-----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, P2zf79FnOjWnTlXIRMW3VtPTPJ+vU4wf25t60+h4WU72yO58+BQPKNcSiOI80IFW qKoOSSE60Uknh1likch/pA== /in/edgar/work/20000810/0000762129-00-000012/0000762129-00-000012.txt : 20000921 0000762129-00-000012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000762129-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CILCORP INC CENTRAL INDEX KEY: 0000762129 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 371169387 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08946 FILM NUMBER: 691398 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST STREET 2: STE 300 CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET STREET 2: STE 300 CITY: PEORIA STATE: IL ZIP: 61602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS LIGHT CO CENTRAL INDEX KEY: 0000018651 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 370211050 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02732 FILM NUMBER: 691399 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096758810 MAIL ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ........ to ........ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-8946 CILCORP Inc. 37-1169387 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 677-5230 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 677-5230 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CILCORP Inc. Common stock, no par value, shares outstanding and privately held by The AES Corporation at June 30, 2000 1,000 CENTRAL ILLINOIS LIGHT COMPANY Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at June 30, 2000 13,563,871 1 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 INDEX Page No. PART I. FINANCIAL INFORMATION Item 1: Financial Statements CILCORP INC. Consolidated Balance Sheets 3-5 Consolidated Statements of Operations 6 Consolidated Statements of Cash Flows 7-8 Statements of Segments of Business 9-12 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets 13-14 Consolidated Statements of Income 15 Consolidated Statements of Cash Flows 16-17 Notes to Consolidated Financial Statements CILCORP Inc. and Central Illinois Light Company 18-20 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CILCORP Inc. and Central Illinois Light Company 21-34 PART II. OTHER INFORMATION Item 1: Legal Proceedings 35 Item 5: Other Information 35 Item 6: Exhibits and Reports on Form 8-K 35 Signatures 2 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
June 30, December 31, 2000 1999 ASSETS (Unaudited) Current assets: Cash and temporary cash investments $ 4,252 $ 11,220 Receivables, less reserves of $1,260 and $1,296 64,848 60,072 Accrued unbilled revenue 26,585 35,526 Fuel, at average cost 14,029 14,392 Materials and supplies, at average cost 16,839 16,165 Gas in underground storage, at average cost 14,391 21,196 FAC underrecoveries 5,135 12,024 Prepayments and other 13,078 8,946 ---------- ---------- Total current assets 159,157 179,541 ---------- ---------- Investments and other property: Investment in leveraged leases 140,132 143,697 Cash surrender value of company-owned life insurance, net of related policy loans of $57,520 and $53,558 2,656 3,106 Other investments 23,827 24,113 ---------- ---------- Total investments and other property 166,615 170,916 ---------- ---------- Property, plant and equipment: Utility plant, at original cost Electric 631,948 624,889 Gas 210,746 208,520 ---------- ---------- 842,694 833,409 Less - accumulated provision for depreciation 39,763 8,898 ---------- ---------- 802,931 824,511 Construction work in progress 50,034 38,068 Other, net of depreciation 220 298 ---------- ---------- Total property, plant and equipment 853,185 862,877 ---------- ---------- Other assets Goodwill, net of accumulated amortization of $10,026 and $2,881 564,160 569,983 Other 60,803 47,636 ---------- ---------- Total other assets 624,963 617,619 ---------- ---------- Total assets $1,803,920 $1,830,953 ========== ========== 3 The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
4 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
June 30, December 31, 2000 1999 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current liabilities: Current portion of long-term debt $ -- $ 30,000 Notes payable 99,700 91,900 Accounts payable 51,498 41,429 Accrued taxes 7,350 14,670 Accrued interest 16,887 18,296 PGA overrecoveries 2,465 127 Other 3,560 5,742 ---------- ---------- Total current liabilities 181,460 202,164 ---------- ---------- Long-term debt 738,457 730,434 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 239,414 237,557 Regulatory liability of regulated subsidiary 22,453 31,367 Deferred investment tax credits 16,975 17,791 Other 74,372 77,432 ---------- ---------- Total deferred credits and other liabilities 353,214 364,147 ---------- ---------- Preferred stock of subsidiary 66,120 66,120 ---------- ---------- Stockholders' equity: Common stock, no par value; authorized 10,000 shares - outstanding 1,000 shares -- -- Additional Paid-in Capital 468,833 468,833 Retained deficit (4,164) (745) ---------- ---------- Total stockholders' equity 464,669 468,088 ---------- ---------- Commitments and contingencies Total liabilities and stockholders' equity $1,803,920 $1,830,953 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
5 CILCORP INC AND SUBSIDIARIES Consolidated Statements of Operations (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Revenue: CILCO Electric $ 94,920 |$ 88,044 $181,246 |$169,006 CILCO Gas 32,810 | 25,569 102,954 | 102,366 CILCO Other 10,469 | 916 18,853 | 1,842 Other businesses 5,434 | 5,738 11,703 | 15,291 -------- |-------- -------- |-------- Total 143,633 | 120,267 314,756 | 288,505 -------- |-------- -------- |-------- Operating expenses: | | Fuel for generation and | | purchased power 49,419 | 27,638 88,672 | 58,343 Gas purchased for resale 20,499 | 14,234 63,562 | 65,005 Other operations and maintenance 29,305 | 42,591 56,605 | 72,564 Depreciation and amortization 21,281 | 16,160 42,302 | 34,481 Taxes, other than income taxes 8,598 | 9,349 20,578 | 20,916 -------- |-------- -------- |-------- Total 129,102 | 109,972 271,719 | 251,309 -------- |-------- -------- |-------- Fixed charges and other: | | Interest expense 17,243 | 7,128 34,586 | 14,340 Preferred stock dividends of | | subsidiary 1,058 | 773 1,898 | 1,570 Allowance for funds used | | during construction (99) | (15) (202) | (26) Other 246 | 259 521 | 506 -------- |-------- -------- |-------- Total 18,448 | 8,145 36,803 | 16,390 -------- |-------- -------- |-------- Income (loss) from continuing | | oper. before income taxes (3,917) | 2,150 6,234 | 20,806 Income taxes (988) | 1,066 3,454 | 7,115 -------- |-------- -------- |-------- Net income (loss) from | | continuing operations (2,929) | 1,084 2,780 | 13,691 Loss from operations of | | discontinued business, net of | | tax of $(266) and $(221) -- | (435) -- | (407) -------- |-------- -------- |-------- Net income (loss) $ (2,929) |$ 649 $ 2,780 |$ 13,284 ======== |======== ======== |======== The accompanying notes to the Consolidated Financial Statements are an integral part of these statements.
