-----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, BCC1Y8BgYC5wSRHYpHqF1UHfjaji93lmiIM1E8ap2vbQMnvTdKVsHnoEHJmoInyZ zaroYO/T6J9bhhJNR70h3A== 0000860520-96-000010.txt : 19960515 0000860520-96-000010.hdr.sgml : 19960515 ACCESSION NUMBER: 0000860520-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96563138 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: 96563139 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 March 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; 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 at April 30, 1996 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Common stock, no par value, 25,452,373 shares outstanding and held by CIPSCO INCORPORATED at April 30, 1996 -1- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements CIPSCO INCORPORATED Consolidated Statements of Income 4 Consolidated Balance Sheets 5 Consolidated Statements of Cash Flows 6 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income 7 Balance Sheets 8 Statements of Cash Flows 9 CONDENSED NOTES TO FINANCIAL STATEMENTS of CIPSCO Incorporated and Central Illinois Public Service Company 10 - 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for CIPSCO Incorporated and Central Illinois Public Service Company 14 - 21 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 23 - 30 Item 6. Exhibits and Reports on Form 8-K 31 Signatures 32 - 33 Exhibit Index 34 Exhibit 12 35 -2- 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, 1995. 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 March 31, 1996 and 1995 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. -3- Part I. FINANCIAL INFORMATION Item 1. Financial Statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Income For the Periods Ended March 31, 1996 and 1995 (in thousands except per share amounts) (unaudited) Three Months Ended March 31, __________________ 1996 1995 ________ ________ Operating Revenues: Electric......................... $171,288 $153,188 Gas.............................. 64,418 55,687 Investment....................... 2,173 1,587 ________ ________ Total operating revenues...... 237,879 210,462 ________ ________ Operating Expenses: Fuel for electric generation..... 56,148 50,878 Purchased power.................. 13,121 7,106 Gas costs........................ 41,197 34,131 Other operation.................. 34,635 41,526 Maintenance...................... 11,436 12,205 Depreciation and amortization.... 20,913 20,601 Taxes other than income taxes.... 16,013 15,763 _______ ________ Total operating expenses...... 193,463 182,210 _______ ________ Operating Income................... 44,416 28,252 _______ ________ Interest and Other Charges: Interest on long-term debt of subsidiary....................... 8,279 8,138 Other interest charges........... 443 399 Allowance for funds used during construction..................... (26) (186) Preferred stock dividends of subsidiary....................... 939 968 Miscellaneous, net............... 203 (315) _______ ________ Total interest and other charges....................... 9,838 9,004 _______ ________ Income Before Income Taxes......... 34,578 19,248 ________ ________ Income Taxes....................... 13,460 6,680 ________ ________ Net Income......................... $ 21,118 $ 12,568 ======== ======== Average Shares of Common Stock Outstanding........................ 34,070 34,070 Earnings per Average Share of Common Stock....................... $ .62 $ .37 The accompanying condensed notes to financial statements are an integral part of these statements. -4- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets March 31, 1996 and December 31, 1995 (in thousands) March 31, December 31, 1996 1995 _____________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric.......................... $2,332,505 $2,296,402 Gas............................... 231,879 229,118 __________ __________ 2,564,384 2,525,520 Less-Accumulated depreciation..... 1,146,735 1,132,355 __________ __________ 1,417,649 1,393,165 Construction work in progress..... 41,937 72,490 __________ __________ 1,459,586 1,465,655 __________ __________ Current Assets: Cash.............................. 2,002 1,088 Temporary investments, at cost which approximates market......... 5,901 7,147 Accounts receivable, net.......... 73,579 65,267 Accrued unbilled revenues......... 27,225 27,234 Materials and supplies, at average cost.............................. 41,477 40,246 Fuel for electric generation, at average cost...................... 29,328 42,634 Gas stored underground, at average cost.............................. 3,927 9,774 Prepayments....................... 9,062 10,649 Other current assets.............. 8,238 8,197 __________ __________ 200,739 212,236 __________ __________ Investments and Other Assets: Marketable securities............. 47,389 45,967 Leveraged leases and energy investments....................... 59,824 59,114 Other............................. 45,219 44,939 __________ __________ 152,432 150,020 __________ __________ $1,812,757 $1,827,911 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity....... $ 655,706 $ 651,532 Preferred stock of subsidiary..... 80,000 80,000 Long-term debt of subsidiary...... 479,002 478,926 __________ __________ 1,214,708 1,210,458 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year................... - - Short-term borrowings............. 10,995 47,921 Accounts payable.................. 50,233 60,603 Accrued wages..................... 10,691 9,335 Accrued taxes..................... 25,955 11,266 Accrued interest.................. 8,654 9,525 Other............................. 43,769 33,265 __________ __________ 150,297 171,915 __________ __________ Deferred Credits: Accumulated deferred income taxes. 326,372 325,181 Investment tax credits............ 51,397 52,234 Regulatory liabilities, net....... 69,983 68,123 __________ __________ 447,752 445,538 __________ __________ $1,812,757 $1,827,911 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -5- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Periods Ended March 31, 1996 and 1995 (in thousands) (unaudited) Three Months Ended March 31, ______________________ 1996 1995 __________ __________ Operating Activities: Net income.............................. $ 21,118 $ 12,568 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 20,913 20,601 Allowance for equity funds used during construction (AFUDC).................. (11) (171) Deferred income taxes, net............ 561 (1,376) Investment tax credit amortization.... (837) (840) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues..................... (8,303) 23,448 Fuel for electric generation.......... 