-----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, Fr13TNI6sNDytIZXU7f/BcebfpV/7CJCjvlnZ5dKDVohQ9/T3FLOcIpcC/xtDApQ QDArM+TtyMbqG0EmMTubtg== 0000762129-99-000033.txt : 19991117 0000762129-99-000033.hdr.sgml : 19991117 ACCESSION NUMBER: 0000762129-99-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CILCORP INC CENTRAL INDEX KEY: 0000762129 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [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: 99751447 BUSINESS ADDRESS: STREET 1: 300 HAMILTON BLVD 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: ELECTRIC & OTHER SERVICES COMBINED [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: 99751448 BUSINESS ADDRESS: STREET 1: 300 LIBERTY ST CITY: PEORIA STATE: IL ZIP: 61602 BUSINESS PHONE: 3096725271 MAIL ADDRESS: STREET 1: 300 LIBERTY STREET CITY: PEORIA STATE: IL ZIP: 61602 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended September 30, 1999 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) 675-8810 1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050 (An Illinois Corporation) 300 Liberty Street Peoria, Illinois 61602 (309) 675-8810 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: CILCORP Inc. Common stock, no par value, shares outstanding at September 30, 1999 13,625,680 CENTRAL ILLINOIS LIGHT COMPANY Common stock, no par value, shares outstanding and privately held by CILCORP Inc. at September 30, 1999 13,563,871 1 CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 INDEX PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements CILCORP INC. Consolidated Balance Sheets 3-4 Consolidated Statements of Income 5-6 Consolidated Statements of Cash Flows 7-8 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets 9-10 Consolidated Statements of Income 11 Consolidated Statements of Cash Flows 12-13 Statements of Segments of Business 14-17 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 21-35 PART II. OTHER INFORMATION Item 1: Legal Proceedings 35 Item 5: Other Information 35-37 Item 6: Exhibits and Reports on Form 8-K 37 Signatures 2 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 1999 1998 ASSETS (Unaudited) Current assets: Cash and temporary cash investments $ 4,087 $ 1,669 Receivables, less reserves of $1,698 and $1,106 66,716 134,548 Accrued unbilled revenue 28,879 39,339 Fuel, at average cost 7,666 13,431 Materials and supplies, at average cost 17,152 15,435 Gas in underground storage, at average cost 24,651 20,494 Prepayments and other 24,786 7,646 ---------- ---------- Total current assets 173,937 232,562 ---------- ---------- Investments and other property: Investment in leveraged leases 143,498 146,977 Cash surrender value of company-owned life insurance, net of related policy loans of $53,404 and $48,132 2,431 2,655 Other investments 21,130 16,882 ---------- ---------- Total investments and other property 167,059 166,514 ---------- ---------- Property, plant and equipment: Utility plant, at original cost Electric 1,247,238 1,237,885 Gas 421,281 417,585 ---------- ---------- 1,668,519 1,655,470 Less - accumulated provision for depreciation 859,460 812,630 ---------- ---------- 809,059 842,840 Construction work in progress 53,463 30,075 Other, net of depreciation 340 7,755 ---------- ---------- Total property, plant and equipment 862,862 880,670 ---------- ---------- Other assets 30,622 33,194 ---------- ---------- Total assets $1,234,480 $1,312,940 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
3 CILCORP INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands)
September 30, December 31, 1999 1998 LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) Current liabilities: Current portion of long-term debt $ 43,000 $ 13,027 Notes payable 102,600 96,200 Accounts payable 44,020 128,845 Accrued taxes 14,286 8,262 Accrued interest 5,211 9,994 FAC/PGA over-recoveries 4 304 Other 4,461 14,316 ---------- ---------- Total current liabilities 213,582 270,948 ---------- ---------- Long-term debt 257,181 288,135 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 231,781 239,305 Regulatory liability of regulated subsidiary 38,780 46,346 Deferred investment tax credits 18,206 19,450 Other 86,589 47,098 ---------- ---------- Total deferred credits and other liabilities 375,356 352,199 ---------- ---------- Preferred stock of subsidiary 66,120 66,120 ---------- ---------- Stockholders' equity: Common stock, no par value; authorized 50,000,000 shares - outstanding 13,625,680 shares 192,853 192,853 Retained earnings 130,233 143,530 Accumulated other comprehensive income (845) (845) ---------- ---------- Total stockholders' equity 322,241 335,538 ---------- ---------- Total liabilities and stockholders' equity $1,234,480 $1,312,940 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
4 CILCORP INC AND SUBSIDIARIES Consolidated Statements of Income (In thousands)* (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenue: Electric utility $130,034 $115,236 $299,040 $282,718 Gas utility 21,511 21,270 123,877 119,482 Other businesses 3,986 4,390 21,119 14,772 -------- -------- -------- -------- Total 155,531 140,896 444,036 416,972 -------- -------- -------- -------- Operating expenses: Fuel for generation and purchased power 52,699 36,456 109,882 94,785 Gas purchased for resale 10,252 10,855 75,257 70,880 Other operations and maintenance 62,675 29,797 136,399 91,798 Depreciation and amortization 16,686 16,573 51,167 48,539 Taxes, other than income taxes 9,868 9,771 30,784 29,076 -------- -------- -------- -------- Total 152,180 103,452 403,489 335,078 -------- -------- -------- -------- Fixed charges and other: Interest expense 6,999 7,309 21,339 21,934 Preferred stock dividends of subsidiary 802 797 2,372 2,396 Allowance for funds used during construction (48) (14) (74) (20) Other 202 333 708 745 -------- -------- -------- -------- Total 7,955 8,425 24,345 25,055 -------- -------- -------- -------- (Loss) income from continuing operations before income taxes (4,604) 29,019 16,202 56,839 Income taxes (2,247) 10,982 4,868 19,751 -------- -------- -------- -------- Net (loss) income from continuing operations (2,357) 18,037 11,334 37,088 Loss from operations of discontinued business, net of tax of $(2,353), $(221), and $(10,220) -- (3,620) (407) (15,665) Gain on sale of assets of discontinued business, net of tax of $5,425 -- 8,252 -- 8,252 -------- -------- -------- -------- Net (loss) income $ (2,357)$ 22,669 $ 10,927 $ 29,675 ======== ======== ======== ======== 5 Average common shares outstanding - basic 13,614 13,611 13,612 13,611 ======== ======== ======== ======== Earnings per common share - basic Continuing operations $ (.18)$ 1.33 $ .83 $ 2.72 Discontinued operations -- .34 (.03) (.54) -------- -------- -------- -------- Net income per common share - basic $ (.18)$ 1.67 $ .80 $ 2.18 ======== ======== ======== ======== Average common shares outstanding - diluted 13,614 13,694 13,712 13,694 ======== ======== ======== ======== Earnings per common share - diluted Continuing operations $ (.18)$ 1.32 $ .83 $ 2.71 Discontinued operations -- .34 (.03) (.54) -------- -------- -------- -------- Net income per common share - diluted $ (.18)$ 1.66 $ .80 $ 2.17 ======== ======== ======== ======== Dividends per common share $ .615 $ .615 $ 1.845 $ 1.845 ======== ======== ======== ======== *Except per share amounts 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)
Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income before preferred dividends $ 13,299 $ 32,071 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Non-cash lease income and investment income (4,589) (5,155) Cash receipts in excess of debt service on leases 8,679 6,838 Depreciation and amortization 51,167 48,539 Deferred income taxes, investment tax credit and regulatory liability of subsidiary, net (20,383) (4,614) Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable and accrued unbilled revenue (3,198) 19,354 (Increase) Decrease in inventories (209) 166 Decrease in accounts payable (18,586) (14,262) Increase in accrued taxes 10,227 2,585 Increase in other assets (22,051) (6,203) Increase (Decrease) in other liabilities 32,074 (3,630) -------- -------- Total adjustments 33,131 43,618 -------- -------- Net cash provided by operating activities from continuing operations 46,430 75,689 -------- -------- Net cash provided (used) by operating activities of discontinued operations 9,877 (19,669) -------- -------- Cash flow from operations 56,307 56,020 -------- -------- Cash flows from investing activities: Additions to plant (39,957) (45,163) Proceeds from sale of discontinued operations 17,376 20,000 Other (4,160) (7,297) -------- -------- Net cash used by investing activities from continuing operations (26,741) (32,460) -------- -------- Net cash used by investing activities from discontinued operations (5,083) (3,253) -------- -------- Cash flow from investing activities (31,824) (35,713) -------- -------- 7 Cash flow from financing activities: Increase in short-term debt 6,400 20,950 Decrease in long-term debt (981) (16,568) Common dividends paid (25,112) (25,112) Preferred dividends paid (2,372) (2,396) -------- -------- Cash flow from financing activities (22,065) (23,126) -------- -------- Net increase (decrease) in cash and temporary cash investments: 2,418 (2,819) Cash and temporary cash investments at beginning of year: 1,669 10,576 -------- -------- Cash and temporary cash investments at September 30 $ 4,087 $ 7,757 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 23,706 $ 23,769 Income taxes $ 10,828 $ 19,611 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
8 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
September 30, December 31, ASSETS 1999 1998 (Unaudited) Utility plant, at original cost: Electric $1,247,238 $1,237,885 Gas 421,281 417,585 ---------- ---------- 1,668,519 1,655,470 Less - accumulated provision for depreciation 859,460 812,630 ---------- ---------- 809,059 842,840 Construction work in progress 53,463 30,075 Plant acquisition adjustments, net of amortization -- 505 ---------- ---------- Total utility plant 862,522 873,420 ---------- ---------- Other property and investments: Cash surrender value of company-owned life insurance (net of related policy loans of $53,404 and $48,132) 2,431 2,655 Other 1,211 1,176 ---------- ---------- Total other property and investments 3,642 3,831 ---------- ---------- Current assets: Cash and temporary cash investments 2,999 1,362 Receivables, less reserves of $1,698 and $1,106 37,933 35,767 Accrued unbilled revenue 28,662 31,315 Fuel, at average cost 7,666 13,431 Materials and supplies, at average cost 16,892 15,062 Gas in underground storage, at average cost 24,571 20,494 Prepaid taxes 1,578 2,265 Other 24,743 6,626 ---------- ---------- Total current assets 145,044 126,322 ---------- ---------- Deferred debits: Unamortized loss on reacquired debt 3,021 3,261 Unamortized debt expense 1,734 1,852 Prepaid pension cost 417 417 Other 19,741 15,325 ---------- ---------- Total deferred debits 24,913 20,855 ---------- ---------- Total assets $1,036,121 $1,024,428 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
9 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Balance Sheets (In thousands)
September 30, December 31, CAPITALIZATION AND LIABILITIES 1999 1998 (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 Retained earnings 123,683 135,315 Accumulated other comprehensive income (845) (845) ---------- ---------- Total common stockholder's equity 308,499 320,131 Preferred stock without mandatory redemption 44,120 44,120 Preferred stock with mandatory redemption 22,000 22,000 Long-term debt 237,921 267,884 ---------- ---------- Total capitalization 612,540 654,135 ---------- ---------- Current liabilities: Current maturities of long-term debt 30,000 -- Notes payable 57,600 40,600 Accounts payable 38,785 53,260 Accrued taxes 16,135 7,303 Accrued interest 5,361 9,394 FAC/PGA over-recoveries 4 304 Level payment plan -- 1,519 Other 4,391 5,261 ---------- ---------- Total current liabilities 152,276 117,641 ---------- ---------- Deferred credits and other liabilities: Accumulated deferred income taxes 129,670 141,746 Regulatory liability 38,779 46,346 Deferred investment tax credit 18,206 19,450 Capital lease obligation 1,317 1,703 Other 83,333 43,407 ---------- ---------- Total deferred credits and other liabilities 271,305 252,652 ---------- ---------- Total capitalization and liabilities $1,036,121 $1,024,428 ========== ========== The accompanying Notes to the Consolidated Financial Statements are an integral part of these Balance Sheets.
10 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Income (In thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Operating revenue: Electric $130,034 $115,236 $299,040 $282,718 Gas 21,511 21,270 123,877 119,482 -------- -------- -------- -------- Total operating revenues 151,545 136,506 422,917 402,200 -------- -------- -------- -------- Operating expenses: Cost of fuel 8,594 25,625 53,855 71,102 Cost of gas 9,305 9,139 65,123 63,295 Purchased power 44,105 10,831 56,027 23,683 Other operations and maintenance 57,149 27,949 122,749 85,642 Depreciation and amortization 16,571 16,344 50,532 47,853 Income taxes (98) 12,046 9,261 23,872 Other taxes 9,856 9,757 30,755 29,021 -------- -------- -------- -------- Total operating expenses 145,482 111,691 388,302 344,468 -------- -------- -------- -------- Operating income 6,063 24,815 34,615 57,732 -------- -------- -------- -------- Other income and deductions: Cost of equity funds capitalized -- -- -- -- Company-owned life insurance, net (202) (333) (708) (745) Other, net (342) 302 (726) 278 -------- -------- -------- -------- Total other income and (deductions) (544) (31) (1,434) (467) -------- -------- -------- -------- Income before interest expense 5,519 24,784 33,181 57,265 -------- -------- -------- -------- Interest expenses: Interest on long-term debt 4,808 4,808 14,425 14,690 Cost of borrowed funds capitalized (48) (14) (74) (20) Other 1,098 926 2,979 2,286 -------- -------- -------- -------- Total interest expense 5,858 5,720 17,330 16,956 -------- -------- -------- -------- Net (loss) income before preferred dividends (339) 19,064 15,851 40,309 -------- -------- -------- -------- Dividends on preferred stock 802 797 2,372 2,396 -------- -------- -------- -------- Net (loss) income available for common stock $ (1,141)$ 18,267 $ 13,479 $ 37,913 ======== ======== ======== ======== The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
