance for borrowed funds used during construction. . . 93 (84) (182) (98) ________ ________ ________ ________ Total interest charges . . 9,525 8,681 17,680 17,389 ________ ________ ________ ________ Net Income . . . . . . . . . . . 11,831 11,196 26,196 31,787 Preferred Stock Dividends. . . . 929 925 1,841 1,864 ________ ________ ________ ________ Earnings for Common Stock. . . . $ 10,902 $ 10,271 $ 24,355 $ 29,923 ======== ======== ======== ========
The accompanying condensed notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Balance Sheets June 30, 1997 and December 31, 1996 (in thousands) June 30, December 31, 1997 1996 _____________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric................................. $2,286,097 $2,244,571 Gas...................................... 245,808 242,664 __________ __________ 2,531,905 2,487,235 Less-Accumulated depreciation............ 1,106,615 1,099,261 __________ __________ 1,425,290 1,387,974 Construction work in progress............ 43,692 70,150 __________ __________ 1,468,982 1,458,124 __________ __________ Current Assets: Cash..................................... 4,600 2,261 Accounts receivable, net................. 67,841 74,761 Accrued unbilled revenues................ 28,860 30,126 Materials and supplies, at average cost.. 38,402 38,806 Fuel for electric generation, at average cost............................ 27,374 21,610 Gas stored underground, at average cost.. 8,776 13,361 Prepayments.............................. 12,306 14,323 Other current assets..................... 7,976 7,704 __________ __________ 196,135 202,952 __________ __________ Regulatory Assets.......................... 129,844 64,754 __________ __________ Other Assets............................... 27,794 27,488 __________ __________ $1,822,755 $1,753,318 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity.............. $ 570,293 $ 581,224 Preferred stock.......................... 80,000 80,000 Long-term debt........................... 570,379 421,228 __________ __________ 1,220,672 1,082,452 __________ __________ Current Liabilities: Long-term debt due within one year....... - 58,000 Short-term borrowings.................... 55,481 57,768 Accounts payable......................... 43,746 62,243 Accrued wages............................ 11,177 10,279 Accrued taxes............................ 16,459 13,943 Accrued interest......................... 9,587 8,432 Other.................................... 59,098 49,301 __________ __________ 195,548 259,966 __________ __________ Deferred Credits: Accumulated deferred income taxes........ 300,626 303,700 Investment tax credits................... 47,218 48,885 Regulatory liabilities, net.............. 58,691 58,315 __________ __________ 406,535 410,900 __________ __________ $1,822,755 $1,753,318 ========== ==========
The accompanying condensed notes to financial statements are an integral part of these statements. Central Illinois Public Service Company Statements of Cash Flows For the Periods Ended June 30, 1997 and 1996 (in thousands) (unaudited) Six Months Ended June 30, _______________________ 1997 1996 __________ __________ Operating Activities: Net income.............................. $ 26,196 $ 31,787 Adjustments to reconcile net income to net cash provided (used in): Depreciation and amortization......... 45,471 42,876 Allowance for equity funds used during construction (AFUDC).......... (144) (77) Deferred income taxes, net............ (3,074) (3,748) Investment tax credit amortization.... (1,667) (1,674) Coal contract restructuring charge.... (71,795) - Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues.................... 8,186 (9,749) Fuel for electric generation.......... (5,764) 8,622 Other inventories..................... 4,989 2,648 Prepayments........................... 2,017 1,966 Other assets.......................... (578) (3,132) Accounts payable and other liabilities.......................... (8,700) 10,083 Accrued wages, taxes and interest..... 4,569 4,850 Other................................... 2,935 813 _________ _________ Net cash provided by (used in) operating activities................. 2,641 85,265 _________ _________ Investing Activities: Construction expenditures, excluding AFUDC.................................. (50,869) (38,208) Allowance for borrowed funds used during construction.................... (182) (98) _________ _________ Net cash used in investing activities. (51,051) (38,306) _________ _________ Financing Activities: Proceeds from issuance of long-term debt................................... 152,000 - Repayment of long-term debt............. (61,000) - Repayment of short-term borrowings...... (2,287) (9,439) Dividends paid: Preferred stock....................... (1,841) (1,864) Common stock.......................... (35,400) (34,000) Issuance expense, discount and premium.. (723) (12) _________ _________ Net cash provided by (used in) financing activities................. 50,749 (45,315) _________ _________ Net increase (decrease) in cash......... 2,339 1,644 Cash at beginning of period............. 2,261 1,006 _________ _________ Cash at end of period................... $ 4,600 $ 2,650 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized.. $ 17,184 $ 16,273 Income taxes.......................... $ 21,100 $ 25,238