13,306 (3,880) Other inventories..................... 4,616 4,578 Prepayments........................... 1,587 (1,321) Other assets.......................... (321) (925) Accounts payable and other............ 134 3,966 Accrued wages, taxes and interest..... 15,174 10,094 Other................................... 2,491 (1,105) _________ _________ Net cash provided by operating activities............................ 70,428 65,637 _________ _________ Investing Activities: Utility construction expenditures, excluding AFUDC......................... (14,754) (14,648) Allowance for borrowed funds used during construction..................... (15) (14) Changes in temporary investments........ 1,246 (15,849) Long-term marketable securities......... (977) (3,160) Long-term leveraged leases and energy investments............................. (710) (1,014) _________ _________ Net cash used in investing activities. (15,210) (34,685) _________ _________ Financing Activities: Common stock dividends paid............. (17,375) (17,035) Proceeds from issuance of (repayment of) short-term borrowings................... (36,926) (14,985) Issuance expense, discount and premium.. (3) (14) _________ _________ Net cash used in financing activities. (54,304) (32,034) _________ _________ Net increase (decrease) in cash......... 914 (1,082) Cash at beginning of period............. 1,088 1,963 _________ _________ Cash at end of period................... $ 2,002 $ 881 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized.. $ 9,122 $ 8,681 Income taxes.......................... $ 325 $ 2,700 The accompanying condensed notes to financial statements are an integral part of these statements. -6- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income For the Periods Ended March 31, 1996 and 1995 (in thousands) (unaudited) Three Months Ended March 31, __________________ 1996 1995 ________ ________ Operating Revenues: Electric......................... $171,295 $153,195 Gas.............................. 64,419 55,688 ________ ________ Total operating revenues...... 235,714 208,883 ________ ________ Operating Expenses: Fuel for electric generation..... 56,148 50,878 Purchased power.................. 13,121 7,106 Gas costs........................ 41,197 34,131 Other operation.................. 34,291 41,138 Maintenance...................... 11,435 12,204 Depreciation and amortization.... 20,785 20,481 Taxes other than income taxes.... 16,008 15,751 Income taxes: Current........................ 16,590 9,507 Deferred, net.................. (2,782) (2,342) Deferred investment tax credits, net................... (837) (840) ________ ________ Total operating expenses...... 205,956 188,014 ________ ________ Operating Income................... 29,758 20,869 ________ ________ Other Income and Deductions: Allowance for equity funds used during construction.............. 11 171 Nonoperating income taxes........ (298) (267) Miscellaneous, net............... (172) 515 ________ ________ Total other income and deductions.................... (459) 419 ________ ________ Income Before Interest Charges..... 29,299 21,288 ________ ________ Interest Charges: Interest on long-term debt....... 8,279 8,138 Other interest charges........... 443 393 Allowance for borrowed funds used during construction.............. (14) (14) ________ ________ Total interest charges....... 8,708 8,517 ________ ________ Net Income......................... 20,591 12,771 Preferred Stock Dividends.......... 938 968 ________ ________ Earnings for Common Stock.......... $ 19,653 $ 11,803 ======== ======== The accompanying condensed notes to financial statements are an integral part of these statements. -7- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Balance Sheets March 31, 1996 and December 31, 1995 (in thousands) March 31, December 31, 1996 1995 _____________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric......................... $2,332,505 $2,296,402 Gas.............................. 231,879 229,118 __________ __________ 2,564,384 2,525,520 Less-Accumulated depreciation.... 1,146,735 1,132,355 __________ __________ 1,417,649 1,393,165 Construction work in progress.... 41,937 72,490 __________ __________ 1,459,586 1,465,655 __________ __________ Current Assets: Cash............................. 1,971 1,006 Accounts receivable, net......... 73,736 65,574 Accrued unbilled revenues........ 27,225 27,234 Materials and supplies, at average cost............................. 41,477 40,246 Fuel for electric generation, at average cost..................... 29,328 42,634 Gas stored underground, at average cost............................. 3,927 9,774 Prepayments...................... 9,016 10,268 Other current assets............. 8,240 8,226 __________ __________ 194,920 204,962 __________ __________ Other Assets....................... 44,125 44,188 __________ __________ $1,698,631 $1,714,805 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity...... $ 573,558 $ 570,419 Preferred stock.................. 80,000 80,000 Long-term debt................... 479,001 478,926 __________ __________ 1,132,559 1,129,345 __________ __________ Current Liabilities: Long-term debt due within one year............................. - - Short-term borrowings............ 10,995 47,921 Accounts payable................. 49,569 60,791 Accrued wages.................... 10,691 9,320 Accrued taxes.................... 30,038 11,155 Accrued interest................. 8,654 9,525 Other............................ 43,770 33,264 __________ __________ 153,717 171,976 __________ __________ Deferred Credits: Accumulated deferred income taxes............................ 290,975 293,127 Investment tax credits........... 