6 CILCORP INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 Cash flows from operating activities: Net income before preferred dividends $ 4,678 |$ 15,261 -------- |-------- Adjustments to reconcile net income to net | cash provided by operating activities: | Non-cash lease income and investment income (4,598) | (3,299) Cash receipts in excess of debt service | on leases 8,315 | 7,326 Depreciation and amortization 42,302 | 34,481 Deferred income taxes, investment tax credit | and regulatory liability of subsidiary, net (7,873) | (8,748) Changes in operating assets and liabilities: | Decrease in accounts receivable and | accrued unbilled revenue 6,606 | 7,719 Decrease in inventories 6,493 | 11,374 Increase (decrease) in accounts payable 11,356 | (20,337) (Decrease) increase in accrued taxes (10,913) | 934 (Increase) decrease in other assets (11,732) | 1,700 (Decrease) increase in other liabilities (4,314) | 8,339 -------- |-------- Total adjustments 35,642 | 39,489 -------- |-------- Net cash provided by operating activities | from continuing operations 40,320 | 54,750 -------- |-------- Net cash provided (used) by operating | activities of discontinued operations (134) | 8,112 -------- |-------- Cash flow from operations 40,186 | 62,862 -------- |-------- Cash flows from investing activities: | Additions to plant (23,831) | (27,311) Proceeds from sale of discontinued operations -- | 17,376 Other (1,025) | (4,012) -------- |-------- Net cash used by investing activities | from continuing operations (24,856) | (13,947) -------- |-------- Net cash used by investing activities | from discontinued operations -- | (4,838) -------- |-------- Cash flow from investing activities (24,856) | (18,785) -------- |-------- 7 Cash flow from financing activities: Net increase (decrease) in short-term debt 7,800 | (22,900) Net decrease in long-term debt (22,000) | (994) Common dividends paid (6,200) | (16,741) Preferred dividends paid (1,898) | (1,570) -------- |-------- Cash flow from financing activities (22,298) | (42,205) -------- |-------- Net increase (decrease) in cash and | temporary cash investments: (6,968) | 1,872 Cash and temporary cash investments | at beginning of year: 11,220 | 1,669 -------- |-------- Cash and temporary cash investments at | June 30 $ 4,252 |$ 3,541 ======== |======== Supplemental disclosures of cash flow | information: | | Cash paid during the period for: | | Interest $ 36,479 |$ 13,832 | Income taxes $ 15,950 |$ 10,872 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
8 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended June 30, 2000 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $ 94,920 $ 32,810 $10,443 $ 5,395 $ $ 143,568 Interest income -- -- 26 39 -- 65 -------- -------- ------- --------- -------- ---------- Total 94,920 32,810 10,469 5,434 -- 143,633 -------- -------- ------- --------- -------- ---------- Operating expenses 64,832 26,772 12,021 4,196 -- 107,821 Depreciation and amortization 12,372 5,296 -- 3,613 -- 21,281 -------- -------- ------- --------- -------- ---------- Total 77,204 32,068 12,021 7,809 -- 129,102 -------- -------- ------- --------- -------- ---------- Interest expense 3,818 1,529 -- 11,896 -- 17,243 Preferred stock dividends -- -- 1,058 -- -- 1,058 Fixed charges & other expenses (99) -- 246 -- -- 147 -------- -------- ------- --------- -------- ---------- Total 3,719 1,529 1,304 11,896 -- 18,448 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 13,997 (787) (2,856) (14,271) -- (3,917) Income taxes 4,961 (303) (1,011) (4,635) -- (988) -------- -------- ------- --------- -------- ---------- Net income from continuing operations 9,036 (484) (1,845) (9,636) -- (2,929) Effect of discontinued operations -- -- -- -- -- -- -------- -------- ------- --------- -------- ---------- Segment net income $ 9,036 $ (484)$(1,845) $ (9,636)$ -- $ (2,929) ======== ======== ======= ========= ======== ==========
9 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended June 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $ 88,044 $ 25,569 $ 881 $ 5,711 $ $ 120,205 Interest income -- -- 35 27 -- 62 -------- -------- ------- --------- -------- ---------- Total 88,044 25,569 916 5,738 -- 120,267 -------- -------- ------- --------- -------- ---------- Operating expenses 64,159 21,321 1,573 6,759 -- 93,812 Depreciation and amortization 11,354 4,547 216 43 -- 16,160 -------- -------- ------- --------- -------- ---------- Total 75,513 25,868 1,789 6,802 -- 109,972 -------- -------- ------- --------- -------- ---------- Interest expense 4,082 1,603 -- 1,443 -- 7,128 Preferred stock dividends -- -- 773 -- -- 773 Fixed charges & other expenses (15) -- 259 -- -- 244 -------- -------- ------- --------- -------- ---------- Total 4,067 1,603 1,032 1,443 -- 8,145 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 8,464 (1,902) (1,905) (2,507) -- 2,150 Income taxes 3,167 (703) (717) (681) -- 1,066 -------- -------- ------- --------- -------- ---------- Net income from continuing operations 5,297 (1,199) (1,188) (1,826) -- 1,084 -------- -------- ------- --------- -------- ---------- Effect of discontinued operations -- -- -- -- (435) (435) -------- -------- ------- --------- -------- ---------- Segment net income $ 5,297 $ (1,199)$(1,188) $ (1,826)$ (435)$ 649 ======== ======== ======= ========= ======== ==========
10 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Six Months Ended June 30, 2000 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $181,246 $102,954 $18,784 $ 11,610 $ $ 314,594 Interest income -- -- 69 93 -- 162 -------- -------- ------- --------- -------- ---------- Total 181,246 102,954 18,853 11,703 -- 314,756 -------- -------- ------- --------- -------- ---------- Operating expenses 122,631 79,533 20,151 7,102 -- 229,417 Depreciation and amortization 24,573 10,504 -- 7,225 -- 42,302 -------- -------- ------- --------- -------- ---------- Total 147,204 90,037 20,151 14,327 -- 271,719 -------- -------- ------- --------- -------- ---------- Interest expense 7,753 3,106 -- 23,727 -- 34,586 Preferred stock dividends -- -- 1,898 -- -- 1,898 Fixed charges & other expenses (202) -- 521 -- -- 319 -------- -------- ------- --------- -------- ---------- Total 7,551 3,106 2,419 23,727 -- 36,803 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 26,491 9,811 (3,717) (26,351) -- 6,234 Income taxes 9,321 3,919 (1,365) (8,421) -- 3,454 -------- -------- ------- --------- -------- ---------- Net income from continuing operations 17,170 5,892 (2,352) (17,930) -- 2,780 Effect of discontinued operations -- -- -- -- -- -- -------- -------- ------- --------- -------- ---------- Segment net income $ 17,170 $ 5,892 $(2,352) $ (17,930)$ -- $ 2,780 ======== ======== ======= ========= ======== ==========
11 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Six Months Ended June 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Operatns. Total (In thousands) Revenues $169,006 $102,366 $ 1,729 $ 15,235 $ $ 288,336 Interest income -- -- 113 56 -- 169 -------- -------- ------- --------- -------- ---------- Total 169,006 102,366 1,842 15,291 -- 288,505 -------- -------- ------- --------- -------- ---------- Operating expenses 120,487 79,013 3,161 14,167 -- 216,828 Depreciation and amortization 23,786 10,175 432 88 -- 34,481 -------- -------- ------- --------- -------- ---------- Total 144,273 89,188 3,593 14,255 -- 251,309 -------- -------- ------- --------- -------- ---------- Interest expense 8,233 3,265 -- 2,842 -- 14,340 Preferred stock dividends -- -- 1,570 -- -- 1,570 Fixed charges & other expenses (26) -- 506 -- -- 480 -------- -------- ------- --------- -------- ---------- Total 8,207 3,265 2,076 2,842 -- 16,390 -------- -------- ------- --------- -------- ---------- Income from continuing oper. before income taxes 16,526 9,913 (3,827) (1,806) -- 20,806 Income taxes 5,315 4,044 (1,367) (877) -- 7,115 -------- -------- ------- --------- -------- ---------- Net income from continuing operations 11,211 5,869 (2,460) (929) -- 13,691 Effect of discontinued operations -- -- -- -- (407) (407) -------- -------- ------- --------- -------- ---------- Segment net income $ 11,211 $ 5,869 $(2,460) $ (929)$ (407)$ 13,284 ======== ======== ======= ========= ======== ==========
12 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