The accompanying condensed notes to financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CENTRAL ILLINOIS PUBLIC SERVICE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997 (unaudited) Note 1. GENERAL ________________ The consolidated financial statements presented herein include the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as the "Company." CIPSCO has two first-tier subsidiaries: CIC, an investment subsidiary, and CIPS, an electric and gas public utility. The financial statements of CIPS, a subsidiary of CIPSCO, include only the accounts of CIPS. Certain items previously reported for periods prior to 1997 have been reclassified to conform with the current-period presentation. Note 2. COMMITMENTS AND CONTINGENCIES ______________________________________ ENVIRONMENTAL REMEDIATION COSTS - CIPS 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 of the 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 at the 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 Commerce Commission (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 June 30, 1997, $50.7 million had been deferred representing costs incurred and the 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 rate riders described above, was $13.2 million at June 30, 1997. The Illinois commission has instituted 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 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 costs. Management believes that any costs 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. 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 issues 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. 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 3. REGULATORY MATTERS ___________________________ The operations of CIPS are subject to the regulation of the Illinois commission and the Federal Energy Regulatory Commission ("FERC"). Accordingly, its accounting policies are subject to the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for Effects of Certain Types of Regulation." Regulatory assets represent probable future revenue to CIPS associated with certain costs which will be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets as of June 30, 1997 relate to the following: Description Amount ___________ ______ (in thousands) Regulatory Assets: Coal contract restructuring charge $ 67,038 Undepreciated plant costs 37,906 Unamortized costs related to reacquired debt 11,613 Deferred environmental remediation costs 13,229 Take-or-Pay costs 58 ___________ Regulatory Assets $ 129,844 =========== Regulatory Liabilities: SFAS 109 - Income Taxes, net $ 56,225 Clean Air Act allowances, net 2,466 ___________ Regulatory Liabilities, Net $ 58,691 =========== SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" amends SFAS No. 71 and imposes a stricter criteria for retention of regulatory assets by requiring that such assets be probable of recovery through future revenues at each balance sheet date. The Company continually assesses the recoverability of its regulatory assets, and if all, or a separable portion of CIPS' operations becomes no longer subject to the provisions of SFAS No. 71, a write off of all or a portion of the related regulatory assets and liabilities may be required. In addition, a determination would have to be made regarding the impairment and writedown of certain other assets. Note 4. COAL CONTRACT RESTRUCTURING _____________________________________ In 1996 CIPS and a major coal supplier for Newton and Grand Tower power stations restructured a long-term coal contract. Under the restructuring, CIPS paid the supplier a $70 million restructuring charge (plus interest from November 1, 1996) in the first quarter of 1997; is purchasing at market prices low-sulfur, out-of-state coal through the supplier (in substitution for the high-sulfur Illinois coal CIPS was obligated to purchase under the original contract); and obtained 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 was 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 costs of removal). The net benefits of the restructuring are expected to exceed $100 million dollars over the next 10 years. In December 1996, CIPS obtained an order of the Illinois commission approving the switch to out-of-state coal, recovery of the restructuring charge plus associated carrying costs through the fuel adjustment clause (FAC) over six years, and continued recovery in rates of the undepreciated scrubber investment plus costs of removal. On February 28, 1997, a group of industrial customers (who also 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 part of the order authorizing CIPS to recover the restructuring charge through the FAC. On August 11, 1997 the FERC approved the recovery of the restructuring charge through the wholesale FAC effective May 8, 1997, subject to a 30-day appeal by intervenors. The Company believes the Illinois commission order in this matter is lawful and proper, will vigorously defend its position, and believes that the order will be upheld. If the industrial customers should prevail, CIPS may 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. In such an event, CIPS could initiate a rate filing seeking new base rates designed to recover the restructuring charge. The Company believes that recovery of the restructuring charge is probable, and the related regulatory assets recorded in the matter are in compliance with SFAS No. 71 as amended by SFAS No. 121 (See Note 3 to Condensed Notes to Financial Statements). Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations CIPSCO and Union Electric Company ("UE") entered into a Merger Agreement dated August 11, 1995. Information concerning the agreement is included in Part II, Item 5. Other Information of this report. CIPSCO's and Union Electric Company's proposed merger is awaiting certain regulatory and governmental approvals and is expected to be completed by year-end 1997. Stockholders at both companies approved the merger on December 20, 1995, and the Missouri Public Service Commission approved the merger on February 21, 1997. The Illinois Commerce Commission (Illinois commission), the Federal Energy Regulatory Commission (FERC) and various other federal agencies are expected to issue decisions on the merger later this year. On April 30, 1997, the presiding administrative law judge in the FERC case issued an initial decision finding that, subject to certain conditions, the merger between CIPSCO and UE is in the public interest and should be approved. The conditions concern certain power and transmission service agreements with other utilities. A final order from the FERC is expected later this year. On July 25, 1997, a Hearing Examiner for the Illinois commission issued a second proposed order in connection with the CIPSCO and UE merger proceedings. In the July 1997 proposed order, the Hearing Examiner affirmed the recommendations made in the November 1996 proposed order, including that the merger between CIPSCO and UE be approved. In addition, the July 1997 proposed order addressed market power issues, as well as issues associated with affiliate transactions. In the July 1997 proposed order, the Hearing Examiner concluded that the proposed merger does not create any significant retail market power issues and that CIPSCO's and UE's proposed treatment of affiliate transactions is reasonable. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, required review of the proposed merger by the Federal Trade Commission and the Department of Justice. On May 18, 1997, the waiting period established by the Act expired without action by either agency thus clearing the merger from federal antitrust review. The following discussion and analysis of financial condition and results of operations is for CIPSCO Incorporated and Subsidiaries ("Company") unless otherwise stated. THE OUTLOOK CIPS currently estimates that its total construction expenditures for the 1997-2001 period will be about $482 million. 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. See "National Ambient Air Quality Standards" below. 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 the coal contract restructuring payment. CIPS has remaining authority through December 31, 1998 from the Illinois commission to incur up to $51 million in long-term debt. At June 30, 1997, remaining authority under registration statements filed with the Securities and Exchange Commission was $75 million. Common stock dividends paid for the twelve months ended June 30, 1997, resulted in a payout ratio of 95% of the Company's earnings to common shareholders. Common stock dividends paid to the Company's common shareholders equalled 81% of net cash provided by operating activities for the same period. FINANCIAL CONDITION Financial condition and changes in total Shareholder Equity of the Company and CIPS for the six-month periods ended June 30, 1997 and 1996 are as follows: Six Months Ended June 30, _________________________ (in thousands) The Company: 1997 1996 _________ _________ Common Shareholders' Equity Net income $ 27,800 $ 33,100 Common stock dividends paid (35,773) (35,092) Other 114 407 ________ ________ Change in Shareholders' Equity $ (7,859) $ (1,585) ======== ======== Six Months Ended June 30, _________________________ (in thousands) CIPS: 1997 1996 _________ _________ Common Shareholder's Equity Earnings for common stock $ 24,355 $ 29,923 Common stock dividends paid (35,400) (34,000) Other 114 (38) ________ ________ Change in Shareholder's Equity $(10,931) $ (4,115) ======== ======== OVERVIEW The Company's earnings per share were $.36 for the quarter ended June 30, 1997, compared to $.35 per share earned during the same period in 1996. The nearly flat earnings reflect a slight increase in sales margins offset by an increase in unusual costs for corporate restructuring and the proposed merger. The Company's earnings per share were $.82 for the six months ended June 30, 1997, compared to $.97 per share earned during the same period in 1996. The decrease primarily reflects higher expenses in 1997 due to costs related to business restructuring, system conversions and two planned maintenance outages at power stations. The following table summarizes the components of consolidated net income and CIPS earnings for common stock for the three months and six month periods ended June 30, 1997 and 1996 (see Results of Operations for further discussion). In this table, electric operating margin equals electric operating revenues less revenue taxes, fuel for electric generation and purchased power. Gas operating margin equals gas operating revenues less revenue taxes and gas costs. Second Quarter Six Months Ended June 30, Ended June 30, ___________________ ___________________ (in thousands) 1997 1996 1997 1996 ________ ________ ________ ________ CIPS Electric operating margin $103,946 $101,948 $201,373 $197,924 Gas operating margin 8,320 7,952 25,689 27,651 Other deductions and interest expenses (100,435) (98,704) (200,865) (193,788) CIPS preferred stock dividends (929) (925) (1,842) (1,864) ________ ________ ________ ________ Total earnings for common stock 10,902 10,271 24,355 29,923 ________ ________ ________ ________ NON-UTILITY Investment revenues 2,441 2,875 5,735 5,015 Other deductions and expenses (1,092) (1,164) (2,290) (1,838) ________ ________ ________ ________ Total non-utility net income 1,349 1,711 3,445 3,177 ________ ________ ________ ________ Consolidated net income $ 12,249 $ 11,982 $ 27,800 $ 33,100 ======== ======== ======== ======== RESULTS OF OPERATIONS The results of operations of the Company and CIPS for the three months and six months ended June 30, 1997, compared to the same periods in 1996 are presented below. The Company Net Income (in thousands) Earnings Per Share _______________________ _______________________ Three Months Six Months Three Months Six Months ____________ __________ ____________ __________ 1997 $12,249 $27,800 $ .36 $ .82 1996 11,982 33,100 .35 .97 _______ _______ _____ _____ Increase (Decrease) $ 267 $(5,300) $ .01 $(.15) Percent Increase (Decrease) 2 % (16)% 3 % (15)% CIPS Earnings for Common Stock (in thousands) __________________________ Three Months Six Months ____________ __________ 1997 $10,902 $24,355 1996 10,271 29,923 _______ _______ Increase (Decrease) $ 631 $(5,568) ======= ======= Percent Increase (Decrease) 6 % (19)% OPERATING REVENUES The changes in electric and gas revenues described below are for the Company. The only differences between changes in electric and gas operating revenues for the Company and for CIPS are intercompany revenues that are eliminated in the consolidated financial statements. These intercompany amounts are immaterial. Electric revenues declined 1% in the second quarter of 1997 compared to the second quarter of 1996 reflecting a 1% decline in KWH sales due principally to milder weather conditions in 1997. Cooling degree days in the second quarter of 1997 were 25% lower than in 1996. Power supply agreement revenues for the second quarter of 1997 improved 17% over the second quarter 1996 due to increased sales of energy resulting from pricing adjustments to