51,397 52,234 Regulatory liabilities, net...... 69,983 68,123 __________ __________ 412,355 413,484 __________ __________ $1,698,631 $1,714,805 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -8- Central Illinois Public Service Company Statements of Cash Flows For the Periods Ended March 31, 1996 and 1995 (in thousands) (unaudited) Three Months Ended March 31, ______________________ 1996 1995 __________ __________ Operating Activities: Net income.............................. $ 20,591 $ 12,771 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 20,785 20,481 Allowance for equity funds used during construction (AFUDC).................. (11) (171) Deferred income taxes, net............ (2,782) (2,342) Investment tax credit amortization.... (837) (840) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues..................... (8,153) 23,432 Fuel for electric generation.......... 13,306 (3,880) Other inventories..................... 4,616 4,578 Prepayments........................... 1,252 (1,357) Other assets.......................... 49 (953) Accounts payable and other liabilities........................... (716) 3,819 Accrued wages, taxes and interest..... 19,383 11,063 Other................................... 2,631 (943) _________ _________ Net cash provided by operating activities............................ 70,114 65,658 _________ _________ Investing Activities: Construction expenditures, excluding AFUDC................................... (14,754) (14,648) Allowance for borrowed funds used during construction............................ (14) (14) Changes in temporary investments........ - (18,132) _________ _________ Net cash used in investing activities. (14,768) (32,794) _________ _________ Financing Activities: Repayment of short-term borrowings...... (36,926) (14,985) Dividends paid: Preferred stock....................... (952) (1,009) Common stock.......................... (16,500) (17,500) Issuance expense, discount and premium.. (3) (14) _________ _________ Net cash used in financing activities. (54,381) (33,508) _________ _________ Net increase (decrease) in cash......... 965 (644) Cash at beginning of period............. 1,006 1,320 _________ _________ Cash at end of period................... $ 1,971 $ 676 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized.. $ 9,122 $ 8,681 Income taxes.......................... $ 204 $ 2,608 The accompanying condensed notes to financial statements are an integral part of these statements. -9- CIPSCO INCORPORATED AND SUBSIDIARIES CENTRAL ILLINOIS PUBLIC SERVICE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (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. Note 2. COMMITMENTS AND CONTINGENCIES ______________________________________ ENVIRONMENTAL REMEDIATION COSTS - CIPS has identified 13 former manufactured gas plant sites (environmental remediation sites) which contain potentially harmful materials. In 1990, one site was added to the United States Environmental Protection Agency (USEPA) Superfund list. CIPS is implementing an approved long- term remedial plan for the site. Costs and associated legal expenses related to studies and remediation work have been incurred at other sites. Over the past several years, CIPS has received cash settlements from certain of its insurance carriers arising from litigation instituted by CIPS (which is now concluded) seeking indemnification for, among other things, costs incurred by CIPS in connection with the sites. Effective with April 1993 billings to customers, CIPS began recovery of clean-up costs associated with the sites through environmental adjustment clause riders. As required by the Illinois Commerce Commission, the riders provided for (1) recovery of cleanup costs and a return to ratepayers of any reimbursement of cleanup costs received from insurance carriers or other parties and (2) a prudence review of cleanup expenditures. The Illinois Supreme Court has ruled that cleanup costs are recoverable in rates and that use of a rider mechanism to recover such costs is appropriate. Through December 31, 1993, CIPS collected $2.9 million under the riders. No amounts have been collected since January 1994. -10- The estimated incurred costs relating to studies and remediation at the 13 sites and associated legal expenses are being accrued and deferred rather than expensed currently, pending recovery through rates or from other parties. Through March 31, 1996, $42.6 million had been deferred representing costs incurred and estimates of 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 $5.2 million at March 31, 1996. The Illinois commission has initiated reconciliation proceedings to review CIPS' environmental remediation activities for 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. 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. FERC ORDERS 888 and 889 - On April 24, 1996, the Federal Energy Regulatory Commission ("FERC") issued orders 888 and 889 related to its "mega-NOPR" rulemaking designed to eliminate market power held by public utilities through the ownership of transmission systems. Citing a goal of enhancing competition in the wholesale market for generation sales, FERC has issued a policy which requires transmission owning public 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. The rule applies to public utilities owning, controlling or operating transmission facilities. In its Order 888, the FERC adopted a single pro forma tariff for use by the utility and its transmission customers in obtaining transmission service. Order 888 also provides for the recovery of stranded costs at the wholesale level, based on a revenues lost calculation, which result from the transition to an open access business environment. In conjunction with the application at the FERC regarding the merger of CIPSCO and Union Electric Company ("UE") (see Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations), CIPS and UE have filed open access tariffs in compliance with FERC policy. Because these tariffs were filed under provisions of the rulemaking prior to the issuance of Order 888, these tariffs will be revised to comply with the final rule in Order 888. The compliance tariffs for CIPS and UE will only become effective upon completion of the merger. In the meantime, both utilities will be required to establish individual tariffs for transmission service within sixty days of the time the final rule appears in the Federal Register. Also issued April 24, 1996, Order 889 sets forth the standards of conduct and information requirements that must be put in place -11- and observed by transmission owners doing business under