-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fbzBB0srAKXyH3q90x/hE1B6EECXjEm5b7yUQKmxdvAR/soTP/PX/h/fWbX+Dtel Bq3hlnQZjg4wAyWhuHFANQ== 0000860520-94-000015.txt : 19941116 0000860520-94-000015.hdr.sgml : 19941116 ACCESSION NUMBER: 0000860520-94-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPSCO INC CENTRAL INDEX KEY: 0000860520 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 371260920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10628 FILM NUMBER: 94559729 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: 607 E ADAMS STREET CITY: SPRINGFIELD STATE: IL ZIP: 62739 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) Of THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........ to ........ Commission Registrant; State of Incorporation; IRS Employer File Number Address; and Telephone Number Identification No. 1-10628 CIPSCO INCORPORATED 37-1260920 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380 (An Illinois Corporation) 607 East Adams Street Springfield, Illinois 62739 217-523-3600 Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No _______ _______ Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: CIPSCO INCORPORATED Common stock, no par value, 34,107,706 shares outstanding at October 31, 1994 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Common stock no par value, 25,452,373 shares outstanding and held by CIPSCO INCORPORATED at October 31, 1994 -1- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 CONTENTS PART I. FINANCIAL INFORMATION Page No. Item 1: Financial Statements CIPSCO INCORPORATED Consolidated Statements of Income 4- 5 Consolidated Balance Sheets 6- 7 Consolidated Statements of Cash Flows 8- 9 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income 10-11 Balance Sheets 12-13 Statements of Cash Flows 14-15 CONDENSED NOTES TO FINANCIAL STATEMENTS of CIPSCO Incorporated and Central Illinois Public Service Company 16-20 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations CIPSCO Incorporated and Central Illinois Public Service Company 20-26 PART II. OTHER INFORMATION Item 1: Legal Proceedings 27 Item 6: Exhibits and Reports on Form 8-K 27 Signatures 28-29 Exhibit Index 30 Exhibit 12 Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes (CIPS) 31 Exhibit 27 Financial Data Schedule for CIPSCO - Financial Data Schedule for CIPS - -2- The unaudited interim financial statements presented herein include the consolidated statements of CIPSCO Incorporated and Subsidiaries ("Company") as well as separate financial statements for Central Illinois Public Service Company ("CIPS"). The unaudited statements have been prepared by the Company and CIPS, respectively, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company and CIPS believe the disclosures are adequate to make the information presented not misleading. The Company's consolidated financial statements should be read in conjunction with the financial statements and notes thereto incorporated by reference in the Annual Report on Form 10-K of CIPSCO Incorporated for the year ended December 31, 1993 (the "CIPSCO 10-K"); and the CIPS financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of CIPS for the year ended December 31, 1993 (the "CIPS 10-K"). In the opinion of the Company and CIPS, their respective interim financial statements filed as part of this Form 10-Q reflect all adjustments necessary to present fairly the results for the respective periods. Due to the effect of weather and other factors which are characteristic of CIPS' utility operations, financial results for the periods ended September 30, 1994 and 1993 are not necessarily indicative of trends for any twelve- month period. This financial and other information is not given in connection with any sale or offer to buy any security. -3- Part I. FINANCIAL INFORMATION Item 1. Financial Statements. CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Income For the Periods Ended September 30, 1994 and 1993 (in thousands except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, ___________________ ____________________ 1994 1993 1994 1993 _________ _________ _________ _________ Operating Revenues: Electric......................... $198,767 $216,314 $537,013 $530,774 Gas.............................. 15,146 15,782 100,724 98,238 Investment....................... 2,357 3,581 6,660 7,260 ________ ________ ________ ________ Total operating revenues...... 216,270 235,677 644,397 636,272 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation..... 45,493 48,532 149,427 139,329 Purchased power.................. 14,486 23,242 40,587 49,053 Gas purchased.................... 7,222 7,115 61,835 60,562 Other operation.................. 