two agreements. Economy and emergency interchange sales declined in the second quarter of 1997 over the same period in 1996 due to accounting for certain interchange transactions as transmission service, in compliance with FERC Order No. 888 on open transmission access, rather than as purchase and resale transactions as was done in 1996 prior to FERC Order No. 888 being effective. Electric revenues decreased 4% in the first six months of 1997 compared to the same period of 1996 reflecting lower KWH sales due principally to weather conditions in 1997. KWH sales to residential and industrial customers decreased 4% and 6%, respectively, due to the weather while commercial electric sales had 1% growth. Public authorities and other revenues are higher in the first six months of 1997 compared to the same period of 1996 due to transmission service revenues, which are included in this category in 1997. Power supply agreement revenues for the six months ended June 30, 1997, were 14% above those of the same period in 1996 due to increased energy sales related to these agreements. Economy and emergency interchange sales declined in the first six months of 1997 over the same period in 1996 due to accounting for certain interchange transactions as transmission service, as discussed above. Sales to cooperatives and municipals decreased in the six months ended June 30, 1997 compared to the same period in 1996 due primarily to unfavorable weather conditions in 1997. The changes in electric revenue and KWH sales are shown below: CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) ______________________________ _____________________________ Second Quarter Six Months ______________________________ _____________________________ Revenue Rev % KWH KWH % Revenue Rev % KWH KWH % ________ _____ ________ _____ _______ _____ ________ _____ Residential $ (1,255) (2)% (32,214) (5)% $ (4,201) (4)% (73,889) (5)% Commercial 1,271 3 1,731 - 458 1 3,849 - Industrial (1,727) (6) (36,588) (6) (3,179) (6) (48,772) (4) Public Authorities and Other 1,527 32 (225) (1) 2,807 29 5,264 6 ________ ________ ________ _______ Total Retail $ (184) - % (67,296) (3)% $ (4,115) (2)% (113,547) (3) % Power Supply Agreements $ 2,862 17 % 165,787 51 % $ 4,688 14 % 277,851 40 % Interchange Sales (economy/ emergency) (3,492) (21) (121,001) (15) (11,496) (32) (479,556)(28) Cooperatives and Municipals (955) (18) (15,314) (12) (1,272) (11) (20,728) (8) ________ ________ ________ _______ Total Sales for Resale $ (1,585) (4)% 29,472 2 % $ (8,082) (10)% (222,434) (8) % ________ ________ ________ _______ Total $ (1,769) (1)% (37,824) (1)% $(12,197) (4)% (335,981) (5)% ======== ======== ======== ======= Gas revenues increased 16% in the second quarter of 1997 compared to the same period in 1996 due principally to therm sales to others for resale. Residential and commercial gas revenues declined 1% and 7%, respectively, for the second quarter of 1997 and 6% and 8% in the first six months of 1997 over the same periods in 1996 due to milder weather. Industrial revenues increased 12% and 8%, respectively, in the second quarter and the first six months of 1997, primarily attributable to higher purchased gas costs which flow through to revenues through the Purchased Gas Adjustment clause (PGA). Gas transportation revenues declined 11% in the second quarter of 1997 and 17% for the first six months of 1997 reflecting an increase in customers buying from the CIPS system rather than buying off system and paying CIPS to transport customer owned gas. In addition to traditional sales to end users, CIPS sells gas to others for resale. Sales for resale in 1997 continued to offset the above mentioned declines, whereas such sales were minimal in 1996. The changes in gas revenues and therm sales are shown below. CHANGES IN GAS REVENUE AND THERM SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) _____________________________ ______________________________ Second Quarter Six Months _____________________________ ______________________________ Revenue Rev % Therms Therms Revenue Rev % Therms Therms % % ________ _____ ______ ______ _______ _____ ______ ______ Residential $ (127) (1)% (1,067) (5)% $ (3,265) (6)% (13,513) (13)% Commercial (282) (7) (636) (10) (1,587) (8) (5,411) (15) Industrial 259 12 1,803 32 461 8 1,443 8 Sales for Resale 3,662 100 18,212 100 5,073 100 22,449 100 Transportation (160) (11) (3,182) (11) (653) (17) (4,213) 6 Miscellaneous (6) (5) - - 37 13 - - ________ ______ ________ ______ Total $ 3,346 16 % 15,130 25 % $ 66 - % 754 - % ======== ====== ======== ====== Investment revenues decreased 15% in the second quarter of 1997 compared to the second quarter of 1996 due to a stronger market performance of marketable security investments in the second quarter 1996. Investment revenues increased 15% for the first six months of 1997 compared to the same period in 1996 due to an adjustment to reflect a change in accounting to market valuation made in first quarter 1996 as well as strong market gains in the first quarter of 1997. OPERATING EXPENSES __________________ Fuel for electric generation increased 3% in the second quarter of 1997 compared to the same period in 1996. The increase results from an eight percent increase in generation. Fuel for electric generation decreased 2% for the first six months of 1997 compared to the same period in 1996 due to a six percent decline in generation. Purchased power costs declined 44% for the second quarter of 1997 compared with the same period in 1996 reflecting decreases in purchases made for resale to interchange economy and emergency customers. Beginning in 1997, certain interchange sales which were previously recorded as purchased power sold for resale are now accounted for as transmission service revenue in accordance with FERC Order No. 888 involving open access to transmission lines. Therefore, purchased power and interchange economy and emergency sales both declined in the second quarter 1997 compared to the second quarter 1996. Purchased power costs declined 54% for the first six months of 1997 compared to the same period in 1996 due to the same reasons discussed above. Gas