11 CENTRAL ILLINOIS LIGHT COMPANY Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Nine Months Ended September 30, 1999 1998 (In thousands) (Unaudited) Cash flows from operating activities: Net income before preferred dividends $ 15,851 $ 40,309 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 51,037 48,386 Deferred income taxes, investment tax credit and regulatory liability, net (20,888) (5,883) Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable (2,165) 8,843 (Increase) Decrease in fuel, materials and supplies, and gas in underground storage (143) 357 Decrease in unbilled revenue 2,653 11,060 Decrease in accounts payable (14,474) (4,615) Increase (decrease) in accrued taxes and interest 4,799 (523) Capital lease payments 484 484 Increase in other current assets (17,429) (4,967) Decrease in other current liabilities (2,690) (3,710) Increase in other non-current assets (2,541) (2,132) Increase in other non-current liabilities 39,809 3,291 -------- -------- Net cash provided by operating activities 54,303 90,900 -------- -------- Cash flows from investing activities: Capital expenditures (39,275) (45,155) Cost of equity funds capitalized -- -- Other (2,423) (3,687) -------- -------- Net cash used in investing activities (41,698) (48,842) -------- -------- Cash flow from financing activities: Common dividends paid (25,112) (45,112) Preferred dividends paid (2,372) (2,396) Payments on capital lease obligation (484) (484) Increase in short-term borrowing 17,000 16,600 Long-term debt retired -- (10,650) -------- -------- Net cash used in financing activities (10,968) (42,042) -------- -------- Net increase in cash and temporary cash investments 1,637 16 Cash and temporary cash investments at beginning of year 1,362 698 -------- -------- Cash and temporary cash investments at September 30 $ 2,999 $ 714 ======== ======== 12 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of cost of borrowed funds capitalized) $ 21,802 $ 21,623 Income taxes $ 19,308 $ 28,655 The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
13 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended September 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Oper. Totals (In thousands) Revenues $130,034 $ 21,511 $ 1,025 $ 2,885 $ -- $155,455 Interest income -- -- 34 42 -- 76 -------- -------- ------- ------- ------- -------- Total 130,034 21,511 1,059 2,927 -- 155,531 -------- -------- ------- ------- ------- -------- Operating expenses 100,227 28,782 2,266 4,219 -- 135,494 Depreciation and amort. 11,799 4,772 72 43 -- 16,686 -------- -------- ------- ------- ------- -------- Total 112,026 33,554 2,338 4,262 -- 152,180 -------- -------- ------- ------- ------- -------- Interest exp. 4,228 1,678 -- 1,093 -- 6,999 Preferred stock div. -- -- 802 -- -- 802 Fixed charges & other exp. (47) (1) 202 -- -- 154 -------- -------- ------- ------- ------- -------- Total 4,181 1,677 1,004 1,093 -- 7,955 -------- -------- ------- ------- ------- -------- Income from continuing oper. before income taxes 13,827 (13,720) (2,283) (2,428) -- (4,604) Income taxes 5,285 (5,383) (937) (1,212) -- (2,247) -------- -------- ------- ------- ------- -------- Net income from cont. operations 8,542 (8,337) (1,346) (1,216) -- (2,357) -------- -------- ------- ------- ------- -------- Effect of discontinued operations -- -- -- -- -- -- -------- -------- ------- ------- ------- -------- Segment net income $ 8,542 $ (8,337)$(1,346)$(1,216) $ -- $ (2,357) ======== ======== ======= ======= ======= ======== 14
Statements of Segments of Business CILCORP Inc. and Subsidiaries
Three Months Ended September 30, 1998 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Oper. Totals (In thousands) Revenues $115,236 $21,270 $ 658 $3,674 $ -- $140,838 Interest income -- -- 47 11 -- 58 -------- ------- ------- ------ ------ -------- Total 115,236 21,270 705 3,685 -- 140,896 -------- ------- ------- ------ ------ -------- Operating expenses 64,231 19,070 745 2,833 -- 86,879 Depreciation and amort. 11,567 4,777 178 51 -- 16,573 -------- ------- ------- ------ ------ -------- Total 75,798 23,847 923 2,884 -- 103,452 -------- ------- ------- ------ ------ -------- Interest exp. 4,099 1,635 -- 1,575 -- 7,309 Preferred stock div. -- -- 797 -- -- 797 Fixed charges & other exp. (14) -- 333 -- -- 319 -------- ------- ------- ------ ------ -------- Total 4,085 1,635 1,130 1,575 -- 8,425 -------- ------- ------- ------ ------ -------- Income from continuing oper. before income taxes 35,353 (4,212) (1,348) (774) -- 29,019 Income taxes 13,700 (1,654) (520) (544) -- 10,982 -------- ------- ------- ------ ------ -------- Net income from cont. operations 21,653 (2,558) (828) (230) -- 18,037 -------- ------- ------- ------ ------ -------- Effect of discontinued operations -- -- -- -- 4,632 4,632 -------- ------- ------- ------ ------ -------- Segment net income $ 21,653 $(2,558) $ (828)$ (230) $4,632 $ 22,669 ======== ======= ======= ====== ====== ========
15 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Nine Months Ended September 30, 1999 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Oper. Totals (In thousands) Revenues $299,040 $123,877 $ 2,754 $18,120 $ -- $443,791 Interest income -- -- 147 98 -- 245 -------- -------- ------- ------- ------ -------- Total 299,040 123,877 2,901 18,218 -- 444,036 -------- -------- ------- ------- ------ -------- Operating expenses 220,714 107,795 5,427 18,386 -- 352,322 Depreciation and amort. 35,585 14,947 504 131 -- 51,167 -------- -------- ------- ------- ------ -------- Total 256,299 122,742 5,931 18,517 -- 403,489 -------- -------- ------- ------- ------ -------- Interest exp. 12,461 4,943 -- 3,935 -- 21,339 Preferred stock div. -- -- 2,372 -- -- 2,372 Fixed charges & other exp. (73) (1) 708 -- -- 634 -------- -------- ------- ------- ------ -------- Total 12,388 4,942 3,080 3,935 -- 24,345 -------- -------- ------- ------- ------ -------- Income from continuing oper. before income taxes 30,353 (3,807) (6,110) (4,234) -- 16,202 Income taxes 10,600 (1,339) (2,304) (2,089) -- 4,868 -------- -------- ------- ------- ------ -------- Net income from cont. operations 19,753 (2,468) (3,806) (2,145) -- 11,334 -------- -------- ------- ------- ------ -------- Effect of discontinued operations -- -- -- -- (407) (407) -------- -------- ------- ------- ------ -------- Segment net income $ 19,753 $ (2,468)$(3,806)$(2,145) $ (407) $ 10,927 ======== ======== ======= ======= ====== ========