36,734 32,629 109,795 102,663 Maintenance...................... 14,375 16,208 45,378 45,191 Depreciation and amortization.... 20,162 19,612 60,610 58,663 Taxes other than income taxes.... 13,794 13,893 42,972 42,382 ________ ________ ________ ________ Total operating expenses...... 152,266 161,231 510,604 497,843 ________ ________ ________ ________ Operating Income................... 64,004 74,446 133,793 138,429 ________ ________ ________ ________ Interest and Other Charges: Interest on long-term debt of subsidiary....................... 8,138 8,455 24,704 26,052 Other interest charges........... 125 130 122 548 Allowance for funds used during construction..................... (251) (664) (735) (1,705) Preferred stock dividends of subsidiary....................... 889 853 2,568 2,788 Miscellaneous, net............... (881) (732) (2,673) (2,291) ________ ________ ________ ________ Total interest and other charges....................... 8,020 8,042 23,986 25,392 ________ ________ ________ ________ -4- Income Before Income Taxes......... 55,984 66,404 109,807 113,037 ________ ________ ________ ________ Income Taxes....................... 21,728 26,282 42,247 43,584 ________ ________ ________ ________ Net Income......................... $ 34,256 $ 40,122 $ 67,560 $ 69,453 ======== ======== ======== ======== Average Shares of Common Stock Outstanding........................ 34,108 34,108 34,108 34,108 Earnings per Average Share of Common Stock....................... $1.00 $1.18 $1.98 $2.04 The accompanying condensed notes to financial statements are an integral part of these statements. -5- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1994 and December 31, 1993 (in thousands) September 30, December 31, 1994 1993 _____________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric.......................... $2,227,192 $2,172,578 Gas............................... 217,135 208,208 __________ __________ 2,444,327 2,380,786 Less-Accumulated depreciation..... 1,065,898 1,020,416 __________ __________ 1,378,429 1,360,370 Construction work in progress..... 49,191 61,104 __________ __________ 1,427,620 1,421,474 __________ __________ Current Assets: Cash.............................. 2,083 4,630 Temporary investments, at cost which approximates market......... 6,881 5,527 Accounts receivable, net.......... 75,105 61,445 Accrued unbilled revenues......... 20,698 38,774 Materials and supplies, at average cost.............................. 42,432 40,824 Fuel for electric generation, at average cost...................... 32,247 26,046 Gas stored underground, at average cost.............................. 13,683 14,335 Prepayments....................... 7,614 10,142 __________ __________ 200,743 201,723 __________ __________ Investments and Other Assets: Investment in marketable securities........................ 46,917 42,703 Investment in leveraged leases.... 48,841 42,216 Other............................. 43,162 49,634 __________ __________ 138,920 134,553 __________ __________ $1,767,283 $1,757,750 ========== ========== -6- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity....... $ 650,938 $ 634,252 Unrealized investment losses, net............................... (922) - Preferred stock of subsidiary..... 80,000 80,000 Long-term debt of subsidiary...... 459,543 474,323 __________ __________ 1,189,559 1,188,575 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year................... 15,000 20,000 Commercial paper and short-term borrowings........................ 850 - Accounts payable.................. 48,525 56,039 Accrued wages..................... 12,392 12,775 Accrued taxes..................... 19,356 12,973 Accrued interest.................. 8,420 9,204 Other............................. 44,154 34,902 __________ __________ 148,697 145,893 __________ __________ Deferred Credits: Accumulated deferred income taxes. 304,338 294,732 Investment tax credits............ 56,437 58,962 Regulatory liability, net......... 68,252 69,588 __________ __________ 429,027 423,282 __________ __________ $1,767,283 $1,757,750 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -7- CIPSCO INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Periods Ended September 30, 1994 and 1993 (in thousands) (unaudited) Nine Months Ended September 30, ______________________ 1994 1993 __________ __________ Operating Activities: Net income.............................. $ 67,560 $ 69,453 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 60,610 58,663 Allowance for equity funds used during construction (AFUDC).................. (503) (1,101) Deferred income taxes, net............ 8,583 15,147 Investment tax credit amortization.... (2,525) (2,525) Cash flows impacted by changes in assets and liabilities: Accounts receivable and unbilled revenues.............................. 