costs increased 28% for the second quarter of 1997 and 4% for the six months ended June 1997 when compared to the same periods in 1996 due principally to increased therms purchased for resale to wholesale customers. Other operation expenses increased 10% in the second quarter of 1997 and 13% in the first six months of 1997 compared to the same periods in 1996 due primarily to increases in business restructuring costs, system conversion costs, outside consulting expenses, and employee welfare expenses. Maintenance expenses decreased 11% for the second quarter of 1997 compared to the same period of 1996 because of less scheduled maintenance at the power stations. Maintenance expenses increased 4% for the first six months of 1997 over the same period in 1996 due to two scheduled power plant maintenance projects in 1997 and only one scheduled in 1996. Depreciation and amortization expense increased 4% in the second quarter of 1997 and 6% for the first six months of 1997 when compared to the same periods in 1996 due to normal plant additions. Interest and other charges increased 3% in the second quarter of 1997 compared to the second quarter of 1996 primarily due to an increase in long-term debt outstanding. Interest and other charges decreased 3% for the first six months of 1997 compared to the same period in 1996 due to higher allowances for funds used during construction due to higher construction activity and lower merger transaction costs. BALANCE SHEET _____________ Significant changes in the balance sheet accounts at June 30, 1997 compared to balances at December 31, 1996 are: Gas stored underground, at average cost, decreased 34% during the six months due to normal winter heating season withdrawal of stored gas prior to the summer replenishment of the underground storage. Regulatory assets increased 101% primarily due to the coal contract restructuring charge attributable to the coal contract restructuring completed in the first quarter of 1997. See Note 4 of Condensed Notes to Financial Statements. LABOR NEGOTIATIONS __________________ CIPS is negotiating with three separate employee groups consisting of (i) four clerical employees at its Newton power station, (ii) six clerical employees at its Coffeen power station and (iii) 16 production and technical employees at a Springfield, Illinois operations facility. These groups have been certified by the NLRB to be represented by labor organizations. While these groups will be represented by union locals which currently represent other CIPS employees, existing labor contracts do not cover these three groups. As of the date of this Quarterly Report on Form 10-Q (August 14, 1997) the status of negotiations with respect to the three employee bargaining groups is as follows: (i) Newton Power Station employees are expected to vote within the next few days on the Company's final offer, (ii) Coffeen Power Station employees have ratified a final agreement with the Company, and (iii) Springfield production and technical employees have reached a tentative agreement with the Company. Although CIPS expects to reach a final agreement with all three bargaining units, until such agreements are reached, a strike, work stoppage, work slowdown, or similar action involving such employees, and other collective bargaining unit employees, could occur. CIPS believes that the continuation of any one or more of such events for a limited period would not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. LEGISLATIVE MATTERS ___________________ As reported in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 1996 Form 10-K of the Company and CIPS under the caption "Regulation and Competition," various groups have made proposals for utility deregulation legislation in Illinois. During 1997, negotiations had been underway with state legislators, various interest groups and utilities, including CIPS, for the purpose of developing a comprehensive deregulation bill that would have general support. The various groups stopped these discussions in mid-May, 1997 without reaching consensus on many of the major issues concerning deregulation. A legislative proposal which was not adopted proposed a phase-in of customer choice as well as immediate rate reductions for all the State's investor owned utilities. CIPS will continue to take an active part in the deregulation discussions and negotiations, but cannot predict the final form of any deregulation legislation or when such legislation might be effective. National Ambient Air Quality Standards ______________________________________ The U.S. Environmental Protection Agency issued final rules on July 18, 1997 revising the National Ambient Air Quality Standards for ozone and particulate matter. The revised standards would require significant reductions in sulfur dioxide and nitrogen oxide emissions from coal-fired boilers beginning in 2005. Because of the magnitude of these additional reductions (50 percent beyond that already required by the Phase II acid rain control provisions of the 1990 Clean Air Act Amendments which become effective January 1, 2000), CIPS could be required to incur substantial costs to meet future compliance obligations for its coal-fired boilers. ACCOUNTING MATTERS __________________ In February 1997, the Financial Accounting Standards Board issued SFAS No. 129, "Disclosure of Information about Capital Structure" (FAS 129). This statement establishes standards for disclosing information about an entity's capital structure. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" (FAS 130) and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (FAS 131). FAS 130 establishes standards for reporting and display of comprehensive income. FAS 131 establishes standards for reporting information about operating segments in annual financial statements and interim reports to shareholders. FAS 129 is effective for financial statements issued for periods ending after December 15, 1997. FAS 130 and FAS 131 are effective for fiscal years beginning after December 15, 1997. FAS 129, FAS 130 and FAS 131 are not expected to have a material effect on the Company's financial position or results of operations upon adoption. 