June 30, December 31, ASSETS 2000 1999 (Unaudited) Utility plant, at original cost: Electric $1,270,248 $1,263,190 Gas 434,113 431,887 ---------- ---------- 1,704,361 1,695,077 Less - accumulated provision for depreciation 901,430 870,566 ---------- ---------- 802,931 824,511 Construction work in progress 50,034 38,068 ---------- ---------- Total utility plant 852,965 862,579 ---------- ---------- Other property and investments: Cash surrender value of company-owned life insurance (net of related policy loans of $57,520 and $53,558) 2,656 3,106 Other 1,192 1,179 ---------- ---------- Total other property and investments 3,848 4,285 ---------- ---------- Current assets: Cash and temporary cash investments 2,830 8,548 Receivables, less reserves of $1,260 and $1,296 45,583 42,410 Accrued unbilled revenue 25,069 35,071 Fuel, at average cost 14,029 14,392 Materials and supplies, at average cost 16,464 15,967 Gas in underground storage, at average cost 14,391 21,196 Prepaid taxes 6,778 6,165 FAC underrecoveries 5,135 12,024 Other 13,000 8,854 ---------- ---------- Total current assets 143,279 164,627 ---------- ---------- Deferred debits: Unamortized loss on reacquired debt 2,813 2,941 Unamortized debt expense 1,488 1,552 Prepaid pension cost 308 259 Other 26,974 20,037 ---------- ---------- Total deferred debits 31,583 24,789 ---------- ---------- Total assets $1,031,675 $1,056,280 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
13 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
June 30, December 31, CAPITALIZATION AND LIABILITIES 2000 1999 (Unaudited) Capitalization: Common stockholder's equity: Common stock, no par value; authorized 20,000,000 shares; outstanding 13,563,871 shares $ 185,661 $ 185,661 Additional Paid-in Capital 27,000 27,000 Retained earnings 126,275 121,564 Accumulated other comprehensive income (60) (60) ---------- ---------- Total common stockholder's equity 338,876 334,165 Preferred stock without mandatory redemption 44,120 44,120 Preferred stock with mandatory redemption 22,000 22,000 Long-term debt 245,957 237,934 ---------- ---------- Total capitalization 650,953 638,219 ---------- ---------- Current liabilities: Current maturities of long-term debt -- 30,000 Notes payable 56,700 46,900 Accounts payable 40,859 35,859 Accrued taxes 13,449 25,520 Accrued interest 7,802 9,485 PGA overrecoveries 2,465 127 Level payment plan 1 956 Other 3,487 4,714 ---------- ---------- Total current liabilities 124,763 153,561 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 139,795 136,077 Regulatory liability 22,453 31,367 Deferred investment tax credit 16,975 17,792 Capital lease obligation 906 1,183 Other 75,830 78,081 ---------- ---------- Total deferred credits and other liabilities 255,959 264,500 ---------- ---------- Total capitalization and liabilities $1,031,675 $1,056,280 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
14 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 Operating revenue: Electric $ 94,920 |$ 88,044 $181,246 |$169,006 Gas 32,810 | 25,569 102,954 | 102,366 -------- |-------- -------- |-------- Total operating revenues 127,730 | 113,613 284,200 | 271,372 -------- |-------- -------- |-------- Operating expenses: | | Cost of fuel 23,148 | 21,030 52,147 | 45,261 Cost of gas 17,474 | 11,131 58,406 | 55,818 Purchased power 15,000 | 6,083 17,899 | 11,922 Other operations and maintenance 27,393 | 37,898 53,256 | 65,600 Depreciation and amortization 17,668 | 15,901 35,077 | 33,961 Income taxes 4,658 | 2,464 13,240 | 9,359 Other taxes 8,589 | 9,338 20,456 | 20,899 -------- |-------- -------- |-------- Total operating expenses 113,930 | 103,845 250,481 | 242,820 -------- |-------- -------- |-------- Operating income 13,800 | 9,768 33,719 | 28,552 -------- |-------- -------- |-------- Other income and deductions: | | Company-owned life insurance, net (246)| (259) (521)| (506) Other, net (541)| (156) 67 | (384) -------- |-------- -------- |-------- Total other income and | | (deductions) (787)| (415) (454)| (890) -------- |-------- -------- |-------- Income before interest expense 13,013 | 9,353 33,265 | 27,662 -------- |-------- -------- |-------- Interest expenses: | | Interest on long-term debt 4,329 | 4,809 8,860 | 9,617 Cost of borrowed funds | | capitalized (99)| (15) (202)| (26) Other 1,018 | 876 1,999 | 1,881 -------- |-------- -------- |-------- Total interest expense 5,248 | 5,670 10,657 | 11,472 -------- |-------- -------- |-------- Net income before preferred | | dividends 7,765 | 3,683 22,608 | 16,190 -------- |-------- -------- |-------- Dividends on preferred stock 1,058 | 773 1,898 | 1,570 -------- |-------- -------- |-------- Net income available for | | common stock $ 6,707 |$ 2,910 $ 20,710 |$ 14,620 ======== |======== ======== |======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
15 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 (In thousands) (Unaudited) Cash flows from operating activities: Net income before preferred dividends $ 22,608 |$ 16,190 | Adjustments to reconcile net income to | cash provided by operating activities: | Depreciation and amortization 35,077 | 34,394 Deferred income taxes, investment tax | credit and regulatory liability, net (6,013) | (8,240) Changes in operating assets and liabilities: | (Increase) decrease in accounts receivable (3,173) | 2,593 Decrease in fuel, materials and supplies, | and gas in underground storage 6,672 | 11,437 Decrease in unbilled revenue 10,001 | 3,778 Increase (decrease) in accounts payable 4,999 | (18,302) (Decrease) increase in accrued taxes and interest (13,755) | 537 Capital lease payments 323 | 323 Decrease (increase) in other current assets 2,130 | (6,842) Increase (decrease) in other current liabilities 157 | (2,377) Increase (decrease) in other non-current assets (6,083) | 4,425 (Decrease) increase in other non-current liab. (1,746) | 11,829 -------- |-------- Net cash provided by operating activities 51,197 | 49,745 -------- |-------- Cash flows from investing activities: | Capital expenditures (23,831) | (26,587) Cost of equity funds capitalized -- | -- Other (2,664) | (678) -------- |-------- Net cash used in investing activities (26,495) | (27,265) -------- |-------- Cash flow from financing activities: | Common dividends paid (16,000) | (16,741) Preferred dividends paid (1,897) | (1,570) Payments on capital lease obligation (323) | (323) Increase (decrease) in short-term borrowing 9,800 | (1,300) Long-term debt retired (30,000) | -- Long-term debt issued 8,000 | -- -------- |-------- Net cash used in financing activities (30,420) | (19,934) -------- |-------- Net increase in cash and temporary | cash investments (5,718) | 2,546 | Cash and temporary cash investments at | beginning of year 8,548 | 1,362 -------- |-------- Cash and temporary cash investments at | June 30 $ 2,830 |$ 3,908 ======== |======== 16 Supplemental disclosures of cash | flow information: | | Cash paid during the period for: | | Interest (net of cost of borrowed | funds capitalized) $ 13,211 |$ 12,397 | Income taxes $ 30,391 |$ 19,308 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
17 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Introduction The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or the Holding Company), Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST) and its subsidiaries, QST Environmental Inc. (QST Environmental), QST Energy Inc. (QST Energy), and CILCORP Infraservices Inc. (CILCORP Infraservices), and CILCORP's other subsidiaries (collectively, the Company), after elimination of significant intercompany transactions. The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Company and CILCO Energy Corporation. CILCORP owns directly or indirectly 100% of the common stock of its first-tier subsidiaries. In the fourth quarter of 1998, the operations of QST and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc. - see Management's Discussion and Analysis) were discontinued and, therefore, are being reported as discontinued operations in the financial statements. QST completed the sale of subsidiary QST Environmental in the second quarter of 1999. Prior year amounts have been reclassified on a basis consistent with the 2000 presentation. On November 23, 1998, the Company announced that The AES Corporation (AES) had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999. Approximately $886 million was required to complete the merger, which involved the purchase of 13,625,680 shares of CILCORP's common stock. Currently, there are 10,000 authorized shares of CILCORP common stock, 1,000 of which are issued. AES owns 100% of the 1,000 issued shares. The merger was accounted for using the purchase method of accounting. Under this method, the purchase price was allocated to the fair market value of the assets acquired and the liabilities assumed. The excess purchase price over the fair value of the assets acquired and the liabilities assumed was allocated to goodwill at CILCORP. Following the acquisition, results of operations for CILCORP Inc. are presented for the periods before and after the acquisition, separated by a heavy black line. The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC). Although CILCORP believes the disclosures are adequate to make the information presented not misleading, these consolidated financial statements should be read along with the Company's 1999 Annual Report on Form 10-K. In the Company's