4,416 (11,847) Fuel for electric generation.......... (6,201) 7,048 Other inventories..................... (956) (6,870) Prepayments........................... 2,528 6,489 Other assets.......................... 6,472 9,064 Accounts payable and other............ 1,738 5,088 Accrued wages, taxes and interest..... 5,216 15,469 Other................................... (1,996) 4,719 _________ _________ Net cash provided by operating activities............................ 144,942 168,797 _________ _________ Investing Activities: Utility construction expenditures, excluding AFUDC......................... (64,184) (56,252) Allowance for borrowed funds used during construction..................... (231) (603) Change in temporary investments......... (1,354) (35,570) Long-term investment in marketable securities.............................. (5,136) (2,287) Long-term investment in leveraged leases.................................. (6,625) (8,804) _________ _________ Net cash used in investing activities. (77,530) (103,516) _________ _________ -8- Financing Activities: Common stock dividends paid............. (50,820) (49,797) Proceeds from issuance of long-term debt of subsidiary...................... - 195,000 Repayment of long-term debt of subsidiary.............................. (20,000) (205,000) Repayment of short-term borrowings...... 850 (14,593) Proceeds from issuance of preferred stock of subsidiary..................... - 30,000 Redemption of preferred stock of subsidiary.............................. - (15,000) Issuance expense, discount and premium.. 11 (6,320) _________ _________ Net cash used in financing activities. (69,959) (65,710) _________ _________ Net decrease in cash.................... (2,547) (429) Cash at beginning of period............. 4,630 1,534 _________ _________ Cash at end of period................... $ 2,083 $ 1,105 ========= ========= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest, net of amount capitalized... $ 23,881 $ 20,790 Income taxes.......................... 25,923 16,701 The accompanying condensed notes to financial statements are an integral part of these statements. -9- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Statements of Income For the Periods Ended September 30, 1994 and 1993 (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, ___________________ ___________________ 1994 1993 1994 1993 _________ _________ _________ _________ Operating Revenues: Electric......................... $198,775 $216,321 $537,036 $530,795 Gas.............................. 15,147 15,783 100,728 98,242 ________ ________ ________ ________ Total operating revenues...... 213,922 232,104 637,764 629,037 ________ ________ ________ ________ Operating Expenses: Fuel for electric generation..... 45,493 48,532 149,427 139,329 Purchased power.................. 14,486 23,242 40,587 49,053 Gas purchased.................... 7,222 7,115 61,835 60,562 Other operation.................. 36,377 32,205 108,759 101,567 Maintenance...................... 14,374 16,208 45,375 45,190 Depreciation and amortization.... 20,041 19,507 60,227 58,352 Taxes other than income taxes.... 13,790 13,891 42,946 42,338 Income taxes: Current........................ 16,660 18,175 36,596 32,717 Deferred, net.................. 5,325 7,867 6,588 11,431 Deferred investment tax credits, net................... (842) (842) (2,525) (2,525) ________ ________ ________ ________ Total operating expenses...... 172,926 185,900 549,815 538,014 ________ ________ ________ ________ Operating Income................... 40,996 46,204 87,949 91,023 ________ ________ ________ ________ Other Income and Deductions: Allowance for equity funds used during construction.............. 172 429 503 1,101 Nonoperating income taxes........ (117) (107) (604) (352) Miscellaneous, net............... 1,021 818 3,171 2,480 ________ ________ _________ ________ Total other income and deductions.................... 1,076 1,140 3,070 3,229 ________ ________ ________ ________ -10- Income Before Interest Charges..... 42,072 47,344 91,019 94,252 ________ ________ ________ ________ Interest Charges: Long-term debt................... 8,138 8,455 24,704 26,052 Other interest charges........... 111 99 114 460 Allowance for borrowed funds used during construction.............. (79) (235) (231) (603) ________ ________ ________ ________ Total interest charges....... 8,170 8,319 24,587 25,909 ________ ________ ________ ________ Net Income......................... 33,902 39,025 66,432 68,343 Preferred Dividends................ 