16 Statements of Segments of Business CILCORP Inc. and Subsidiaries
Nine Months Ended September 30, 1998 CILCO CILCO CILCO Other Discont. Electric Gas Other Businesses Oper. Totals (In thousands) Revenues $282,718 $119,482 $ 1,013 $13,454 $ -- $416,667 Interest income -- -- 238 67 -- 305 -------- -------- ------- ------- ------- -------- Total 282,718 119,482 1,251 13,521 -- 416,972 -------- -------- ------- ------- ------- -------- Operating expenses 176,857 95,886 2,298 11,498 -- 286,539 Depreciation and amort. 34,003 13,850 534 152 -- 48,539 -------- -------- ------- ------- ------- -------- Total 210,860 109,736 2,832 11,650 -- 335,078 -------- -------- ------- ------- ------- -------- Interest exp. 12,137 4,839 -- 4,958 -- 21,934 Preferred stock div. -- -- 2,396 -- -- 2,396 Fixed charges & other exp. (20) -- 745 -- -- 725 -------- -------- ------- ------- ------- -------- Total 12,117 4,839 3,141 4,958 -- 25,055 -------- -------- ------- ------- ------- -------- Income from continuing oper. before income taxes 59,741 4,907 (4,722) (3,087) -- 56,839 Income taxes 21,881 1,991 (1,859) (2,262) -- 19,751 -------- -------- ------- ------- ------- -------- Net income from cont. operations 37,860 2,916 (2,863) (825) -- 37,088 -------- -------- ------- ------- ------- -------- Effect of discontinued operations -- -- -- -- (7,413) (7,413) -------- -------- ------- ------- ------- -------- Segment net income $ 37,860 $ 2,916 $(2,863)$ (825) $(7,413) $ 29,675 ======== ======== ======= ======= ======= ========
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 Energy Inc. (QST Energy) and CILCORP Infraservices Inc.) 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 Inc. in the second quarter of 1999 (see Results of Operations - QST Enterprises Discontinued Operations). Prior year amounts have been reclassified on a basis consistent with the 1999 presentation. 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 1998 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 Gas Manufacturing Plant Sites CILCO continues to investigate and/or monitor four former gas manufacturing plant sites located within CILCO's present gas service territory. The purpose of the investigations is to determine if waste materials, principally coal tar, are present, whether such waste materials constitute an environmental or health risk and if CILCO is responsible for the remediation of any remaining waste materials at those sites. During the nine months ended September 30, 1999, CILCO paid approximately $804,000 to outside parties for former gas manufacturing plant site monitoring, remediation and legal fees, and expects to spend approximately $200,000 during the remainder of 1999. A $1.2 million liability is recorded on the Balance Sheets, representing its minimum obligation expected for coal tar investigation and remediation. Coal tar remediation costs incurred through September 1999, less amounts recovered from customers, have been deferred as a regulatory asset of $659,000 on the Balance Sheets. Through September 30, 1999, CILCO has recovered approximately $6.6 million in coal tar remediation costs from its customers through a gas rate rider approved by the Illinois Commerce Commission (ICC). Currently, that rider allows recovery of prudently incurred coal tar remediation costs in the year that the expenditures 18 occur. Under these circumstances, management believes that the cost of coal tar remediation will not have a material adverse effect on CILCO's financial position or results of operations. NOTE 3. Commitments In August 1990, CILCO entered into a firm, wholesale power purchase agreement with Central Illinois Public Service Company, now AmerenCIPS (CIPS). This agreement provided for a minimum contract delivery rate from CIPS of 90 MW until the contract expired in May 1998. In March 1995, CILCO and CIPS amended a limited-term power agreement reached in November 1992. This agreement provided for CILCO to purchase 150 MW of CIPS' capacity from June 1998 through May 2002, and 50 MW from June 2002 through May 2009. In May 1999, a settlement was reached between CILCO and CIPS regarding disputed issues pertaining to these capacity and energy agreements. The settlement amends the previous agreements to provide for 100 MW of capacity and firm energy for the months of June through September for the years 2000 through 2003 and additionally provides for 100 MW of firm energy for the month of January in each of those years. There are no commitments to purchase capacity or energy beyond those dates. The agreements provide specific prices for on-peak and off-peak energy, which eliminates the ambiguity that arose under the old agreements due to the use of pricing queues. Under the settlement, CILCO will have no capacity payment obligations to CIPS for February through December 1999, resulting in 1999 capacity reservation savings of approximately $6 million. The settlement also obligates both parties to withdraw from regulatory action pertaining to related contract issues. CIPS and CILCO are currently preparing the settlement document filing for approval by the FERC. NOTE 4. QST Enterprises Discontinued Operations (See Management's Discussion and Analysis of Financial Condition and Results of Operations - QST Enterprises Discontinued Operations.) NOTE 5. Financial Instruments and Price Risk Management CILCORP utilizes commodity futures contracts, options and swaps in the normal course of its natural gas and electric business activities. 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 or 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. 19 The net gain reflected in operating results from derivative financial instruments was approximately $705,000 for the third quarter 1999. As of September 30, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of natural gas purchases of .3 Bcf and natural gas sales of 1.0 Bcf for commitments through September 2000. The net deferred gain and carrying amount on these fixed-price derivatives at September 30, 1999, was approximately $422,000. At September 30, 1999, CILCORP had open positions in derivative financial instruments used to hedge basis of .4 Bcf for commitments through March 2000. The net deferred loss on these basis derivatives at September 30, 1999, was approximately $7,000. As of September 30, 1999, CILCORP had fixed-price derivative financial instruments representing hedges of electricity purchases of 83,904 MWh for commitments through August 2000. The net deferred loss and carrying amount on these fixed-price derivatives at September 30, 1999, was approximately $1,851,400. NOTE 6. Earnings Per Share The following data show the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock. The shares calculated for dilutive potential result from Award Agreements entered into pursuant to the CILCORP Shareholder Return Incentive Compensation Plan.