the open access rule. These include the establishment by each utility of an "open access same-time information system", or OASIS. This system will provide all information, on a real time basis, for the utility and its customers to apply for and obtain transmission service. Using the OASIS, the utility must obtain transmission service for its own use in the same manner its customer will obtain service, thus assuring mitigation of market power through control of transmission facilities. CIPS is evaluating the requirements of Order 889. CLEAN AIR ACT - CIPS' current compliance strategy to meet Phases I and II of the Clean Air Act Amendments of 1990 (Amendments) is to switch to a lower sulfur coal at some of its units along with increased scrubbing with its existing scrubber at Newton Unit 1. The estimated capital costs of compliance based on the current strategy are included in the five-year construction forecast. The forecast has an estimate of $76 million for environmental compliance including compliance with regulations under the Clean Air Act. However, capital costs and certain expenses, as well as financing needs, may increase if fuel strategy studies being undertaken by CIPS indicate that CIPS should change its compliance strategy to place more reliance on fuel switching. LABOR ISSUES - The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 have both 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 of both unions. 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 $12 million. A hearing before an administrative law judge of the NLRB was completed on April 25, 1995. 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 3. REGULATORY ASSETS AND LIABILITIES __________________________________________ 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 -12- 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. (See Note 4.) The Company continually reviews regulatory assets and liabilities. As shown below, the Company is in a net regulatory liability position at March 31, 1996, and currently believes that there would be no material adverse impact on results of operations, financial position or liquidity if the Company or CIPS were to discontinue application of SFAS No. 71. The components of regulatory assets and liabilities at March 31, 1996 are: Description Amount ___________ ______ (in thousands) Regulatory Assets: Deferred environmental remediation costs $ 5,203 Take-or-Pay costs 982 Unamortized costs relating to reacquired debt 13,100 ________ Total Regulatory Assets - in Other Assets on Balance Sheet $ 19,285 ======== Regulatory Liabilities: Clean Air Act allowances, net $ 3,128 SFAS 109 - Income Taxes, net 66,855 ________ Total Regulatory Liabilities, Net $ 69,983 ======== Regulatory Liabilities Net of Regulatory Assets $ 50,698 ======== Note 4. 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," effective January 1, 1996, established accounting standards for the impairment of long-lived assets. SFAS No. 121 also required that regulatory assets which are no longer probable of recovery through future revenue to be charged to earnings. The adoption of SFAS No. 121 has had no impact and is not expected to have an impact on the financial position, results of operations or liquidity of the Company or CIPS. -13- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company and Union Electric Company entered into a Merger Agreement dated August 11, 1995, which was later approved by the shareholders of both companies in December 1995. The merged entity is expected to realize approximately $644 million in net savings over 10 years from combining certain operations of the two companies and is expected to adopt Union Electric's dividend payment level. However, the merger is conditioned upon, among other things, receipt of certain regulatory and governmental approvals. The merger is expected to be consummated in early 1997. See Part II, Item 5. Other Information for certain pro forma financial information concerning the merger. 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 1996-2000 period will be about $510 million. In addition to funds for construction, projected capital requirements for the 1996-2000 period include $133 million for scheduled debt retirements. Capital requirements for the 1996-2000 period are expected to be met primarily through internally generated funds. External financing to fund scheduled debt retirements will be required. In addition, up to $100 million of external financing is expected to be required to fund the construction program. Included in the five-year construction forecast is an estimate of $76 million for environmental compliance, including compliance with regulations under the Clean Air Act Amendments of 1990. CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. Depending on the alternative selected, construction expenditures could increase the five-year forecast by as much as $50 million over the 1996-2000 period. In addition, adoption of certain alternatives in fuel and/or environmental strategies, could result in substantial increases in other capital requirements in the 1996-2000 period from the amounts shown above. These potential additional capital requirements would also need to be financed with external sources of funds. CIPS has an effective shelf registration statement on file with the Securities and Exchange Commission which permits the issuance of an aggregate of up to $29 million of first mortgage bonds, medium-term notes and/or preferred stock. For the first three months of 1996, 99% of CIPS' total capital requirements were provided from internal sources. -14- Common stock dividends paid for the twelve months ended March 31, 1996, resulted in a payout ratio of 86% of the Company's earnings to common shareholders. Common stock dividends paid to the Company's common shareholders in relation to net cash provided by operating activities for the same period were 45%. In connection with consummation of the Merger contemplated by the Merger Agreement as previously described, it is expected that the Company will incur $9.4 million of transaction costs. Through March 31, 1996, these transaction costs (not tax deductible) were $5.4 million (of which $4.7 million was expensed in 1995). The Company expects that total costs for 1996 will approximate $4.7 million (not tax deductible) or 14 