opinion, the consolidated financial statements furnished reflect all normal and recurring adjustments necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. NOTE 2. Contingencies Union Contracts On August 3, 2000, CILCO and the International Brotherhood of Electrical Workers Local 51 (IBEW) agreed to extend the existing contract through July 1, 2002. The contract provides for 3% wage increases, in each of the two years of the extension, retroactive to July 1, 2000. The IBEW represents approximately 376 CILCO gas and electric department people. The National Conference of Firemen and 18 Oilers Local 8 (NCF&O) ratified its current contract with the Company on October 23, 1998. The current contract expires on July 1, 2001. The NCF&O represents approximately 171 CILCO power plant people. Other Refer also to "Results of Operations - CILCO Electric Operations" for a discussion of unrecovered generation and purchased power costs incurred during July 1999, and to "Results of Operations - QST Discontinued Operations" for details regarding accounts receivable balances with two former customers. NOTE 3. Accounting for Price Risk Management Activities CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities to reduce market risk associated with fluctuations in the price of natural gas and electricity. Gains and losses arising from derivative financial instrument transactions which hedge the impact of fluctuations in energy prices are recognized in income concurrent with the related purchases and sales of the commodity. If a derivative financial instrument contract is terminated because it is probable that a transaction or forecasted transaction will not occur, any gain or loss as of such date is immediately recognized. If a derivative financial instrument contract is terminated early for other economic reasons, any gain or loss as of the termination date is deferred and recorded concurrently with the related purchase and sale of natural gas and electricity. CILCORP is subject to commodity price risk for deregulated sales to the extent that energy is sold under firm price commitments. Due to market conditions, at times CILCORP may have unmatched commitments to purchase and sell energy on a price and quantity basis. Physical and derivative financial instruments give rise to market risk, which represents the potential loss that can be caused by a change in the market value of a particular commitment. Market risks are actively monitored to ensure compliance with the Company's risk management policies, including limits to the Company's total net exposure at any time. The net gain/loss reflected in operating results from derivative financial instruments for the quarter ended June 30, 2000, was a $76,160 gain for natural gas and a $1.2 million loss for electricity. As of June 30, 2000, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of .19 Bcf and natural gas sales of .51 Bcf for commitments through June 2001. The net deferred loss and carrying amount on these fixed-price derivatives at June 30, 2000, was approximately $1,000. As of June 30, 2000, CILCORP had fixed-price derivative financial instruments representing hedges of electricity sales of 34,592 megawatts for commitments through August 2000. The net deferred loss and carrying amount on these fixed-price derivatives at June 30, 2000, was approximately $2.0 million. NOTE 4. Impact of Accounting Standards In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137). SFAS 137 amends SFAS 133 to require implementation of SFAS 133 for all fiscal quarters of fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives (including certain derivative instruments embedded in other contracts) as either assets or liabilities on the balance sheet and measure those instruments at fair value. Changes in the derivative's fair 19 value are to be recognized currently in earnings, unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains or losses to offset related results of the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts. With respect to hybrid instruments, a company may elect to apply SFAS 133, as amended, to (1) all hybrid contracts, (2) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1997, or (3) only those hybrid instruments that were issued, acquired, or substantively modified after December 31, 1998. The fair value of these derivatives would be recognized as assets or liabilities on the balance sheet, consistent with the current accounting treatment for certain freestanding derivatives. The Company has not yet quantified the other effects on the financial statements of adopting SFAS 133. The final adoption could increase volatility in earnings and other comprehensive income. CILCORP continues to analyze the effects of adoption of the rules promulgated by SFAS 133. The Company is in the process of preparing a comprehensive inventory of all derivatives that will be subject to disclosure under SFAS 133. The FASB issued an amendment to SFAS 133 on June 15, 2000, that expands the normal purchase and normal sales exception. This amendment may place the majority of the Company's normal physical energy purchases and sales outside the scope of the statement. In addition, the Company holds no interest rate or foreign currency swap positions as of June 30, 2000. The Company does utilize commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities to reduce market or price risk. See Note 3 for the mark-to-market gain or loss, as of June 30, 2000, that would appear in current operating income if the SFAS 133 requirements for hedge accounting are not met. The Company believes that it has implemented procedures to formally designate and document hedge relationships in accordance with the hedge accounting provisions of SFAS 133. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CILCORP Inc. (CILCORP) is a wholly-owned subsidiary of The AES Corporation (AES). The financial condition and operating results of CILCORP Inc. and its subsidiaries (the Company) primarily reflect the operations of subsidiary Central Illinois Light Company (CILCO). On November 23, 1998, the Company announced that AES had offered to buy 100% of the Company's outstanding common stock for $65 per share, subject to CILCORP shareholder approval and various regulatory approvals. AES completed the acquisition of the Company on October 18, 1999. To complete the merger, approximately $886 million was raised through a combination of additional paid-in capital contributed by AES and the offering of senior notes and bonds assumed by CILCORP. The approximately $886 million was used to purchase 13,625,680 shares of CILCORP's common stock. AES has 100% ownership of the 1,000 CILCORP common shares currently issued and outstanding. Financial results reflect application of the purchase method of accounting to the merger. Under this method, the purchase price is allocated to the fair market value of the assets acquired and the liabilities assumed. The allocation of the purchase price is based on preliminary estimates and is subject to change. Any excess purchase price over the fair value of the assets acquired and the liabilities assumed is allocated to goodwill. As a result, CILCORP recorded purchase accounting fair value adjustments to 1) adjust plant to its net fair value, 2) adjust pension and other post- retirement liabilities, and 3) record goodwill. Of these adjustments, the primary effect of purchase accounting was to record approximately $573 million of goodwill which is being amortized over 40 years. The adjustments are reflected on CILCORP's financial statements as of the merger date, but were not "pushed down" to CILCORP's subsidiaries. Accordingly, CILCORP's post-merger financial statements reflect a new basis of accounting, and separate financial statements are presented for pre-merger and post-merger periods, separated by a heavy black line. For discussion throughout this document, pre-merger and post-merger activity unaffected by the merger is compared. See "Overview" for a discussion of operating effects of the merger. In late 1998, in light of the pending acquisition and after reviewing its business plans, the Company decided to sell its 100% ownership interest in QST Environmental Inc. (QST Environmental), a first-tier subsidiary of QST Enterprises Inc. (QST) that provided environmental consulting and engineering services. On May 7, 1999, QST agreed to sell all the outstanding common stock of QST Environmental to MACTEC, Inc. for approximately $18 million in cash. The sale was completed on June 24, 1999. Due to uncertainties related to electric deregulation across the country, the illiquidity of certain energy markets, and the Company's acquisition by AES, the Company intends to focus on the opportunities in the Illinois energy market resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Competition). This law will enable CILCO, the Company's regulated public utility that generates and distributes electricity and purchases, transports and distributes natural gas, to serve Illinois customers outside its traditional Central Illinois service territory. As a result of these events, the Company is reporting the results of QST and its subsidiaries (excluding CILCORP Infraservices Inc. and residual interests in ESE Land Corporation) as discontinued operations (see Results of Operations - QST Enterprises Discontinued Operations). The Other Businesses segment includes the operations of the Holding Company itself (Holding Company), its investment subsidiary, CILCORP Investment Management Inc. (CIM), CILCORP Ventures Inc. (CVI), and CILCORP Infraservices Inc., which provides utility infrastructure operation and maintenance services. 