Nine Months Ended September 30, 1999 1998 (In thousands) (C> Income available to common shareholders $10,927 $29,675 Weighted average number of common shares used in Basic Earnings Per Share 13,612 13,611 Weighted number of dilutive potential common shares used in Diluted Earnings Per Share 100 83
20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In 1998 and prior years, the financial condition and operating results of CILCORP Inc. and its subsidiaries (the Company) primarily reflected the operations of Central Illinois Light Company (CILCO), QST Enterprises Inc. (QST), and their subsidiaries. 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. The Federal Trade Commission granted approval of CILCORP's merger with AES under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 on February 22, 1999. On March 10, 1999, the Illinois Commerce Commission issued its approval. The merger was approved by CILCORP shareholders at a special meeting on May 20, 1999. The FERC issued an order to CILCORP approving the transaction on June 16, 1999. The SEC staff approved AES' application for an exemption under Section 3(a)(5) of the Public Utility Holding Company Act on August 20, 1999. AES completed the acquisition of the Company on October 18, 1999. In conjunction with the merger with AES and as part of a continuing effort to better position itself for competition in the energy services industry, in April and June 1999, CILCO offered Voluntary Early Retirement Programs to certain of its employees. These programs resulted in after-tax charges to earnings of approximately $22.7 million in 1999. (See Item 5: Other Information - Voluntary Early Retirement Programs.) 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 that provides 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 effective on June 24, 1999. QST had sold another of its subsidiaries, QST Communications Inc., in August 1998. In June 1998, QST Energy Inc. (QST Energy), another first-tier subsidiary of QST, incurred a material loss related to wholesale electricity contracts, triggered by an unprecedented increase in short-term wholesale electricity prices. QST Energy closed its electric and gas non-retail positions and, in the fourth quarter of 1998, closed its Houston energy trading office and transferred its Pennsylvania retail electric and gas customers to other marketers. QST Energy has since discontinued providing electricity to its remaining non-Illinois commercial customers. 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 Item 5: Other Information - Illinois Electric Deregulation). 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 electric customers outside its traditional Central Illinois service territory. As a result of these events, the Company is reporting the results of QST Enterprises and its subsidiaries (excluding ESE Land Corporation and CILCORP Infraservices Inc.) as discontinued operations (see Results of Operations - QST Enterprises Discontinued Operations). 21 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. Forward-Looking Information Forward-looking information is included in Part I. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II. Item 5: Other Information. Such information generally relates to future expected or anticipated events or trends and identified contingencies and uncertainties. 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, including ongoing changes in environmental laws and weather conditions; the extent and pace of development of competition for retail and wholesale energy customers; changes in technology; third party compliance with Year 2000 requirements; the inability to identify and remediate or replace embedded computer chips in affected equipment; pricing and transportation of commodities; market supply and demand for energy and energy derivative financial instruments; inflation; capital market conditions; environmental protection and compliance costs. Prevailing governmental policies, statutory changes, and regulatory actions with respect to rates, 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. The AES Corporation (AES) completed the acquisition of CILCORP and its subsidiaries on October 18, 1999, for an aggregate purchase price of approximately $886 million. An AES subsidiary, Midwest Energy, Inc. (Midwest), simultaneously completed the offering of $475 million of senior notes and bonds ($225 million of 8.7% Senior Notes due 2009 and $250 million of 9.375% Senior Bonds due 2029) to finance part of the purchase price for the acquisition. Pursuant to the merger agreement, Midwest merged with and into CILCORP and CILCORP survived the merger as a wholly-owned subsidiary of AES. The remaining cash required to complete the acquisition was provided by AES. 22 In conjunction with the transaction, several rating agencies reviewed and revised the credit ratings of CILCORP and CILCO securities and commercial paper as follows: From To Moody's CILCORP (Midwest) Senior Notes & Bonds N/A Baa2 CILCORP Unsecured Medium-Term Notes A1 Baa2 CILCO Secured Debt Aa2 A2 CILCO Preferred Stock Aa3 A3 CILCO Commercial Paper P-1 P-1 Standard & Poor's CILCORP (Midwest) Senior Notes & Bonds N/A BB+ CILCO Secured Debt AA- BBB- CILCO Preferred Stock A BB Duff & Phelps CILCORP (Midwest) Senior Notes & Bonds N/A BBB CILCORP Unsecured Medium-Term Notes N/A BBB CILCO Secured Debt N/A A+ CILCO Preferred Stock N/A A- CILCO Commercial Paper N/A D-1 CILCORP Short-term borrowing capability is available to the Company for additional cash requirements. CILCORP's Board of Directors has authorized it to borrow up to $60 million on a short-term basis. On September 30, 1999, CILCORP had committed bank lines of credit of $60 million, of which $45 million was used. The Company had $30.5 million of medium-term notes outstanding at September 30, 1999. CILCO Capital expenditures totaled $39.3 million for the nine months ended September 30, 1999. Capital expenditures are anticipated to be approximately $17.2 million for the remainder of 1999 and are currently estimated to be $44.9 million in 2000. Included in 1999 and 2000 capital expenditures are $11.8 million and $2.5 million, respectively, for information technology projects. CILCO retired $10.65 million of medium-term notes in June 1998. CILCO does not plan to issue long-term debt during the remainder of 1999. CILCO intends to finance its 1999 and 2000 capital expenditures with funds provided by operations. As of September 30, 1999, CILCO had committed bank lines of credit aggregating $65 million. CILCO uses these lines of credit to support issuance of short-term commercial paper. CILCO had $57.6 million of commercial paper outstanding at September 30, 1999, and expects to issue commercial paper periodically throughout the remainder of 1999. CILCO issued commercial paper in the third quarter of 1999 to cover purchases of additional electricity to meet increased consumer demand due to abnormally warm weather conditions. (See Results of Operations - CILCO Electric Operations.) CILCO plans to use approximately $27 million of the proceeds from the issuance of Midwest debt and capital provided by AES to CILCORP to retire commercial paper in the fourth quarter of 1999. 23 CIM At September 30, 1999, CIM had $32 million of outstanding debt owing to CILCORP. During 1997 and prior years, CIM committed to invest $16.6 million in affordable housing tax credit funds. Through September 30, 1999, approximately $14.9 million of these commitments had been funded. CIM expects to contribute approximately $.7 million in cash for these investments during the remainder of 1999, and lesser amounts each year thereafter through 2006. These investments will be funded through borrowings from CILCORP. CIM expects to finance any other new investments and working capital needs during the remainder of 1999 with a combination of funds generated internally and funds provided by CILCORP. CVI At September 30, 1999, CVI had outstanding debt of $.3 million, borrowed from CILCORP. CVI expects to finance its activities and working capital needs during the remainder of 1999 with a combination of funds generated internally and with funds provided by CILCORP. 24 Year 2000 The Company is continuing its progress toward making its computer systems and operations ready for the year 2000. CILCO began evaluating its information technology systems in 1996. Systems were reviewed and a schedule was developed for the analysis of all computer application code and for the replacement or modification of those systems that were identified as obsolete and/or having potential Year 2000 (Y2K) issues. Replacement of several major computer systems with Y2K issues began in 1997. A Y2K team was established in March 1998, consisting of personnel from each operating division of CILCO. In conjunction with the formation of the Y2K team, an outside firm specializing in Y2K projects was retained to assist CILCO with its overall Y2K project plans. CILCO has also worked with an independent audit team to evaluate the status of the Y2K project. The project was divided into three phases, as follows: Phase I tasks included an inventory of all present systems for embedded chips having potential Y2K issues, contacting all manufacturers of embedded chip devices for the Y2K status of these devices, identifying and surveying all critical suppliers, and conducting an inventory of all information technology hardware and software for analysis of Y2K problems. Phase I was completed in August 1998. Phase II is essentially complete. This phase includes Y2K compliance testing of all suspect embedded chip devices identified in Phase I in the power plants, service centers, and business offices. In addition, two separate groups of outside consultants evaluated all mainframe application code to identify specific instances of date problems in each application program for systems that are not being replaced. Phase II has been completed except for the testing of approximately 1% of non-critical embedded chip devices associated with power plant operations. This testing will occur during the first part of the fourth quarter of 1999. Phase III is also nearly complete and includes the upgrade/replacement and re-testing of embedded chip devices found not to be Y2K compliant during Phase II. This phase includes completion of mainframe computer operating software upgrades to current Y2K compliant versions and defining Y2K contingency plans for each business unit. Computer application code that was determined to have Y2K date related problems during Phase II will be corrected. Testing of all applications which have undergone Y2K upgrades/modifications, testing of operating