cents per share. FINANCIAL CONDITION Financial condition and changes in total Shareholder Equity of the Company and CIPS for the three-month periods ended March 31, 1996 and 1995 are as follows: Three Months Ended March 31, ________________________ (in thousands) The Company: 1996 1995 _________ _________ Common Shareholders' Equity Net income $ 21,118 $ 12,568 Common stock dividends paid (17,375) (17,035) Other 431 898 ________ ________ Change in Shareholders' Equity $ 4,174 $ (3,569) ======== ======== Three Months Ended March 31, ________________________ (in thousands) CIPS: 1996 1995 _________ _________ Common Shareholder's Equity Earnings for common stock $ 19,653 $ 11,803 Common stock dividends paid (16,500) (17,500) Other (14) (42) ________ ________ Change in Shareholder's Equity $ 3,139 $ (5,739) ======== ======== -15- OVERVIEW The Company's earnings per share were $.62 for the quarter ended March 31, 1996, compared to $.37 per share earned during the same period in 1995. The increase primarily reflects higher electric sales and gas sales due to colder-than-normal temperatures in the first quarter this year compared to warmer- than-normal conditions a year ago. The following table summarizes the components of consolidated net income and CIPS earnings for common stock for the three months ended March 31, 1996 and 1995 (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. First Quarter Ended March 31, __________________ (in thousands) 1996 1995 ________ ________ CIPS Electric operating margin $ 95,974 $ 89,213 Gas operating margin 19,699 18,112 Other deductions and interest expenses (95,082) (94,554) CIPS preferred stock dividends (938) (968) ________ ________ Total earnings for common stock 19,653 11,803 ________ ________ NON-UTILITY Investment revenues 2,141 1,384 Other deductions and expenses (676) (619) ________ ________ Total non-utility net income 1,465 765 ________ ________ Consolidated net income $ 21,118 $ 12,568 ======== ======== -16- RESULTS OF OPERATIONS The results of operations of the Company and CIPS for the three months ended March 31, 1996, compared to the same period in 1995 are presented below. The Company Net Income Earnings (in thousands) Per Share ____________ ____________ Three Months Three Months ____________ ____________ 1996 $21,118 $ .62 1995 12,568 .37 _______ _____ Increase $ 8,550 $ .25 ======= ===== Percent Increase 68% 68% CIPS Earnings for Common Stock (in thousands) ____________ Three Months ____________ 1996 $19,653 1995 11,803 _______ Increase $ 7,850 ======= Percent Increase 67% 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. -17- Electric revenues increased 12% in the first quarter of 1996 compared to the first quarter of 1995 reflecting higher KWH sales due principally to colder weather in 1996. KWH sales to residential and commercial customers increased 8% and 6%, respectively, due to the colder weather while industrial electric sales, which are less weather sensitive, remained about the same. Sales to public authorities contained an adjustment in 1996 to correct unbilled KWH sales and revenues. Without the adjustment, sales and revenues were closely comparable between the first quarter of 1996 and the same period in 1995. Power supply agreement revenues for the first quarter of 1996 were 2% higher than those of the first quarter of 1995 due to increased capacity and transportation revenues related to these agreements. Economy and emergency interchange revenues increased 136% in the first quarter of 1996 over the same period in 1995 due to favorable market conditions in the interchange marketplace. Sales to cooperatives and municipals increased in the first quarter of 1996 compared to the same quarter in 1995 due primarily to colder weather in 1996. -18- 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) _________________________________ First Quarter _________________________________ Revenue Rev % KWH KWH % ________ _____ _________ _____ Residential $ 3,301 6 % 63,135 8 % Commercial 2,691 7 37,415 6 Industrial 208 1 2,712 - Public Authorities and Other (132) (3) (4,771) (11) ________ _______ Total Retail $ 6,068 5 % 98,491 5 % Power Supply Agreements $ 394 2 % (5,574) (1)% Interchange Sales (economy/emergency) 11,082 136 437,085 87 Cooperatives and Municipals 563 11 10,250 8 ________ _______ Total Sales for Resale $ 12,039 39 % 441,761 44 % ________ _______ Total $ 18,107 12 % 540,252 18 % ======== ======= Gas revenues increased 16% in the first quarter of 1996 compared to the same period in 1995 due to colder weather in 1996 and higher purchased gas costs which flow through to revenues through the Purchased Gas Adjustment clause (PGA). Residential gas revenues improved 14% in the first three months of 1996 compared to 1995 due to colder weather in 1996. The commercial and industrial gas revenue improved 17% and 44%, respectively, in the first three months of 1996 over the same period in 1995 due to both the increase in purchased gas costs discussed above, and to customers buying more gas from CIPS in 1996 rather than transporting their own gas. Gas transportation revenues improved 3% in the first three months of 1996 even though therms transported declined 2% over the same period in 1995. The increased gas transportation revenue in 1996 is caused by penalties charged to interruptible gas customers for excess usage during a period of curtailment of gas. -19- 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) _________________________________ First Quarter _________________________________ Therms Revenue Rev % Therms % ________ _____ _________ ______ Residential $ 5,310 14 % 12,567 18 % Commercial 2,179 17 5,060 21 Industrial 1,186 44 4,581 60 Transportation 64 3 (748) (2) Miscellaneous (8) (5) - - ________ ______ Total $ 8,731 16 % 21,460 15 % ======== ====== OPERATIONS __________ Fuel for electric generation increased 10% in the first quarter of 1996 compared to the first quarter of 1995. The increase corresponds to a 12% increase in generation due to higher sales levels in the first quarter of 1996. Purchased power costs increased 85% for the first quarter ended March 31, 1996 compared with the same period in 1995 reflecting increases in marketable purchases made for resale to interchange economy and emergency customers. Gas costs increased 21% for the first quarter of 1996 when