21 Overview The Company's earnings decreased by approximately 80% for the six months ended June 30, 2000, compared to the same period in 1999. This decrease was due primarily to approximately $7.1 million in goodwill amortization and $21.5 million in increased interest expense due to debt issued to fund the AES acquisition of CILCORP. These increased costs were partially offset by decreased payroll and related expenses following the Voluntary Early Retirement Programs. (For further discussion, refer to "Results of Operations".) Forward-Looking Information Forward-looking information is included in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A). Certain material contingencies are also described in Note 2 to the Consolidated Financial Statements. Some important factors could cause actual results or outcomes to differ materially from those expressed or implied in MD&A. The business and profitability of CILCORP and its subsidiaries are influenced by economic and geographic factors; weather conditions; the extent and pace of development of competition for retail and wholesale energy customers; changes in technology; changes in company- wide operation and plant availability compared to our historical performance and changes in our historical operating cost structure, including changes in various costs and expenses; pricing and transportation of commodities; market supply and demand for energy and energy derivative financial instruments; inflation; capital market conditions; and environmental laws and compliance costs. Prevailing governmental policies, statutory changes, and regulatory actions with respect to rates, tariffs, industry structure and recovery of various costs incurred by CILCO in the course of its business and increasing wholesale and retail competition in the electric and gas business affect its earnings. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and, to a significant degree, are beyond the control of CILCORP and its subsidiaries. CILCORP and its subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of changes in actual results, assumptions or other factors. Capital Resources & Liquidity The Company believes that internal and external sources of capital which are or are expected to be available to the Holding Company and its subsidiaries will be adequate to fund its capital expenditures, pay its financial obligations, meet working capital needs and retire or refinance debt as it matures. CILCORP CILCORP is currently authorized by its Board of Directors to borrow up to $60 million on a short-term basis. On June 30, 2000, CILCORP had committed bank lines of credit of $60 million, of which $43 million was used. In October 1999, CILCORP issued $225 million of 8.7% senior notes (due 2009) and $250 million of 9.375% senior notes (due 2029). Along with equity funds provided by AES, the proceeds of the notes were used by AES to acquire all outstanding shares of CILCORP common stock for approximately $886 million, to pay transaction costs related to the acquisition, and to retire short-term debt. The Company had $17.5 million of medium-term notes outstanding at June 30, 2000. With the issuance of the senior notes in October 1999, the Company can no longer issue debt under its medium-term note program. 22 CILCO Capital expenditures totaled $23.8 million for the six months ended June 30, 2000. Capital expenditures are anticipated to be approximately $29.8 million for the remainder of 2000 and are currently estimated to be $55.9 million in 2001. CILCO retired $30 million of medium-term notes in February 2000. In April 2000, CILCO incurred a total of $8 million in bank debt to finance two power module projects. CILCO redeemed $25 million of auction rate preferred stock in July 2000. CILCO expects to issue commercial paper periodically during 2000, and is currently authorized by its Board of Directors to issue up to $100 million of short-term debt. At June 30, 2000, committed bank lines of credit totaled $100 million, all of which were unused except in support of commercial paper issuance. CILCO had $56.7 million of commercial paper outstanding at June 30, 2000. During 2000, CILCO expects to continue to support commercial paper issuance with its bank lines of credit. CILCO plans to finance its 2000 and 2001 capital expenditures primarily with funds provided by operations. CILCO is currently considering various options to refinance the matured medium- term notes and auction rate preferred stock. Future funds provided by operations may be affected by the deregulation of the electric and natural gas utility industries (see Competition). CIM At June 30, 2000, CIM had $24.4 million of outstanding debt owing to CILCORP. CIM is committed to invest $16.6 million in affordable housing funds. Through June 30, 2000, CIM has paid $15.8 million to fund these commitments, $.5 million of which was paid during 2000. CIM expects to pay the approximately $.8 million remaining commitment in lesser amounts in each year through 2006. CIM does not plan to make additional investments beyond its current affordable housing commitments. CIM funds its commitments with cash borrowed from the Holding Company. CVI At June 30, 2000, CVI had outstanding debt of $.9 million, borrowed from CILCORP. 23 COMPETITION CILCO, as a regulated public utility, has an obligation to provide service to retail customers within its defined service territory; thus, CILCO had not generally been in competition with other public utilities for retail electric or gas customers in these areas. However, the passage of the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) began a transition process to a fully competitive market for electricity in Illinois. In addition, electricity and natural gas compete with other forms of energy available to customers. Primarily as a result of the Customer Choice Law, the electric industry in Illinois will change significantly during the coming years at both the wholesale and retail levels. Large industrial customers and customers representing one-third of remaining non-residential kWh sales had the ability to choose their electric supplier beginning October 1, 1999, and all other non-residential customers will have choice no later than December 31, 2000. Residential electric customers will be able to choose their electric supplier on May 1, 2002. If a customer chooses to leave its present electricity supplier, that utility will collect a fee for delivering power and may assess an additional transition charge on the customer. This collection methodology must be filed and approved by the Illinois Commerce Commission (ICC) and is designed to help utilities recover a portion of the costs of past investments made under a regulated system. The transition charge will reduce a customer's economic incentive to switch suppliers. Transition charges may be collected through 2006 (2008 upon the ICC's finding that a utility's financial condition is impaired and the utility meets other requirements specified in the Customer Choice Law). On March 9, 2000, CILCO filed with the ICC revised tariff sheets eliminating the collection of the customer transition charge effective March 17, 2000. At a March 15, 2000, hearing, the ICC approved CILCO's revised tariffs, thereby eliminating the collection of any customer transition charge. CILCO cannot re-establish the collection of a transition charge until it files and the ICC approves revised tariff sheets that reinstate a transition charge. On July 31, 2000, CILCO filed a proposal with the ICC seeking approval to cap or "freeze" the cost of fuel contained in CILCO's retail electricity prices for the next five years. CILCO's proposal is based on forecasted coal and energy costs. If approved, this will eliminate price volatility created by high market prices and bring electric price stability for CILCO customers. The ICC must rule on this proposal within 240 days of the July 31, 2000, filing date. This filing is possible as a result of the Customer Choice Law. The Customer Choice Law