system software, and development and testing of contingency plans through simulation or actual tests, where practical, will complete Phase III, which was completed for all mission critical systems in October 1999. Systems identified as critical to the continued provision of utility services were of particular focus during the testing portion of Phase III. These critical systems are generating station equipment, electric transmission and distribution control systems, gas delivery control systems, and telecommunications systems. An estimated $2 million will have been spent for embedded chip analysis, vendor management, application code scanning, remediation, testing and contingency planning at CILCO. Approximately $30.7 million will have been spent prior to the year 2000 for system replacements or hardware upgrades initiated for business purposes other than solely for Y2K compliance. CILCO is working both internally and with utility industry groups, including the Mid-America Interconnected Network (MAIN) and the North American Electric Reliability Council (NERC), to identify and plan for all identified risks associated with the Y2K issue. While these groups are modeling potential worst case scenarios, the probability of extreme disruptions due to Y2K issues is 25 considered extremely low. CILCO's Y2K team has identified the most likely worst case scenario to be an interruption in service by a critical supplier. Consequently, alternate sources for supplies have been identified and the need for CILCO to stock additional inventories of critical items is being evaluated. CILCO is also following the contingency planning process recognized by MAIN and NERC. Accordingly, CILCO has established a Y2K contingency planning team that has received training in contingency planning techniques and goals. The team is collecting data and contingency planning began in March 1999. Within this structure, CILCO submitted and received approval from MAIN of its final contingency plans. This contingency planning process is expected to continue through the fourth quarter of 1999. CILCO also participated in the NERC industry-wide drills during September 1999. The Company currently believes it will be able to adequately address Y2K issues, as discussed above, through a combination of modifications of certain existing programs and systems, the replacement of others with new software that is Y2K compliant, and the development of contingency plans. If such modifications and conversions are not made, however, or are not made in a timely manner, the Y2K issue could have a material impact on the Company's operations. In addition, management cannot predict the nature or impact on operations of third-party noncompliance with Y2K requirements beyond the assurances given during critical vendor assessments. Price Risk Management The majority of CILCORP's energy sales at the end of the third quarter 1999 were to CILCO retail customers in Illinois under tariffs regulated by the ICC. Although the Illinois retail electric market is becoming deregulated (see Illinois Electric Deregulation), 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. At September 30, 1999, QST's non- Illinois electric operations and gas trading activities have been accounted for as discontinued operations. 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 September 30, 1999, CILCORP engaged in deregulated electric retail and natural gas sales in Illinois, including wholesale power purchases and sales to utilize its electric generating capability. These deregulated activities had no net open market price risk positions related to electricity and had net open market price risk positions of approximately .01 Bcf of natural gas. A market price sensitivity of 10% applied to these positions is not material to the Company. At September 30, 1999, QST's discontinued operations had no net open market price risk in electricity. During the third quarter, the remainder of QST's contracts for physical delivery were terminated releasing QST from the obligation to deliver electricity. At September 30, 1999, QST's only remaining forward transaction involving electricity is a purchase of approximately 86,000 MWh at a fixed price and an off-setting sale of those same megawatts at a fixed price through December 31, 1999. Since the buy/sell is locked in at a fixed price, QST's discontinued operations are not affected by any market price sensitivity. See Note 5 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 26 financial instruments held by the Company to the change in price of the underlying commodity, the net effect on the Company's net income resulting from the change in value of these financial instruments is not expected to be material. Results of Operations CILCO Electric Operations The following table summarizes the components of CILCO electric operating income for the three months and nine months ended September 30, 1999 and 1998.
Three Months Ended Nine Months Ended September 30, September 30, Components of Electric Oper. Inc. 1999 1998 1999 1998 (In thousands) (Unaudited) Revenue: Electric retail $119,285 $110,466 $280,070 $267,198 Sales for resale 10,749 4,770 18,970 15,520 -------- -------- -------- -------- Total revenue 130,034 115,236 299,040 282,718 -------- -------- -------- -------- Cost of sales: Cost of fuel 8,594 25,625 53,855 71,102 Purchased power 44,105 10,831 56,027 23,683 Revenue taxes 5,745 6,006 14,616 14,384 -------- -------- -------- -------- Total cost of sales 58,444 42,462 124,498 109,169 -------- -------- -------- -------- Gross margin 71,590 72,774 174,542 173,549 -------- -------- -------- -------- Operating expenses Other operations and maintenance 39,364 19,546 88,684 61,158 Depreciation and amortization 11,799 11,567 35,585 34,003 Other taxes 2,419 2,223 7,532 6,530 -------- -------- -------- -------- Total operating expenses 53,582 33,336 131,801 101,691 -------- -------- -------- -------- Total 18,008 39,438 42,741 71,858 -------- -------- -------- -------- Fixed charges and other Cost of equity funds capitalized -- -- -- -- Interest on long-term debt 3,442 3,437 10,328 10,503 Cost of borrowed funds capitalized (47) (14) (73) (20) Other interest 786 662 2,133 1,634 -------- -------- -------- -------- Total 4,181 4,085 12,388 12,117 Income before income taxes 13,827 35,353 30,353 59,741 Income taxes 5,285 13,700 10,600 21,881 -------- -------- -------- -------- Electric income $ 8,542 $ 21,653 $ 19,753 $ 37,860 ======== ======== ======== ========
Electric gross margin decreased 2% for the quarter and remained relatively constant for the nine months ended September 30, 1999, compared to the same periods in 1998. Retail kilowatt hour (KWh) sales remained relatively constant for the quarter and increased 4% for the nine months ended September 30, 1999, 27 compared to the same periods in 1998. Residential sales increased 2% for the quarter and 4% for the nine months ended September 30, 1999, compared to the same periods in 1998. Commercial sales remained relatively constant for the quarter and increased 4% for the nine months ended September 30, 1999, compared to the same periods in 1998. Cooling degree days were 16% lower for the quarter and 15% lower for the nine months ended September 30, 1999, compared to the same periods in 1998. Although total cooling degree days were lower for 1999, extremely warm weather in July 1999 resulted in greater residential and commercial demand for electricity. Cooling degree days were 27% higher in July 1999 compared to July 1998. Industrial sales remained relatively constant for the quarter and increased 4% for the nine months ended September 30, 1999. Industrial sales were favorably impacted by customers returning to retail supply due to the completion of CILCO's Power Quest industrial program in April 1998. Sales for resale increased 125% for the quarter and 22% for the nine months ended September 30, 1999, compared to the same periods in 1998, due to increased sales volumes resulting from higher available capacity in August and increased prices per KWh due to industry-wide demand in July. 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. Purchased power increased 307% for the quarter and 137% for the nine months ended September 30, 1999, compared to the same periods in 1998. 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 and $23 million remained unrecovered at the end of July. 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 Illinois Commerce Commission (ICC) approved a request by CILCO to charge customers over a 12-month period (without interest), beginning in September 1999. In addition, to avoid the 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; thus, the cost of fuel decreased for the quarter and for the nine months ended September 30, 1999, compared to the same periods in 1998. The ICC will conduct its routine review of the FAC in early 2000 and will determine the prudency of CILCO's electricity purchases. Any amount of the additional $23 million of electricity purchases ultimately determined to be imprudent by the ICC would not be recoverable from CILCO's customers, and therefore would be expensed by CILCO on its income statement. CILCO currently believes these costs to be recoverable through the FAC. A significant disallowance of these costs by the ICC would be material to CILCO's results of operations. 28 Electric operations and maintenance expense increased 101% for the quarter and 45% for the nine months ended September 30, 1999, compared to the same periods in 1998. The increases were mainly due to a $10.1 million second quarter charge and an $18.4 million third quarter charge to pension and benefits expense as a result of Voluntary Early Retirement Programs offered to Management, Office and Technical (MOT) employees and to employees in CILCO's electric power generation area (see Part II. Item 5: Other Information, Voluntary Early Retirement Programs). Also contributing to the increase during the quarter were increases in overhead line maintenance and tree trimming. The increase for the nine months ended was partially offset by lower electric distribution overhead line maintenance due to a severe storm in June 1998. Fixed charges and other expenses increased 2% for the quarter and nine months ended September 30, 1999, compared to the same periods in 1998. The decrease in income taxes in 1999 was primarily due to lower pre- tax income as a result of pension and benefit expenses relating to the Early Retirement offers. 29 CILCO Gas Operations The following table summarizes the components of CILCO gas operating income for the three months and nine months ended September 30, 1999 and 1998.