889 853 2,568 2,788 ________ ________ ________ ________ Earnings for Common Stock.......... $ 33,013 $ 38,172 $ 63,864 $ 65,555 ======== ======== ======== ======== The accompanying condensed notes to financial statements are an integral part of these statements. -11- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY Balance Sheets September 30, 1994 and December 31, 1993 (in thousands) September 30, December 31, 1994 1993 ___________ ____________ (unaudited) ASSETS Utility Plant, at original cost: Electric......................... $2,227,192 $2,172,578 Gas.............................. 217,135 208,208 __________ __________ 2,444,327 2,380,786 Less-Accumulated depreciation.... 1,065,898 1,020,416 __________ __________ 1,378,429 1,360,370 Construction work in progress.... 49,191 61,104 __________ __________ 1,427,620 1,421,474 __________ __________ Current Assets: Cash............................. 1,524 4,038 Temporary investments, at cost which approximates market........ 6,881 2,734 Accounts receivable, net......... 75,209 61,591 Accrued unbilled revenues........ 20,698 38,774 Materials and supplies, at average cost............................. 42,432 40,824 Fuel for electric generation, at average cost..................... 32,247 26,046 Gas stored underground, at average cost............................. 13,683 14,335 Prepayments...................... 7,495 9,847 __________ __________ 200,169 198,189 __________ __________ Other Assets....................... 42,117 48,799 __________ __________ $1,669,906 $1,668,462 ========== ========== -12- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity...... $ 577,435 $ 565,023 Preferred stock.................. 80,000 80,000 Long-term debt................... 459,543 474,323 __________ __________ 1,116,978 1,119,346 __________ __________ Current Liabilities: Long-term debt due within one year............................. 15,000 20,000 Accounts payable................. 48,446 55,931 Accrued wages.................... 12,392 12,720 Accrued taxes.................... 19,335 13,391 Accrued interest................. 8,420 9,204 Other............................ 44,153 34,895 __________ __________ 147,746 146,141 __________ __________ Deferred Credits: Accumulated deferred income taxes............................ 280,493 274,425 Investment tax credits........... 56,437 58,962 Regulatory liability, net........ 68,252 69,588 __________ __________ 405,182 402,975 __________ __________ $1,669,906 $1,668,462 ========== ========== The accompanying condensed notes to financial statements are an integral part of these statements. -13- Central Illinois Public Service Company Statements of Cash Flows For the Periods Ended September 30, 1994 and 1993 (in thousands) (unaudited) Nine Months Ended September 30, ______________________ 1994 1993 __________ __________ Operating Activities: Net income.............................. $ 66,432 $ 68,343 Adjustments to reconcile net income to net cash provided: Depreciation and amortization......... 60,227 58,352 Allowance for equity funds used during construction (AFUDC).................. (503) (1,101) Deferred income taxes, net............ 5,046 10,269 Income tax credit amortization........ (2,525) (2,525) Cash flows impacted by changes in assets and liabilities: Accounts receivable and accrued unbilled revenues..................... 4,458 (11,870) Fuel for electric generation.......... (6,201) 7,048 Other inventories..................... (956) (6,870) Prepayments........................... 2,352 4,022 Other assets.......................... 6,682 11,714 Accounts payable and other............ 1,773 5,182 Accrued wages, taxes and interest..... 4,832 11,831 Other................................... (1,612) 5,030 _________ _________ Net cash provided by operating activities............................ 140,005 159,425 _________ _________ Investing Activities: Construction expenditures, excluding AFUDC................................... (64,184) (56,252) Allowance for borrowed funds used during construction............................ (231) (603) Changes in temporary investments........ (4,147) (30,881) _________ _________ Net cash used in investing activities. (68,562) (87,736) _________ _________ -14- Financing Activities: Repurchase of common stock.............. - (50,000) Proceeds from issuance of long-term debt - 195,000 Repayment of long-term debt............. (20,000) (205,000) Repayment of short-term borrowings...... - (17,393) Proceeds from issuance of preferred stock................................... - 30,000 Redemption of preferred stock........... - (15,000) Dividends paid: Preferred stock....................... (2,568) (2,788) Common stock.......................... (51,400) - Issuance expense, discount and premium.. 