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) amounts of future construction expenditures, sources of funds to meet capital requirements and financing requirements, (iii) the expected outcome of negotiations with collective bargaining units regarding new labor contracts, (iv) anticipated deregulation legislation, and (v) the impact of future compliance with National Ambient Air Quality Standards. 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 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 in Exhibit 99.03, cautionary statements, to the 1996 Annual Report on Form 10-K of the Company and CIPS, incorporated herein by reference. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Item 1. Legal Proceedings in Part II on page 22 of the CIPSCO and CIPS combined Form 10-Q Quarterly Report for the quarter ended March 31, 1997 concerning the declaratory judgment action filed in the United States District Court for the Central District of Illinois against Atlas Minerals. On May 27, 1997, the Court granted summary judgment in favor of CIPS on the Atlas Minerals claims finding that CIPS is not required to purchase more coal under the expired contract and is not responsible for damages to Atlas Minerals. The court found that CIPS was not entitled to any damages against Atlas Minerals. Atlas Minerals has appealed this ruling to the Seventh Circuit Court of Appeals. A final resolution of this appeal is expected in the first half of 1998. Item 5. Other Information. AMEREN CORPORATION -- Unaudited Pro Forma Combined Condensed Financial Information of CIPSCO and Union Electric Company. On August 11, 1995, CIPSCO and Union Electric Company ("UE") entered into an Agreement and Plan of Merger, which was subsequently approved by the shareholders of both parties. The merger ("Merger") is further conditioned on, among other things, receipt of regulatory and governmental approvals, and will result in a newly formed holding company, Ameren Corporation. 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 June 30, 1997 gives effect to the Merger as if it had occurred at June 30, 1997. The unaudited pro forma combined condensed statements of income for the six-month periods ended June 30, 1997 and 1996, and the twelve-month period ended June 30, 1997 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. In addition, due to the effect of weather on sales and other factors which are characteristic of public utility operations, financial results for the six-month periods ended June 30, 1997 and 1996 are not necessarily indicative of trends for any twelve-month period. Also see Part I, Item 2., Management's Discussion and Analysis of Financial Condition and Results of Operations. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT JUNE 30, 1997 (Thousands of Dollars) As Reported (Note 1) Pro Forma ________________________ Adjustments Pro Forma UE CIPSCO (Notes 2, 8) Combined ___________ ___________ ____________ ___________ ASSETS Property and plant Electric $ 8,746,956 $ 2,286,097 $ 377,544 $11,410,597 Gas 190,738 245,808 - 436,546 Other 35,975 - - 35,975 ___________ ___________ ___________ ___________ 8,973,669 2,531,905 377,544 11,883,118 Less accumulated depreciation and amortization 3,776,716 1,106,615 276,843 5,160,174 ___________ ___________ ___________ ___________ 5,196,953 1,425,290 100,701 6,722,944 Construction work in progress: Nuclear fuel in process 106,651 - - 106,651 Other 100,022 43,692 2,536 146,250 ___________ ___________ ___________ ___________ Total property and plant, net 5,403,626 1,468,982 103,237 6,975,845 Regulatory assets: Deferred income taxes (Note 5) 665,397 39,994 - 705,391 Other 171,387 129,844 - 301,231 ___________ ___________ ___________ ___________ Total regulatory assets 836,784 169,838 - 1,006,622 Other assets: Unamortized debt expense 10,256 3,469 558 14,283 Nuclear decommissioning trust fund 112,578 - - 112,578 Investments in nonregulated activities - 117,798 - 117,798 Other 25,930 25,477 (4,333) 47,074 ___________ ___________ ___________ ___________ Total other assets 148,764 146,744 (3,775) 291,733 Current assets: Cash and temporary investments 12,960 8,011 21,078 42,049 Accounts receivable, net 181,070 67,810 22,144 271,024 Unbilled revenue 102,894 28,860 - 131,754 Materials and supplies, at average cost - Fossil fuel 51,737 36,150 6,213 94,100 Other 94,584 38,402 4,409 137,395 Other 44,113 20,401 3,468 67,982 ___________ ___________ ___________ ___________ Total current assets 487,358 199,634 57,312 744,304 ___________ ___________ ___________ ___________ Total Assets $ 6,876,532 $ 1,985,198 $ 156,774 $ 9,018,504 =========== =========== =========== =========== CAPITAL AND LIABILITIES Capitalization: Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372 Other stockholders' equity (Note 2) 1,810,557 296,923 866,059 2,973,539 ___________ ___________ ___________ ___________ Total common stockholders' equity 2,321,176 653,735 - 2,974,911 Preferred stock of subsidiary 155,197 80,000 - 235,197 Long-term debt 1,943,186 570,379 115,556 2,629,121 ___________ ___________ ___________ ___________ Total capitalization 4,419,559 1,304,114 115,556 5,839,229 Minority interest in consolidated subsidiary - - 3,534 3,534 Accumulated deferred income taxes 1,310,922 340,609 (6,565) 1,644,966 Accumulated deferred investment tax credits 157,257 47,218 - 204,475 Regulatory liability 193,227 98,685 - 291,912 Accumulated provision for nuclear decommissioning 115,924 - - 115,924 Other deferred credits and liabilities 159,759 - 3,681 163,440 Current liabilities: Current maturity of long-term debt 32,734 - 14,444 47,178 Short-term debt 68,000 55,481 - 123,481 Accounts payable 79,237 44,493 22,794 146,524 Wages payable 34,494 11,177 - 45,671 Taxes accrued 160,418 14,735 - 175,153 Interest accrued 44,808 9,587 399 54,794 Other 100,193 59,099 2,931 162,223 ___________ ___________ ___________ ___________ Total current liabilities 519,884 194,572 40,568 755,024 ___________ ___________ ___________ ___________ Total Capital and Liabilities $ 6,876,532 $ 1,985,198 $ 156,774 $ 9,018,504 =========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME SIX MONTHS ENDED JUNE 30, 1997 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 978,461 $ 329,015 $ 96,361 $ 1,403,837 Gas 58,469 85,425 - 143,894 Other 282 5,821 481 6,584 ____________ ___________ __________ ____________ Total operating revenues 1,037,212 420,261 96,842 1,554,315 OPERATING EXPENSES: Operations Fuel and purchased power 230,520 116,445 55,432 402,397 Gas Costs 36,962 54,994 - 91,956 Other 194,443 78,082 9,323 281,848 ____________ ___________ __________ ____________ 461,925 249,521 64,755 776,201 Maintenance 110,920 32,262 8,725 151,907 Depreciation and amortization 122,664 45,710 7,419 175,793 Income taxes (Note 6) 69,628 16,165 4,136 89,929 Other taxes 102,404 29,168 960 132,532 ____________ ___________ __________ ____________ Total operating expenses 867,541 372,826 85,995 1,326,362 OPERATING INCOME 169,671 47,435 10,847 227,953 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 1,830 144 - 1,974 Minority interest in consolidated subsidiary - - (2,553) (2,553) Miscellaneous, net (2,841) (253) (3,372) (6,466) ____________ ___________ __________ ____________ Total other income and deductions, net (1,011) (109) (5,925) (7,045) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 168,660 47,326 4,922 220,908 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 70,633 17,866 4,922 93,421 Allowance for borrowed funds used during construction (3,245) (182) - (3,427) Preferred dividends of subsidiaries (Note 7) 4,409 1,842 - 6,251 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 71,797 19,526 4,922 96,245 NET INCOME $ 96,863 $ 27,800 $ - $ 124,663 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $ .95 $ .82 $ .91 ===== ===== ===== 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 SIX MONTHS ENDED JUNE 30, 1996 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 982,277 $ 341,210 $ 91,574 $ 1,415,061 Gas 58,478 85,359 - 143,837 Other 259 5,082 789 6,130 ____________ _____________ ____________ ____________ Total operating revenues 1,041,014 431,651 92,363 1,565,028 OPERATING EXPENSES: Operations Fuel and purchased power 249,021 131,646 49,735 430,402 Gas costs 34,571 52,681 - 87,252 Other 186,203 69,207 9,396 264,806 ____________ _____________ ____________ ____________ 469,795 253,534 59,131 782,460 Maintenance 110,462 30,971 9,232 150,665 Depreciation and amortization 119,285 43,130 7,601 170,016 Income taxes (Note 6) 72,865 21,294 4,048 98,207 Other taxes 103,207 29,384 1,028 133,619 ____________ _____________ ____________ ____________ Total operating expenses 875,614 378,313 81,040 1,334,967 OPERATING INCOME 165,400 53,338 11,323 230,061 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 3,823 77 - 3,900 Minority interest in consolidated subsidiary - - (2,482) (2,482) Miscellaneous, net (1,586) (1,062) (3,719) (6,367) ____________ ______________ ___________ ____________ Total other income and deductions, net 2,237 (985) (6,201) (4,949) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 167,637 52,353 5,122 225,112 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 67,528 17,487 5,122 90,137 Allowance for borrowed funds used during construction (3,978) (98) - (4,076) Preferred dividends of subsidiaries (Note 7) 6,625 1,864 - 8,489 ____________ _____________ ____________ ____________ Net interest charges and preferred dividends 70,175 19,253 5,122 94,550 NET INCOME $ 97,462 $ 33,100 $ - $ 130,562 ============ ============= ============ ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $ .95 $ .97 $ .95 ===== ===== ===== 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 TWELVE MONTHS ENDED JUNE 30, 1997 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 2,157,000 $ 718,617 $ 180,312 $ 3,055,929 Gas 99,055 155,414 - 254,469 Other 508 11,294 797 12,599 _____________ _____________ ____________ ____________ Total operating revenues 2,256,563 885,325 181,109 3,322,997 OPERATING EXPENSES: Operations Fuel and purchased power 494,331 259,014 98,943 852,288 Gas costs 66,938 98,541 - 165,479 Other 387,346 155,463 18,230 561,039 ____________ _____________ ____________ ____________ 948,615 513,018 117,173 1,578,806 Maintenance 224,090 62,752 16,603 303,445 Depreciation and amortization 244,677 89,977 15,482 350,136 Income taxes (Note 6) 194,132 44,428 8,322 246,882 Other taxes 212,463 57,601 1,711 271,775 ____________ _____________ ____________ ____________ Total operating expenses 1,823,977 767,776 159,291 2,751,044 OPERATING INCOME 432,586 117,549 21,818 571,953 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 4,499 445 - 4,944 Minority interest in consolidated subsidiary - - (4,946) (4,946) Miscellaneous, net (5,549) (1,974) (7,065) (14,588) ____________ _____________ ____________ ____________ Total other income and deductions, net (1,050) (1,529) (12,011) (14,590) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 431,536 116,020 9,807 557,363 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 135,749 38,131 9,807 183,687 Allowance for borrowed funds used during construction (6,274) (567) - (6,841) Preferred dividends of subsidiaries (Note 7) 11,033 3,699 - 14,732 ____________ _____________ ____________ ____________ Net interest charges and preferred dividends 140,508 41,263 9,807 191,578 NET INCOME $ 291,028 $ 74,757 $ - $ 365,785 ============ ============= ============ ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.85 $2.19 $2.67 ===== ===== ===== 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 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. Reclassifications have been 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 5, 6 and 7). All other financial statement presentation and accounting policy differences are immaterial and have not been 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. 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 costs for financial advisors, attorneys, accountants, consultants, filings, printing, system integration, relocation, etc.). None of these estimated cost savings have been reflected in the pro forma combined condensed financial statements. However, net income for the six months and twelve months ended June 30, 1997 included merger-related costs of $5 million and $9 million, net of income taxes, for Union Electric, and $1 million and $3 million, net of income taxes, for CIPSCO, respectively. Net income for the six months ended June 30, 1996 included merger-related costs of $4 million, net of income taxes, for Union Electric, and $2 million, net of income taxes, for CIPSCO. 