compared to the same period in 1995 due to increased gas requirements for the CIPS system and because of a 23% higher average cost per therm for purchased gas. Other operation expenses declined 17% in the first quarter of 1996 compared to 1995 primarily due to a $6.3 million charge in February 1995 relating to the cost of a workforce reduction program. Maintenance expenses declined 6% in the first quarter of 1996 compared to the same period of 1995 due primarily to the scheduled timing of maintenance projects between periods. Depreciation and amortization expense increased 2% in the first quarter of 1996 when compared to 1995 due to normal plant additions. Taxes other than income taxes increased 2% in the first quarter of 1996 when compared to 1995 due to higher revenue taxes from increased sales. These revenue taxes are collected from customers in gas and electric revenues. -20- Significant changes in the balance sheet accounts at March 31, 1996 compared to balances at December 31, 1995 are: Fuel for electric generation, at average cost, decreased 31% for the first three months of 1996 due to increased generation usage and less purchases of compliance coal at one station. Gas stored underground, at average cost, decreased 60% during the quarter due to high demands on the system and utilization of the stored gas to meet the customer demands. Short-term borrowings declined 77% in the first three months of 1996 reflecting a greater amount of cash provided from operations. Accrued taxes increased 130% reflecting the liability due on federal and state income taxes due to higher pretax income for the quarter ended March 31, 1996. Other liabilities increased 32% for the first three months of 1996 due primarily to overrecovered PGA revenues to be refunded to customers and postretirement medical costs accrued monthly during the quarter but not funded until year-end. -21- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The Annual Meetings of Shareholders of CIPS and CIPSCO Incorporated were held on April 24, 1996. (b) All nominees who were proposed as directors by the Board of Directors were elected and there were no other nominees proposed. The results of the votes cast for directors of CIPS and CIPSCO Incorporated are as follows: CIPS ____ Without Directors With Authority Authority(1) _________ ______________ _________ William J. Alley 26,052,519 6,879 Clifford L. Greenwalt 26,046,905 6,879 John L. Heath 26,052,529 6,879 Robert W. Jackson 26,052,537 6,879 Gordon R. Lohman 26,052,443 6,879 Richard A. Lumpkin 26,052,534 6,879 Hanne M. Merriman 26,052,422 6,879 Thomas L. Shade 26,052,524 6,879 James W. Wogsland 26,052,531 6,879 CIPSCO Incorporated ___________________ Without Directors With Authority Authority (1) _________ ______________ _________ William J. Alley 29,294,965 780,933 Clifford L. Greenwalt 29,159,473 780,933 John L. Heath 29,354,810 780,933 Robert W. Jackson 29,202,803 780,933 Gordon R. Lohman 29,275,563 780,933 Richard A. Lumpkin 29,297,479 780,933 Hanne M. Merriman 29,292,847 780,933 Thomas L. Shade 29,288,380 780,933 James W. Wogsland 29,114,327 780,933 (1) Calculated on the basis of cumulative voting. (c) Appointment of independent public accountants was approved by the following vote: Shares Shares Shares For Against Abstaining __________ _______ __________ 29,283,750 329,501 421,784 -22- Item 5. Other Information (1) On April 24, 1996, the FERC issued a notice of proposed rulemaking (NOPR) in Docket No. RM96-11-000 through which the FERC questions, and seeks public comment on, whether there are disadvantages and the potential for inequity in offering transmission service on separate network and point-to-point bases and whether comparability of transmission service can better be accomplished by requiring that all transmission service be rendered and priced on equal terms. The NOPR asks specifically whether the FERC should adopt a capacity reservation tariff (CRT) to replace the tariff adopted in Order 888. (See Note 2 to Condensed Notes to Financial Statements.) The CRT would be based on the common and point-to-point service provisions of the tariff form included in Order 888 and would allow all transmission customers, including the transmission provider, to have the same degree of flexibility in reserving and using transmission service. (2) See pages 24-30 for the Item 5. Other Information portion of this Form 10-Q which relates to pro forma financial information related to the merger of CIPSCO and UE. -23- AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF CIPSCO AND UNION ELECTRIC 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 is expected to be consummated in early 1997. 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 March 31, 1996 gives effect to the Merger as if it had occurred at March 31, 1996. The unaudited pro forma combined condensed statements of income for the three-month periods ended March 31, 1996 and 1995, and the twelve-month period ended March 31, 1996 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 three-month periods ended March 31, 1996 and 1995 are not necessarily indicative of trends for any twelve-month period. -24- AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT MARCH 31, 1996 (Thousands of Dollars) As Reported (Note 1) Pro Forma _______________________ Adjustments Pro Forma UE CIPSCO (Notes 2, 9) Combined ASSETS __________ __________ __________ ___________ Property and plant Electric $8,558,166 $2,332,505 $ 374,762 $11,265,433 Gas 176,784 231,879 - 408,663 Other 35,097 - - 35,097 __________ __________ __________ ___________ 8,770,047 2,564,384 374,762 11,709,193 Less accumulated depreciation and amortization 3,559,955 1,146,735 255,439 4,962,129 __________ __________ __________ ___________ 5,210,092 1,417,649 119,323 6,747,064 Construction work in progress: Nuclear fuel in process 142,325 - - 142,325 Other 115,464 41,937 1,633 159,034 __________ __________ __________ ___________ Total property and plant, net 5,467,881 1,459,586 120,956 7,048,423 Regulatory asset - deferred income taxes (Note 6) 706,371 44,236 - 750,607 Other assets: Unamortized debt expense 43,260 16,123 640 60,023 Nuclear decommissioning trust fund 78,032 - - 78,032 Investments in nonregulated activities - 107,213 - 107,213 Other 25,912 29,096 (1,528) 53,480 __________ __________ __________ ___________ Total other assets 147,204 152,432 (888) 298,748 Current assets: Cash and temporary investments 12,217 7,903 133 20,253 Accounts receivable, net 173,762 73,579 22,015 269,356 Unbilled revenue 69,307 27,225 - 96,532 Materials and supplies, at average cost - Fossil fuel 36,468 33,255 7,637 77,360 Other 95,537 41,477 4,993 142,007 Other 36,234 17,300 3,700 57,234 __________ __________ __________ ___________ Total current assets 423,525 200,739 38,478 662,742 __________ __________ __________ ___________ Total Assets $6,744,981 $1,856,993 $ 158,546 $ 8,760,520 ========== ========== ========== =========== CAPITAL AND LIABILITIES Capitalization: Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372 Other stockholders' equity (Note 2) 1,781,578 298,894 866,059 2,946,531 __________ __________ __________ ___________ Total common stockholders' equity 2,292,197 655,706 - 2,947,903 Preferred stock of subsidiary 219,147 80,000 - 299,147 Long-term debt 1,771,139 479,002 130,000 2,380,141 __________ __________ __________ ___________ Total capitalization 4,282,483 1,214,708 130,000 5,627,191 Minority interest in consolidated subsidiary - - 3,534 3,534 Accumulated deferred income taxes 1,327,759 326,372 (7,059) 1,647,072 Accumulated deferred investment tax credits 164,977 51,397 - 216,374 Regulatory liability 213,331 114,219 - 327,550 Accumulated provision for nuclear decommissioning 79,705 - - 79,705 Other deferred credits and liabilities 151,730 - 6,506 158,236 Current liabilities: Current maturity of long-term debt 102,289 - - 102,289 Short-term debt 36,500 10,995 2,000 49,495 Accounts payable 85,314 50,233 18,029 153,576 Wages payable 32,000 10,691 - 42,691 Taxes accrued 132,253 25,955 - 158,208 Interest accrued 54,459 8,654 2,886 65,999 Other 82,181 43,769 2,650 128,600 __________ __________ __________ ___________ Total current liabilities 524,996 150,297 25,565 700,858 __________ __________ __________ ___________ Total Capital and Liabilities $6,744,981 $1,856,993 $ 158,546 $ 8,760,520 ========== ========== ========== ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. -25- AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 1996 (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 1,4) (Notes 2,9) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 414,686 $ 171,288 $ 48,136 $ 634,110 Gas 44,548 64,418 - 108,966 Other 157 2,173 104 2,434 ____________ ___________ __________ ____________ Total operating revenues 459,391 237,879 48,240 745,510 OPERATING EXPENSES: Operations Fuel and purchased power 88,085 69,269 28,037 185,391 Gas Costs 24,325 41,197 - 65,522 Other 89,804 34,635 4,431 128,870 ____________ ___________ __________ ____________ 202,214 145,101 32,468 379,783 Maintenance 48,634 11,436 3,815 63,885 Depreciation and amortization 59,585 20,913 3,776 84,274 Income taxes (Note 7) 28,221 13,460 1,946 43,627 Other taxes 50,983 16,013 552 67,548 ____________ ___________ __________ ____________ Total operating expenses 389,637 206,923 42,557 639,117 OPERATING INCOME 69,754 30,956 5,683 106,393 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 1,702 11 - 1,713 Minority interest in consolidated subsidiary - - (1,192) (1,192) Miscellaneous, net 895 (203) (1,851) (1,159) ____________ ___________ __________ ____________ Total other income and deductions, net 2,597 (192) (3,043) (638) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 72,351 30,764 2,640 105,755 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 33,858 8,722 2,640 45,220 Allowance for borrowed funds used during construction (1,647) (15) - (1,662) Preferred dividends of subsidiaries (Note 8) 3,312 939 - 4,251 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 35,523 9,646 2,640 47,809 NET INCOME $ 36,828 $ 21,118 $ - $ 57,946 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $0.36 $0.62 $0.42 ===== ===== ===== 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. -26- AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 1995 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Note 1) (Notes 1,3) (Notes 2,9) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 408,748 $ 153,188 $ 46,053 $ 607,989 Gas 38,212 55,687 - 93,899 Other 155 1,587 53 1,795 ____________ ___________ __________ ____________ Total operating revenues 447,115 210,462 46,106 703,683 OPERATING EXPENSES: Operations Fuel and purchased power 88,899 57,984 25,975 172,858 Gas Costs 19,286 34,131 - 53,417 Other 90,099 41,526 4,561 136,186 ____________ ___________ __________ ____________ 198,284 133,641 30,536 362,461 Maintenance 50,168 12,205 4,023 66,396 Depreciation and amortization 57,600 20,601 3,792 81,993 Income taxes (Note 7) 23,860 6,680 1,828 32,368 Other taxes 49,897 15,763 547 66,207 ____________ ___________ __________ ____________ Total operating expenses 379,809 188,890 40,726 609,425 OPERATING INCOME 67,306 21,572 5,380 94,258 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 1,892 171 - 2,063 Minority interest in consolidated subsidiary - - (1,128) (1,128) Miscellaneous, net 646 315 (1,682) (721) ____________ ___________ __________ ____________ Total other income and deductions, net 2,538 486 (2,810) 214 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 69,844 22,058 2,570 94,472 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 33,435 8,537 2,570 44,542 Allowance for borrowed funds used during construction (1,815) (15) - (1,830) Preferred dividends of subsidiaries (Note 8) 3,313 968 - 4,281 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 34,933 9,490 2,570 46,993 NET INCOME $ 34,911 $ 12,568 $ - $ 47,479 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $0.34 $0.37 $0.35 ===== ===== ===== 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. -27- AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME TWELVE MONTHS ENDED MARCH 31, 1996 (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 $ 2,020,391 $ 721,583 $ 184,846 $ 2,926,820 Gas 94,149 138,337 - 232,486 Other 443 9,759 412 10,614 ____________ ___________ __________ ____________ Total operating revenues 2,114,983 869,679 185,258 3,169,920 OPERATING EXPENSES: Operations Fuel and purchased power 364,345 259,511 99,791 723,647 Gas Costs 56,290 81,120 - 137,410 Other 367,575 148,477 19,018 535,070 ____________ ___________ __________ ____________ 788,210 489,108 118,809 1,396,127 Maintenance 220,075 67,227 