11 (6,320) _________ _________ Net cash used in financing activities. (73,957) (71,501) _________ _________ Net increase (decrease) in cash......... (2,514) 188 Cash at beginning of period............. 4,038 480 _________ _________ Cash at end of period................... $ 1,524 $ 668 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest, net of amount capitalized... $ 23,871 $ 20,727 Income taxes.......................... 29,218 23,024 The accompanying condensed notes to financial statements are an integral part of these statements. -15- CIPSCO INCORPORATED AND SUBSIDIARIES CENTRAL ILLINOIS PUBLIC SERVICE COMPANY CONDENSED NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 (unaudited) Note 1. GENERAL ________________ The consolidated financial statements presented herein include the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as the "Company." CIPSCO has two first-tier subsidiaries: CIC, an investment subsidiary, and CIPS, an electric and gas public utility. Prior year amounts have been reclassified on a basis consistent with the September 30, 1994 presentation. The financial statements of CIPS, a subsidiary of CIPSCO, include only the accounts of CIPS. Prior year amounts have been reclassified on a basis consistent with the September 30, 1994 presentation. Note 2. COMMITMENTS AND CONTINGENCIES ______________________________________ ENVIRONMENTAL REMEDIATION COSTS - CIPS and certain of its predecessors and other affiliates operated facilities in the past for manufacturing gas from coal. In connection with manufacturing gas, various by-products were produced, some of which remain on sites where the facilities were located. CIPS has identified 13 of these former manufactured gas plant sites (enviromental remediation sites) which contain potentially harmful materials. Under directives from the Illinois Environmental Protection Agency (IEPA), CIPS has incurred costs and associated legal expenses related to the investigation and remediation of the sites. One site was added to the United States Environmental Protection Agency (USEPA) Superfund list on August 30, 1990. On September 30, 1992 the IEPA, in consultation with the USEPA, decided that the long-term remedial plan for this site should consist of a ground water pump-and-treat program. The IEPA and CIPS entered into an agreement, which received required court approval on March 14, 1994, for CIPS to carry out the remedial action with the IEPA providing oversight. It is not known at this time what specific remedial action will be required at the other 12 sites. In 1987, CIPS filed a lawsuit against a number of insurance carriers seeking full indemnification for all costs in connection -16- with certain environmental sites. CIPS has now settled the lawsuit with substantially all of the insurance carriers. In 1991, a circuit court entered a verdict in favor of CIPS involving the coverage under one environmental impairment liability policy. On August 26, 1994, the Illinois Appellate court reversed the circuit court ruling on the basis that no claim was made during the policy coverage period. CIPS will ask for rehearing and may appeal to the Illinois Supreme Court. The estimated incurred costs related to studies and remediation at these 13 sites and associated legal expenses are being accrued and deferred rather than expensed currently, pending recovery through rates, from insurance carriers or from other parties. The total amount deferred represents costs incurred and estimates for costs of completing studies at various sites and an estimate of remediation costs at the Superfund site. At September 30, 1994 the amounts recovered have exceeded the aggregate amount deferred. In 1992, the Illinois Commerce Commission (the "Illinois commission") issued an Order (the "Generic Order") in its consolidated generic proceeding initiated on March 6, 1991, regarding appropriate ratemaking treatment of cleanup costs incurred by Illinois utilities with respect to environmental remediation sites. The Generic Order indicates that allowed cleanup costs may include prudently incurred costs of investigation, assessment and cleanup of environmental remediation sites, as well as litigation costs including those involved in insurance recovery claims. The Generic Order authorizes utilities, including CIPS, to propose a mechanism to recover cleanup costs which is consistent with the provisions of the order. Such a mechanism must, among other things, provide for (1) recovery of cleanup costs over a five-year period, excluding carrying costs associated with the unrecovered balance of cleanup costs from the time that the recovery mechanism becomes effective; (2) a return to ratepayers over a five-year amortization period