4. 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. 5. CIPSCO's regulatory asset related to deferred income taxes was reclassified from the regulatory liability account balance to conform to this reporting presentation. 6. CIPSCO's income taxes are reflected as operating expenses to conform to this reporting presentation. 7. 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. 8. Pro forma adjustments were 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 were eliminated. 9. Net income for the six and twelve months ended June 30, 1997, included credits for Missouri electric customers which reduced revenues and pre-tax income of Union Electric by $20 million and $21 million, respectively. Net income for the six months ended June 30, 1996, included a credit to Missouri electric customers which reduced revenues and pre-tax income of Union Electric by $46 million. Item 6. Exhibits and Reports on Form 8-K. (A) Exhibits: Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. Exhibit 27.1 Financial Data Schedule for CIPSCO (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). Exhibit 27.2 Financial Data Schedule for CIPS (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). (B) Reports on Form 8-K: Registrant CIPS Date of Report Item Reported June 6, 1997 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Contains certain exhibits filed in connection with the Registration Statements of CIPS (Registration Nos. 33-56063 and 333-18473) which became effective November 21, 1994 and March 14, 1997, respectively. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, CIPSCO Incorporated, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIPSCO Incorporated Date: August 14, 1997 /s/ F. J. Kinsinger _______________________________________ F. J. Kinsinger Controller (Chief Accounting Officer) SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Central Illinois Public Service Company, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Central Illinois Public Service Company Date: August 14, 1997 /s/ F. J. Kinsinger _______________________________________ F. J. Kinsinger Controller (Principal Accounting Officer) CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 Exhibit No. Description ___________ ___________ Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. Exhibit 27.1 Financial Data Schedule for CIPSCO Exhibit 27.2 Financial Data Schedule for CIPS EX-12 2 Exhibit 12 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS BEFORE INCOME TAXES (in thousands) 12 Months Ended __________________________________________________________ December 31, June 30, ________________________________________________ 1997 1996 1995 1994 1993 1992 ________ ________ ________ ________ ________ ________ Net income.... $ 71,802 $ 77,393 $ 70,631 $ 81,913 $ 84,011 $ 72,601 Add--Federal and state income taxes: Current...... 48,928 53,847 41,276 38,097 50,441 6,110 Deferred (net)....... (3,495) (2,805) 5,627 13,190 1,674 33,998 Investment tax credit amortization. (3,342) (3,349) (3,361) (3,367) (3,366) (3,336) Income tax applicable to nonoperating activities.. (406) (407) 941 603 631 2,989 ________ ________ ________ ________ ________ ________ 41,685 47,286 44,483 48,523 49,380 39,761 ________ ________ ________ ________ ________ ________ Net income before income taxes......... 113,487 124,679 115,114 130,436 133,391 112,362 ________ ________ ________ ________ ________ ________ Add--Fixed charges Interest on long-term debt........ 31,160 31,409 31,168 31,164 32,823 35,534 Interest on provision for revenue refunds..... - - - - - (803) Other interest.... 5,189 4,636 853 358 479 392 Amortization of net debt premium and discount. 1,780 1,709 1,703 1,678 1,598 863 ________ ________ ________ ________ ________ ________ 38,129 37,754 33,724 33,200 34,900 35,986 ________ ________ ________ ________ ________ ________ Earnings as defined........ $151,616 $162,433 $148,838 $163,636 $168,291 $148,348 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges.. 3.98 4.30 4.41 4.93 4.82 4.12 Earnings required for preferred dividends: Preferred stock dividends... $ 3,699 $ 3,721 $ 3,850 $ 3,510 $ 3,718 $ 4,549 Adjustment to pre-tax basis*...... 2,147 2,273 2,425 2,079 2,185 2,491 ________ ________ ________ ________ ________ ________ $ 5,846 $ 5,994 $ 6,275 $ 5,589 $ 5,903 $ 7,040 ________ ________ ________ ________ ________ ________ Fixed charges plus preferred stock dividend requirements... $ 43,975 $ 43,748 $ 39,999 $ 38,789 $ 40,803 $ 43,026 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges plus preferred stock dividend requirements... 3.45 3.71 3.72 4.22 4.12 3.45
* An additional charge equivalent to earnings required to adjust dividends on preferred stock to a pre-tax basis (See below.) { Net income before income taxes } { ______________________________ -100% } X preferred dividends = earnings { Net Income } required for preferred dividends EX-27.2 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018654 CIPS 1,000 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 PER-BOOK 1,468,982 0 196,135 129,844 27,794 1,822,755 121,283 0 449,010 570,293 0 80,000 570,379 0 0 55,481 0 0 0 0 546,602 1,822,755 414,454 14,462 355,751 370,213 44,241 (365) 43,876 17,680 26,196 1,841 24,355 35,400 0 302 0 0 INCLUDES INCOME TAX EXPENSE. INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES.
EX-27.1 4
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 6-MOS DEC-31-1996 JAN-01-1997 JUN-30-1997 PER-BOOK 1,468,982 117,798 199,634 129,844 28,946 1,945,204 356,812 0 296,923 653,735 0 80,000 570,379 0 0 55,481 0 0 0 0 585,609 1,945,204 420,261 16,165 356,661 372,826 47,435 (253) 47,182 17,540 29,642 1,841 27,800 35,773 0 5,063 .82 .82 INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
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