17,733 305,035 Depreciation and amortization 235,221 83,575 15,730 334,526 Income taxes (Note 7) 213,902 52,551 7,976 274,429 Other taxes 213,231 56,863 1,917 272,011 ____________ ___________ __________ ____________ Total operating expenses 1,670,639 749,324 162,165 2,582,128 OPERATING INCOME 444,344 120,355 23,093 587,792 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6,637 729 - 7,366 Minority interest in consolidated subsidiary - - (4,625) (4,625) Miscellaneous, net (5,733) (2,816) (8,081) (16,630) ____________ ___________ __________ ____________ Total other income and deductions, net 904 (2,087) (12,706) (13,889) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 445,248 118,268 10,387 573,903 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 135,163 33,954 10,387 179,504 Allowance for borrowed funds used during construction (5,938) (73) - (6,011) Preferred dividends of subsidiaries (Note 8) 13,249 3,821 - 17,070 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 142,474 37,702 10,387 190,563 NET INCOME $ 302,774 $ 80,566 $ - $ 383,340 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.96 $2.36 $2.79 ===== ===== ===== 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. -28- 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 6, 7 and 8). 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. Net income for the three months ended March 31, 1995 includes CIPSCO's pre-tax charges of $5.8 million for a voluntary separation program. Net income for the twelve months ended March 31, 1996 includes CIPSCO's pre-tax write-off of $5.7 million of system development expenses. 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. Transaction costs are currently estimated to be approximately $22 million (including fees for financial advisors, attorneys, accountants, consultants, filings and printing). 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 three months ended March 31, 1996 includes merger transaction charges of $.9 million, net of income taxes, for Union Electric and $.7 million, net of income taxes, for CIPSCO. Net income for the twelve months ended March 31, 1996 includes merger transaction costs of $9.9 million, net of income taxes, for Union Electric and $5.4 million, net of income taxes, for CIPSCO. 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. -29- 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 three and twelve months ended March 31, 1996 includes credits for Missouri electric customers which reduced revenues and pre-tax income of Union Electric by $13.5 million and $43.5 million, respectively. -30- 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: None -31- 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: May 10, 1996 /s/ L. E. Marlett L. E. Marlett Controller (Chief Accounting Officer) -32- 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: May 10, 1996 /s/ L. E. Marlett L. E. Marlett Controller (Principal Accounting Officer) -33- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 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 -34- 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, March 31, ______________________________________________________ 1996 1995 1994 1993 1992 1991 ___________ ________ ________ ________ ________ ________ Net Income. . . . . . . . . . . . . . . . . . . $ 78,452 $ 70,631 $ 81,913 $ 84,011 $ 72,601 $ 75,683 Add--Federal and state income taxes: Current . . . . . . . . . . . . . . . . . . . 48,359 41,276 38,097 50,441 6,110 36,316 Deferred (net). . . . . . . . . . . . . . . . 5,187 5,627 13,190 1,674 33,998 7,573 Investment tax credit amortization. . . . . . (3,358) (3,361) (3,367) (3,366) (3,336) (3,464) Income tax applicable to nonoperating activities. . . . . . . . . . . . . . . . . 972 941 603 631 2,989 2,413 _______ _______ _______ _______ _______ _______ 51,160 44,483 48,523 49,380 39,761 42,838 _______ _______ _______ _______ _______ _______ Net income before income taxes. . . . . . . . . 129,612 115,114 130,436 133,391 112,362 118,521 _______ _______ _______ _______ _______ _______ Add--Fixed charges Interest on long-term debt. . . . . . . . . . 31,302 31,168 31,164 32,823 35,534 36,652 Interest on provision for revenue refunds . . - - - - (803) 4,261 Other interest. . . . . . . . . . . . . . . . 902 853 358 479 392 1,231 Amortization of net debt premium and discount. . . . . . . . . . . . . . . . . . 1,710 1,703 1,678 1,598 863 338 _______ _______ _______ _______ _______ ________ 33,914 33,724 33,200 34,900 35,986 42,482 _______ _______ _______ _______ _______ ________ Earnings as defined . . . . . . . . . . . . . . $163,526 $148,838 $163,636 $168,291 $148,348 $161,003 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges. . . . . . . 4.82 4.41 4.93 4.82 4.12 3.79 Earnings required for preferred dividends: Preferred stock dividends . . . . . . . . . . $ 3,821 $ 3,850 $ 3,510 $ 3,718 $ 4,549 $ 5,396 Adjustment to pre-tax basis*. . . . . . . . . 2,492 2,425 2,079 2,185 2,491 3,054 _______ _______ _______ _______ _______ _______ $ 6,313 $ 6,275 $ 5,589 $ 5,903 $ 7,040 $ 8,450 _______ _______ _______ _______ _______ _______ Fixed charges plus preferred stock dividend requirements . . . . . . . . . . . . $ 40,227 $ 39,999 $ 38,789 $ 40,803 $ 43,026 $ 50,932 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges plus preferred stock dividend requirements . . . . 4.07 3.72 4.22 4.12 3.45 3.16
* 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 -35- EX-27.1 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. 0000860520 CIPSCO Inc. 1,000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 PER-BOOK 1,459,586 107,213 200,739 0 45,219 1,812,757 356,812 0 298,894 655,706 0 80,000 479,002 0 0 10,995 0 0 0 0 598,049 1,812,757 237,879 13,460 193,463 206,923 30,956 (203) 31,159 8,696 22,057 939 21,118 17,375 0 70,428 .62 .62 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
EX-27.2 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. 0000018654 CIPS 1,000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 PER-BOOK 1,459,586 0 194,920 0 44,125 1,698,631 121,282 0 452,276 573,558 0 80,000 479,001 0 0 10,995 0 0 0 0 566,072 1,698,631 235,714 13,269 192,985 205,956 29,758 (161) 29,299 8,708 20,591 938 19,653 16,500 0 70,114 0 0 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
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