also requires electric base rate reductions that vary by utility. CILCO reduced its residential base rates by 2% in August 1998 and must reduce base rates by an additional 2% in October 2000 and 1% in October 2002. Also, CILCO's return on common equity will, in general, be capped (the Equity Cap) at an index (a 12- month average yield for 30-year U.S. Treasury bonds plus 8% for calendar years 1998 and 1999, and a 12-month average yield for U.S. Treasury bonds plus 9% for calendar years 2000 through 2004) plus 1.5 percentage points. If CILCO's two-year average return on common equity exceeds the two-year average of the Equity Cap, fifty percent of the earnings in excess of the average Equity Cap must be refunded to customers in the following year. On June 30, 1999, Senate Bill 24 (a clarification and technical correction of the Customer Choice Law) was signed into law. This law allows certain utilities, including CILCO, to increase the Equity Cap by an additional 2% over the Equity Cap provided under the Customer Choice Law, for the period 2000 through 2004. The increase in the Equity Cap is allowed in exchange for these utilities offering choice of electricity suppliers to selected manufacturing customers on June 1, 2000, and to the remaining manufacturing customers on October 1, 2000, earlier than previously allowed under the Customer Choice Law. Utilities selecting this 24 option also waive the right to seek a two-year extension on the collection of transition charges. On April 13, 2000, CILCO filed revised tariff sheets with the ICC to make these selected customers eligible for choice on June 1, 2000, in order to increase the equity cap by 2%, as outlined in Senate Bill 24. With the enactment of the Customer Choice Law, electric generation in Illinois is now deregulated and competitive. As a result, the accounting principles applicable to rate-regulated enterprises will no longer apply to the electric generation portion of CILCO's business. With electric choice beginning on October 1, 1999, for its industrial customers and some of its commercial customers, CILCO has entered into multi-year contracts with customers representing approximately 50% of total 1999 electric kWh sales to non-residential customers. These contracts, which expire from 2001 to 2002, were designed to capture a significant portion of the margin that the customers paid to CILCO in the most recent twelve months. The ultimate market price for electricity, the cost for a utility to produce or buy electricity, and the number of customers that may be gained or lost due to customer choice of supplier in Illinois cannot be predicted. As a result, management cannot predict the ultimate impact that the Customer Choice Law will have on CILCORP's financial position or results of operation, but the effect could be significant. However, CILCO is currently a low-cost provider of electricity, and management will continue to position CILCO for competition by controlling costs, maintaining good customer relations, and developing flexibility to meet individual customer requirements. As of December 31, 1999, all eligible electric customers continue to purchase their electricity supply from CILCO other than those who self-generate. CILCO has acquired approximately 750,000 megawatt hours of new retail load to be served outside its service territory in 2000. CILCO will supply these new customers by using its owned generation and electricity purchases from other suppliers. CILCO has made the necessary supply and transmission arrangements to meet customer requirements. 25 Market Risk Sensitive Instruments CILCORP is exposed to non-trading risks through its daily business activities. These non-trading activities may include the market or commodity price risk related to CILCO's retail tariff activity and CILCORP's non-regulated commodity marketing activities. The majority of CILCORP's energy sales for the quarter ending June 30, 2000, were to CILCO retail customers in Illinois under tariffs regulated by the ICC. Although the Illinois retail electric market is becoming deregulated (see Competition), prudently incurred costs of fuel used to generate electricity, purchased power costs and gas purchased for resale may be recovered from retail customers that purchase energy through regulated tariffs. Thus, there is very limited commodity price risk associated with CILCO's traditional regulated sales. However, as more customers in Illinois purchase energy on a competitive basis pursuant to the current Illinois deregulation timetable, CILCO's exposure to commodity price risk will increase. The market risk inherent in the activities of CILCORP (exclusive of regulated Illinois tariff customers) is the potential loss arising from adverse changes in natural gas and electric commodity prices relative to the physical and financial positions that the Company maintains. The prices of natural gas and electricity are subject to fluctuations resulting from changes in supply and demand. At June 30, 2000, CILCORP engaged in non-regulated electric retail and natural gas sales in Illinois, including wholesale power purchases and sales to supplement the Company's ability to generate electricity. As of June 30, 2000, CILCORP has contracted to sell approximately 1.4 million MWh of electricity through June 2004 at various fixed prices to non-regulated customers. These commitments have a notional value of approximately $49.7 million and a mark-to-market gain of approximately $400,000. CILCORP has also contracted to purchase power at various fixed prices through December 2005. The total of fixed-price purchased power subject to market risk is approximately 1.9 million MWh, with a notional cost of approximately $68.7 million and a mark-to-market gain of approximately $43.4 million resulting in a fair value of approximately $112.1 million as of June 30, 2000. Since the majority of this power was purchased with the intent to supply non-regulated retail customers, the sales price may not be at market and the Company may potentially have realized gains significantly less than the $43.4 million. Electric financial open positions, used to hedge a portion of the above-mentioned purchases, include the sale of approximately 34,592 MWh with a mark-to-market loss of approximately $2.0 million, as of June 30, 2000. Additionally, CILCORP holds net open market price risk positions of approximately .65 Bcf of natural gas with a mark-to-market loss of approximately $265,000. See Note 3 for a discussion of CILCORP's use of financial derivatives for hedging purposes. Due to the high correlation between the changes in the value of the financial instrument positions held by CILCORP to the change in price of the underlying commodity, the net effect on CILCORP's net income resulting from the change in value of these financial instruments is not expected to be material. Voluntary Early Retirement Programs CILCO offered Voluntary Early Retirement Programs in 1999 that resulted in the retirement of 227 people and after-tax charges to earnings of $6.1 million and $16.6 million in the second and third quarters of 1999, respectively. 26 Results of Operations CILCO Electric Operations The following table summarizes the components of CILCO electric operating income for the three months and six months ended June 30, 2000 and 1999.
Three Months Ended Six Months Ended June 30, June 30, Components of Electric 2000 1999 2000 1999 Operating Income (In thousands) (Unaudited) Revenue: Electric retail $ 88,557 | $ 84,089 $170,584 | $160,785 Sales for resale 6,363 | 3,955 10,662 | 8,221 -------- | -------- -------- | -------- Total revenue 94,920 | 88,044 181,246 | 169,006 -------- | -------- -------- | -------- Cost of sales: | | Cost of fuel 23,148 | 21,030 52,147 | 45,261 Purchased power 15,000 | 6,083 17,899 | 11,922 Revenue taxes 4,377 | 4,228 9,162 | 8,871 -------- | -------- -------- | -------- Total cost of sales 42,525 | 31,341 79,208 | 66,054 -------- | -------- -------- | -------- Gross margin 52,395 | 56,703 102,038 | 102,952 -------- | -------- -------- | -------- Operating expenses | | Other operations and maint. 20,349 | 30,070 38,844 | 49,320 Depreciation and amortization 12,372 | 11,354 24,573 | 23,786 Other taxes 1,958 | 2,748 4,579 | 5,113 -------- | -------- -------- | -------- Total operating expenses 34,679 | 44,172 67,996 | 78,219 -------- | -------- -------- | -------- Total 17,716 | 12,531 34,042 | 24,733 -------- | -------- -------- | -------- Fixed charges and other | | Interest on long-term debt 3,091 | 3,453 6,326 | 6,886 Cost of borrowed funds capital. (99)| (15) (202)| (26) Other interest 727 | 629 1,427 | 1,347 -------- | -------- -------- | -------- Total 3,719 | 4,067 7,551 | 8,207 | | Income before income taxes 13,997 | 8,464 26,491 | 16,526 Income taxes 4,961 | 3,167 9,321 | 5,315 -------- | -------- -------- | -------- Electric income $ 9,036 | $ 5,297 $ 17,170 | $ 11,211 ======== | ======== ======== | ========