Three Months Ended Six Months Ended September 30, September 30, Components of Gas Operating Income 1999 1998 1999 1998 (In thousands) (Unaudited) Revenue: Sale of gas $ 20,346 $20,170 $120,177 $115,262 Transportation services 1,165 1,100 3,700 4,220 -------- ------- -------- -------- Total revenue 21,511 21,270 123,877 119,482 -------- ------- -------- -------- Cost of sales: Cost of gas 9,305 9,139 65,123 63,295 Revenue taxes 1,002 954 6,330 6,046 -------- ------- -------- -------- Total cost of sales 10,307 10,093 71,453 69,341 -------- ------- -------- -------- Gross margin 11,204 11,177 52,424 50,141 -------- ------- -------- -------- Operating expenses Other operations and maintenance 17,785 8,403 34,065 24,484 Depreciation and amortization 4,772 4,777 14,947 13,850 Other taxes 690 574 2,277 2,061 -------- ------- -------- -------- Total operating expenses 23,247 13,754 51,289 40,395 -------- ------- -------- -------- Total (12,043) (2,577) 1,135 9,746 -------- ------- -------- -------- Fixed charges and other Cost of equity funds capitalized -- -- -- -- Interest on long-term debt 1,366 1,371 4,097 4,187 Cost of borrowed funds capitalized (1) 0 (1) 0 Other interest expense 312 264 846 652 -------- ------- -------- -------- Total 1,677 1,635 4,942 4,839 -------- ------- -------- -------- Income before income taxes (13,720) (4,212) (3,807) 4,907 Income taxes (5,383) (1,654) (1,339) 1,991 -------- ------- -------- -------- Gas income (loss) $ (8,337)$(2,558) $ (2,468)$ 2,916 ======== ======= ======== ========
Gas gross margin remained relatively constant for the quarter and increased 5% for the nine months ended September 30, 1999, compared to the same periods in 1998. Residential sales volumes increased 2% for the quarter and 11% for the nine months ended September 30, 1999. Commercial sales volumes decreased 15% for the quarter and increased 2% for the nine months ended September 30, 1999. Heating degree days were 10% higher for the nine months ended September 30, 1999, compared to the same period in 1998. 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. 30 Revenue from gas transportation services decreased 12% while gas transportation sales volumes decreased 6% for the nine months ended September 30, 1999, compared to the same period in 1998. The cost of gas increased 2% for the quarter ended and 3% for the nine months ended September 30, 1999, compared to the same periods in 1998, primarily due to increased gas sales and higher natural gas prices. These costs are passed through to customers via the PGA. Gas operations and maintenance expense increased 112% for the quarter and 39% for the nine months ended September 30, 1999, compared to the same periods in 1998. The increases were primarily due to a $9.1 million charge to pension and benefits expense in the third quarter as a result of a Voluntary Early Retirement Program offered to MOT employees (see Part II. Item 5: Other Information, Voluntary Early Retirement Programs). Fixed charges and other expenses increased 3% for the quarter and increased 2% for the nine months ended September 30, 1999, compared to the same periods in 1998. The decrease in income taxes in 1999 was due to lower pre-tax operating income as a result of pension and benefit expenses relating to the Early Retirement offer. 31 CILCO Other The following table summarizes other income and deductions for the three months and nine months ended September 30, 1999 and 1998.
Components of CILCO Other Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 (In thousands) (Unaudited) Revenue $ 1,025 $ 658 $ 2,754 $ 1,013 Interest income 34 47 147 238 Amortization (72) (178) (504) (534) Operating expenses (2,265) (743) (5,424) (2,292) Other taxes (1) (2) (3) (6) Preferred stock dividends (802) (797) (2,372) (2,396) Other (202) (333) (708) (745) ------- ------- ------- ------- Loss before income taxes (2,283) (1,348) (6,110) (4,722) Income tax benefit (937) (520) (2,304) (1,859) ------- ------- ------- ------- CILCO Other net loss $(1,346)$ (828) $(3,806) $(2,863) ======= ======= ======= =======
Other revenues and the related operating expenses increased for the quarter and nine months ended September 30, 1999, due to 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. Expenses also increased due to start-up costs of other non- regulated service programs such as outdoor lighting, energy consulting, and performance audits. 32 Other Businesses Operations The following table summarizes the components of Other Businesses net loss for the three months and nine months ended September 30, 1999 and 1998.