Electric gross margin decreased 8% for the quarter and 1% for the six months ended June 30, 2000, compared to the same periods in 1999, due primarily to increased purchased power costs. Industrial sales decreased 9% for the quarter and 5% for the six months ended June 30, 2000, compared to the same periods in 1999. Residential sales increased 4% for the quarter and decreased 1% for the six months ended June 30, 2000, compared to the same periods in 1999. Commercial sales decreased 2% for the quarter, and increased 2% for the six months ended June 30, 2000, compared to the same periods in 1999. Retail kilowatt hour (kWh) sales decreased 3% for the quarter and 2% for the six months ended June 30, 2000, compared to the same periods in 1999. Cooling degree days were 18% lower for the 27 quarter and 17% lower for the six months ended June 30, 2000, compared to the same periods in 1999. Sales for resale increased 61% for the quarter and 30% for the six months ended June 30, 2000, compared to the same periods in 1999, due to the higher price of power available for sale during the three months ended June 30, 2000. Sales for resale vary based on the energy requirements of native load customers, neighboring utilities and power marketers, CILCO's available capacity for bulk power sales and the price of power available for sale. CILCO's activity in the sales for resale and purchased power markets will continue to increase as a result of retail deregulation in the Illinois market. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales will also be affected in the long term by deregulation and increased competition in the electric utility industry. The cost of fuel increased 10% for the quarter and 15% for the six months ended June 30, 2000, compared to the same periods in 1999. Purchased power increased 147%, and 50% for the quarter and six months ended June 30, 2000, respectively, compared to the same periods in 1999. The increase in purchased power was due to less available generated power due to increased outages at the power plants, as well as increased prices. As a result of abnormally warm weather during July 1999, CILCO incurred $33 million of generation and purchased power costs which are subject to recovery from customers through the fuel adjustment clause (FAC). Of this amount, $10 million was recovered in July 1999 and $23 million remained unrecovered at the end of July 1999. CILCO's FAC allows it to pass on to customers the cost of unrecovered fuel and purchased power costs in the next calculated month's FAC factor. In this instance, on September 1, 1999, the ICC approved a request by CILCO to charge certain customers over a 12-month period (without interest), beginning in September 1999. In addition, to avoid the potential loss of purchased power cost recovery from customers eligible to choose their electricity supplier on October 1, 1999, CILCO requested and received ICC permission to charge the larger industrial and commercial customers their share of this underrecovery in a single month. These customers may elect to pay over a period of up to 12 months after making appropriate arrangements with CILCO. Also, under the FAC, the underrecovered costs of fuel and purchased power for a particular month are both treated as adjustments to cost of fuel expense. At June 30, 2000, underrecovered fuel and purchased power costs totaled $5.1 million, including the unbilled portion of the July 1999 purchased power cost of $1.8 million. The ICC has begun its review of the FAC costs incurred during 1999 and will determine the prudency and recoverability of CILCO's energy costs. Any amount of the 1999 FAC costs ultimately determined to be imprudent, or otherwise not recoverable through the FAC, would be refunded to CILCO's customers, and would be expensed by CILCO on its income statement. The ICC Staff and intervenors have variously recommended in the pending proceeding that up to $25.6 million be refunded to CILCO's customers. CILCO disagrees with the theories of Staff and the intervenors and continues to believe all its 1999 FAC costs are recoverable through the FAC. A significant disallowance of these costs by the ICC would be material to CILCO's results of operation. Electric operation and maintenance expense decreased 32% for the quarter and 21% for the six months ended June 30, 2000, compared to the same periods in 1999. The decrease was mainly due to decreased pension, medical and payroll expenses due to the 1999 early retirement programs, partially offset by increased power plant maintenance during the first and second quarters, and increased tree trimming, and customer billing system costs for the six months. In 1999, there was a $10.1 million charge to pension and benefits expense as a result of the Voluntary Early Retirement Program offered to employees in CILCO's electric power generation area. Income taxes expense increased for the quarter and six months ended June 30, 2000, due to increases in pre-tax operating income. 28 Fixed charges and other expenses decreased 9% for the quarter and 8% for the six months ended June 30, 2000, compared to the same periods in 1999. 29 CILCO Gas Operations The following table summarizes the components of CILCO gas operating income for the three months and six months ended June 30, 2000 and 1999.
Three Months Ended Six Months Ended June 30, June30, Components of Gas 2000 1999 2000 1999 Operating Income (In thousands) (Unaudited) Revenue: Sale of gas $ 31,667 | $ 24,400 $100,440 | $ 99,833 Transportation services 1,143 | 1,169 2,514 | 2,533 -------- | -------- -------- | -------- Total revenue 32,810 | 25,569 102,954 | 102,366 -------- | -------- -------- | -------- Cost of sales: | | Cost of gas 17,474 | 11,131 58,406 | 55,818 Revenue taxes 1,629 | 1,577 5,260 | 5,328 -------- | -------- -------- | -------- Total cost of sales 19,103 | 12,708 63,666 | 61,146 -------- | -------- -------- | -------- Gross margin 13,707 | 12,861 39,288 | 41,220 -------- | -------- -------- | -------- Operating expenses | | Other operations and maint. 7,044 | 7,828 14,412 | 16,280 Depreciation and amortization 5,296 | 4,547 10,504 | 10,175 Other taxes 625 | 785 1,455 | 1,587 -------- | -------- -------- | -------- Total operating expenses 12,965 | 13,160 26,371 | 28,042 -------- | -------- -------- | -------- Total 742 | (299) 12,917 | 13,178 -------- | -------- -------- | -------- Fixed charges and other | | Interest on long-term debt 1,238 | 1,356 2,534 | 2,731 Other interest expense 291 | 247 572 | 534 -------- | -------- -------- | -------- Total 1,529 | 1,603 3,106 | 3,265 -------- | -------- -------- | -------- Income (loss) before income taxes (787)| (1,902) 9,811 | 9,913 Income taxes (303)| (703) 3,919 | 4,044 -------- | -------- -------- | -------- Gas income (loss) $ (484)| $ (1,199)$ 5,892 | $ 5,869 ======== | ======== ======== | ========
Gas gross margin increased 7% for the quarter, and decreased 5% for the six months ended June 30, 2000, compared to the same periods in 1999. Residential sales volumes increased 15% for the quarter and decreased 11% for the six months ended June 30, 2000. Commercial sales volumes increased 15% for the quarter and decreased 5% for the six months ended June 30, 2000. Heating degree days were 17% higher for the quarter and 8% lower for the six months ended June 30, 2000, compared to the same periods in 1999. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting gas sales in the near term. CILCO's gas sales may also be affected by further deregulation at the retail level in the natural gas industry. Revenue from gas transportation services decreased 2% and 1% for the quarter and six months ended June 30, 2000, respectively, while gas transportation sales 30 volumes increased 13% for the first quarter, and 4% for the six months ended June 30, 2000, compared to the same periods in 1999. The cost of gas increased 57% for the quarter and 5% for the six months ended June 30, 2000, compared to the same periods in 1999, due to increased gas sales during the quarter and by higher natural gas prices during the quarter and six months ended June 30, 2000. These changes were passed through to customers via the PGA. Gas operation and maintenance expense decreased 10% and 11%, respectively, for the quarter and six months ended June 30, 2000, compared to the same periods in 1999. The decreases were primarily due to decreased pension, medical and payroll expenses due to the 1999 early retirement programs. Fixed charges and other expenses decreased 5% for the quarter and six months ended June 30, 2000, compared to the same periods in 1999. 31 CILCO Other The following table summarizes other income and deductions for the three months and six months ended June 30, 2000 and 1999.