Components of Other Businesses Three Months Ended Nine Months Ended Net Loss September 30, September30, 1999 1998 1999 1998 (In thousands) (Unaudited) Revenue: Leveraged lease revenue $ 1,566 $1,672 $ 5,200 $ 5,344 Other revenue 1,361 2,013 13,018 8,177 ------- ------ ------- ------- Total revenue 2,927 3,685 18,218 13,521 ------- ------ ------- ------- Expenses: Gas purchased for resale 947 1,716 10,134 7,585 Operating expenses 3,261 1,105 8,226 3,864 Depreciation and amortization 43 51 131 152 Interest expense 1,093 1,575 3,935 4,958 Other taxes 11 12 26 49 ------- ------ ------- ------- Total expenses 5,355 4,459 22,452 16,608 ------- ------ ------- ------- Loss before income taxes (2,428) (774) (4,234) (3,087) ------- ------ ------- ------- Income tax benefit (1,212) (544) (2,089) (2,262) ------- ------ ------- ------- Other Businesses net loss $(1,216) $ (230) $(2,145) $ (825) ======= ====== ======= =======
Revenues decreased 21% for the three months ended September 30, 1999, primarily due to decreased CVI gas marketing revenue, partially offset by revenue from CILCORP Infraservices Inc. Revenues increased 35% for the nine months ended September 30, 1999, primarily due to increased gas marketing revenue and revenue from CILCORP Infraservices Inc. Expenses increased 20% for the three months and 35% for the nine months ended September 30, 1999, compared to the corresponding periods in 1998, primarily due to $2.3 million of merger transaction expenses and $1.4 million of incentive compensation expense at the Holding Company, while interest expense decreased due to lower average debt balances. Gas expense at CVI related to the gas marketing program decreased for the quarter and increased for the nine months ended September 30, 1999, reflecting changes in sales volumes. Income and other taxes increased for the nine months ended September 30, 1999, compared to the corresponding period in 1998, despite increased losses, reflecting the non-deductible nature of merger transaction expenses. For the three months ended September 30, 1999, income taxes decreased primarily due to lower pre- tax income. QST Enterprises Discontinued Operations Due to uncertainties related to energy deregulation across the country, the illiquidity of certain energy markets and the Company's acquisition by AES, the Company is now focusing on the opportunities in the Illinois energy market 33 resulting from the deregulation of electricity under the Electric Service Customer Choice and Rate Relief Law of 1997 (see Management's Discussion and Analysis - Illinois Electric Deregulation). As a result of this decision, QST Enterprises Inc. and QST Energy ceased operations during the fourth quarter of 1998, except for fulfillments of contractual commitments for 1999 and beyond, and recorded loss provisions for the discontinued energy operations. The results of QST Enterprises Inc. and its past and present subsidiaries - QST Communications, QST Environmental and QST Energy - are reported in 1999 and prior periods as discontinued operations. The following table shows the components of the discontinued operations. Income (loss) from operations of discontinued businesses, net of tax:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 (In thousands) (Unaudited) QST Communications, net of tax of $(176) and $(463) $ -- $ (267) $ -- $ (704) QST Enterprises (excluding QST Environmental and QST Comm.), net of tax of $(2,367) and $(9,866) -- (3,601) -- (15,007) QST Environmental, net of tax of $190, $(221) and $109 -- 248 (407) 46 ------- ------- ----- -------- $ -- $(3,620) $(407)$(15,665) ======= ======= ===== ========
Realized gain on sale of assets of discontinued business, net of tax:
Three Months Ended Nine MonthsEnded September 30, September 30, 1999 1998 1999 1998 (In thousands) (Unaudited) QST Communications, net of tax of $5,425 $ -- $8,252 $ -- $8,252 ======= ====== ======= ======
Financial results for the third quarter of 1999 were reflected in the discontinued operations reserve which was accrued at the end of 1998, resulting in no net income or loss for the quarter. In August 1998, QST Enterprises Inc. (QST) sold its wholly-owned fiber optic-based telecommunications subsidiary, QST Communications, to McLeod USA for $20 million cash and McLeod USA stock options then valued at $5.5 million, resulting in an after-tax gain of approximately $8.3 million. Operating losses incurred by QST Communications for the three months and nine months ended September 30, 1998, are shown in the preceding table. 34 In June 1999, QST sold the outstanding common stock of QST Environmental to MACTEC, Inc. for approximately $18 million in cash. ESE Land and its subsidiaries were not included in this sale and, therefore, QST Environmental's investment in ESE Land was transferred to QST Enterprises Inc. prior to the sale. No after-tax gain or loss was realized from the sale. QST Environmental's operating results through May 30, 1999, are included in the year-to-date loss from operations of discontinued businesses. 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. QST Energy has moved to dismiss this suit filed in California as duplicative of the suits pending in Illinois, and the customers similarly filed motions to dismiss the suits pending in Illinois. 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 September 30, 1999, for these two customers, totaled $15.4 million. Under the terms of the contract, QST Energy has terminated delivery of electricity to the two customers. In June 1999, QST Energy agreed to pay $3 million to the two remaining California commercial customers to discontinue electricity service. These payments, as well as losses on energy sales during 1999 (primarily electricity to the California commercial customers) were included in QST's estimate for loss related to discontinued operations recorded in December 1998. PART II. OTHER INFORMATION Item 1: Legal Proceedings Reference is made to "Environmental Matters" under "Item 1. Business" in the Company's 1998 Annual Report on Form 10-K (the "1998 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 Illinois Electric Deregulation In December 1997, the Electric Service Customer Choice and Rate Relief Law of 1997 (Customer Choice Law) became effective. The Customer Choice Law began a nine-year transition process to a fully competitive market for electricity in Illinois, with all customers being able to choose their electricity supplier by May 1, 2002. Transition charges designed to help utilities recover the cost of past investments made under a regulated system may be collected through 2006 (2008 upon the ICC's 35 finding that a utility's financial condition is impaired). The Customer Choice Law also requires residential base rate reductions which vary by utility. CILCO began its reduction in residential base rates with an initial 2% decrease in August 1998. 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. (Refer to the caption "Competition" in Management's Discussion and Analysis of Financial Condition and Results of Operations in CILCORP's 1998 Annual Report to Shareholders.) 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 certain non-residential customers earlier than previously allowed under the Customer Choice Law and for waiving the right to seek a two-year extension on the collection of transition charges. Voluntary Early Retirement Programs In April 1999, CILCO offered Voluntary Early Retirement Programs to employees in its electric power generation area, including employees represented by the National Conference of Firemen and Oilers Local 8. A total of 86 of the 117 eligible employees accepted the offer to retire under the programs, effective as early as June 1, 1999. These programs resulted in an after-tax charge to earnings of approximately $6.1 million in the second quarter. In June 1999, the Company offered a similar Voluntary Early Retirement Program to the management and office and technical employees not previously included in the program offered in April. A total of 141 of the 156 eligible employees accepted the offer to retire under this program, effective as early as October 1, 1999. These programs resulted in an after-tax charge to earnings of approximately $16.6 million in the third quarter. 36 Election of Officers Officer elections, effective October 18, 1999, are as follows: CILCORP: Paul D. Stinson President Scott A. Cisel Vice President Randy J. DeWulf Vice President Mark E. Miller Vice President Robert J. Sprowls Vice President John G. Sahn Secretary Thomas S. Romanowski Treasurer Michael D. Austin Assistant Treasurer Thomas D. Hutchinson Controller and Chief Financial Officer CILCO: Paul D. Stinson President Jerry Cagle Vice President Scott A. Cisel Vice President Randy J. DeWulf Vice President Mark E. Miller Vice President Robert J. Sprowls Vice President John G. Sahn Secretary Thomas S. Romanowski Treasurer Terry D. Fox Assistant Treasurer Thomas D. Hutchinson Controller and Chief Financial Officer Item 6: Exhibits and Reports on Form 8-K. (a) Exhibits 27 - Financial data schedules (b) Reports on Form 8-K On October 18, 1999, The AES Corporation completed its acquisition of CILCORP Inc. through a merger transaction. A Form 8-K was filed on November 2, 1999, disclosing this change in control of registrant. 37 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 November 15, 1999 P. D. Stinson P. D. Stinson President Date November 15, 1999 T. D. Hutchinson T. D. Hutchinson Controller 38 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 November 15, 1999 P. D. Stinson P. D. Stinson President Date November 15, 1999 T. D. Hutchinson T. D. Hutchinson Controller 39 EX-27 2
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 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 PER-BOOK 862522 167399 173937 30622 0 1234480 192853 0 129388 322241 22000 44120 257181 45000 0 57600 43000 0 1317 510 441511 1234480 468279 4647 428119 432766 35513 (708) 34805 21506 13299 2372 10927 25112 16394 56307 .80 .80
EX-27 3
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 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 PER-BOOK 862522 3642 145044 24913 0 1036121 185661 0 122838 308499 22000 44120 237921 0 0 57600 30000 0 1317 510 334154 1036121 422917 9261 379041 388302 34615 (1434) 33181 17330 15851 2372 13479 25112 14425 54303 0 0
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