Components of CILCO Other Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (In thousands) (Unaudited) Revenue $ 10,443 | $ 881 $ 18,784 | $ 1,729 Expense (11,681)| (1,311) (19,489)| (2,512) -------- | ------- -------- | ------- Gross margin (1,238)| (430) (705)| (783) -------- | ------- -------- | ------- | | Other income and deductions: | | Interest income 26 | 35 69 | 113 Amortization -- | (216) -- | (432) Operating expenses (339)| (261) (660)| (647) Other taxes (1)| (1) (2)| (2) Preferred stock dividends (1,058)| (773) (1,898)| (1,570) Other (246)| (259) (521)| (506) -------- | ------- -------- | ------- Total other income and deductions (1,618)| (1,475) (3,012)| (3,044) | | Loss before income taxes (2,856)| (1,905) (3,717)| (3,827) Income taxes (benefit) (1,011)| (717) (1,365)| (1,367) -------- | ------- -------- | ------- Other income (loss) $ (1,845)| $(1,188)$ (2,352)| $(2,460) ======== | ======= ======== | =======
The changes in gross margin for the quarter and six months ended June 30, 2000, compared to the same periods in 1999, are primarily due to higher fuel costs relative to revenues from increased nonregulated electricity sales in Illinois outside of CILCO's service territory. These sales of electricity are to eligible customers of other utilities' pilot programs formerly served by CILCO affiliate QST and to other customers eligible under the Customer Choice Law. 32 Other Businesses Operations The following table summarizes the components of Other Businesses net loss for the three months and six months ended June 30, 2000 and 1999.
Components of Other Businesses Three Months Ended Six Months Ended Net Loss June 30, June 30, 2000 1999 2000 1999 (In thousands) (Unaudited) Revenue: Leveraged lease revenue $ 1,435 |$ 1,677 $ 4,750 |$ 3,634 Interest income 39 | 27 93 | 56 Gas marketing revenue 3,084 | 3,263 5,393 | 10,353 Other revenue 876 | 771 1,467 | 1,248 -------- |------- -------- |------- Total revenue 5,434 | 5,738 11,703 | 15,291 -------- |------- -------- |------- Expenses: | | Gas purchased for resale 3,025 | 3,103 5,156 | 9,187 Operating expenses 1,163 | 3,646 1,826 | 4,965 Depreciation and amortization 3,613 | 43 7,225 | 88 Interest expense 11,896 | 1,443 23,727 | 2,842 Other taxes 8 | 10 120 | 15 -------- |------- -------- |------- Total expenses 19,705 | 8,245 38,054 | 17,097 -------- |------- -------- |------- Loss before income taxes (14,271)| (2,507) (26,351)| (1,806) -------- |------- -------- |------- Income tax benefit (4,635)| (681) (8,421)| (877) -------- |------- -------- |------- Other Businesses net loss $ (9,636)|$(1,826)$(17,930)|$ (929) ======== |======= ======== |=======
Leveraged lease revenues increased 31% for the six months ended June 30, 2000, primarily due to the renegotiation of the Company's dragline lease. Gas marketing revenues and gas purchased for resale expense decreased 44% for the six months ended June 30, 2000, due to decreased gas marketing sales. Interest expense increased for the six months ended June 30, 2000, due to interest on the senior notes and bonds issued in October 1999 to acquire CILCORP. Depreciation and amortization is higher due to $7.1 million amortization of goodwill resulting from AES' acquisition price in excess of the fair value of CILCORP's assets and liabilities. Operating expenses decreased 63% for the six months ended June 30, 2000, compared to the corresponding periods in 1999, primarily due to 1999 expenses of $1.8 million for merger transaction costs and $.5 million of incentive compensation. The income tax benefit increased in the six months ended June 30, 2000, compared to the corresponding period in 1999, primarily due to lower net income resulting from the acquisition debt interest expense. 33 QST Enterprises Discontinued Operations QST Enterprises and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillment of contractual commitments for 1999 and beyond, and recorded loss provisions for the discontinued energy operations. The results of QST Enterprises and its past and present subsidiaries - - QST Environmental and QST Energy - are reported in 2000 and prior periods as discontinued operations. The table below shows the components of the discontinued operations. Income (loss) from operations of discontinued businesses, net of tax:
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 (In thousands) (Unaudited) QST Enterprises (excluding QST Environmental) $ -- |$ -- $ -- |$ -- QST Environmental, net of tax of | | $(266) and $(221) -- | (435) -- | (407) ------- |------- ------- |-------- $ -- |$ (435)$ -- |$ (407) ======= |======= ======= |========
QST Enterprises' (excluding QST Environmental) financial results for the periods shown were reflected in the discontinued operations liability which was accrued at the end of 1998, resulting in no net income or loss. In February 1999, QST Energy notified two of its California commercial customers that they were in default of their contracts with QST Energy as a result of not paying QST Energy for energy delivered. QST Energy filed two suits in the U.S. District Court, Central District of Illinois, seeking payment. In March, the customers filed a suit in California Superior Court, Alameda County, California, alleging that QST Energy was in breach of the contract. This suit was subsequently removed to U.S. District Court, Northern District of California. The two suits filed by QST Energy in the U.S. District Court, Central District of Illinois, have now been consolidated with the suit in the U.S. District Court, Northern District of California. The discovery process in the suits is ongoing. QST Energy cannot predict the ultimate outcome of this matter, but intends to vigorously pursue its claims to collect all amounts due from the customers. The accounts receivable reflected in CILCORP's consolidated balance sheet at June 30, 2000, for these two customers, totaled $15.3 million, excluding interest of approximately $2.0 million. The receivable was reduced by $2.5 million in July 2000 for payments received from these customers. Under the terms of the contracts, QST Energy has terminated delivery of electricity to the two customers. 34 PART II. OTHER INFORMATION Item 1: Legal Proceedings Reference is made to "Environmental Matters" under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1999 Annual Report on Form 10- K and to "Note 2. Contingencies" and "QST Enterprises Discontinued Operations", herein, for certain pending legal proceedings and proceedings known to be contemplated by governmental authorities. The Company and its subsidiaries are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. Except as otherwise referred to above, in the opinion of management, all such claims currently pending either will not result in a material adverse effect on the financial position and results of operations of the Company or are adequately covered by: (i) insurance; (ii) contractual or statutory indemnification; and/or (iii) reserves for potential losses. Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial data schedules (b) Reports on Form 8-K A form 8-K was filed on June 30, 2000, disclosing a change in registrant's certifying accountant for both CILCORP Inc. and Central Illinois Light Company. 35 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CILCORP Inc. (Registrant) Date August 10, 2000 P. D. Stinson P. D. Stinson President Date August 10, 2000 T. D. Hutchinson T. D. Hutchinson Controller and Chief Financial Officer 36 SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENTRAL ILLINOIS LIGHT COMPANY (Registrant) Date August 10, 2000 P. D. Stinson P. D. Stinson President Date August 10, 2000 T. D. Hutchinson T. D. Hutchinson Controller and Chief Financial Officer 37 EX-27 2 0002.txt
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000762129 CILCORP INC. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 PER-BOOK 852,965 166,835 159,157 60,803 564,160 1,803,920 0 468,833 (4,164) 464,669 22,000 44,120 738,457 43,000 0 56,700 0 0 906 543 433,525 1,803,920 314,756 3,454 271,719 275,173 39,583 (521) 39,062 34,384 4,678 1,898 2,780 6,200 31,133 40,186 0 0
EX-27 3 0003.txt
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS AND BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000018651 CENTRAL ILLINOIS LIGHT COMPANY 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 PER-BOOK 852,965 3,848 143,279 31,583 0 1,031,675 185,661 27,000 126,215 338,876 22,000 44,120 245,957 0 0 56,700 0 0 906 543 322,573 1,031,675 284,200 13,240 237,241 250,481 33,719 (454) 33,265 10,657 22,608 1,898 20,710 16,000 8,860 51,197 0 0
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