of any reimbursement of cleanup costs received from insurance carriers or other parties; and (3) a prudence review of each utility's expenditures. The Generic Order was upheld on appeal by the Third District Illinois Appellate Court. That decision held that a rate rider mechanism is an appropriate means for utilities to recover cleanup costs. The case has been appealed to the Illinois Supreme Court by an intervenor that maintains that no recovery of cleanup costs should be allowed and that, if allowed, a rate rider mechanism is not the proper means of providing recovery. CIPS and other utilities have also appealed to the Illinois Supreme Court seeking to include the unrecovered carrying charges in the rate rider. The Illinois Supreme Court heard the appeals on September 27, 1994. CIPS cannot predict what action the Illinois Supreme Court will take in this matter. On March 26, 1993, the Illinois commission approved CIPS' proposed environmental cost-recovery rate riders, effective with April 1993 billings to customers. Known as the electric -17- environmental adjustment clause and the gas environmental adjustment clause, the riders are designed to enable CIPS to recover from its customers costs associated with cleanup of the environmental remediation sites, along with associated legal expenses, over a five year period on terms consistent with the Generic Order. The environmental adjustment clause riders provide for an annual review of amounts recovered through the riders. Amounts found to have been incorrectly included would be subject to refund. Through December 31, 1993, CIPS had collected $2.9 million including interest from its customers pursuant to the riders. Pursuant to monthly filings made by CIPS under the riders, no additional amounts have been collected from customers under the riders since January 1994. On April 6, 1994, the Illinois commission initiated a reconciliation proceeding to review CIPS environmental remediation activities and determine whether the level of revenues collected by the riders is consistent with the amount of remediation costs prudently incurred and whether all amounts collected were correctly included in the riders. CIPS has filed testimony and provided data to the Illinois commission regarding the reconciliation proceeding. A status hearing is scheduled for January 1995. Total cost to be incurred for the cleanup of these sites or the possible recovery from insurance carriers and other parties cannot be estimated. Management believes that any costs incurred in connection with the sites that are not recovered from insurance carriers or other parties will be recovered through utility rates. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on the financial position or results of operations of the Company or CIPS. FERC ORDER 636 - During 1992, the Federal Energy Regulatory Commission ("FERC") issued a series of orders that require substantial restructuring of the service obligations of interstate pipeline suppliers. These orders (together called Order 636) required mandatory unbundling of existing pipeline gas sales services. Mandatory unbundling requires pipelines to sell separately the various components previously included with gas sales services (i.e., storage, transport, capacity sales, etc.). Order 636 provides a mechanism for pipelines to recover transition costs associated with restructuring their gas sales services through billings to their customers. Based on currently available information contained in the various interstate pipeline Order 636 compliance filings, CIPS estimates that the total amount of transition costs to be incurred by CIPS is approximately $10 million of which $6 million has been paid. At September 30, 1994, CIPS had recorded a liability and a related deferred gas cost of $.5 million for that portion of the transition costs that will be billed to CIPS regardless of future pipeline services. The Illinois commission issued an order in March 1994 permitting retail gas distribution companies, including CIPS, full recovery through rates of prudently incurred Order 636 transition costs. On May 4, 1994, the Illinois commission granted rehearing of the -18- order. The final order issued September 22, 1994, reaffirmed full recovery of prudently incurred Order 636 transition costs and changed the recovery mechanism to include recovery from an additional class of customer. CIPS cannot predict what further action the Illinois commission will take in this matter or whether the Illinois commission's order in this matter will be appealed. CLEAN AIR ACT - CIPS' compliance strategy to meet the sulfur dioxide emission reduction requirements of the Clean Air Act Amendments of 1990 (Amendments) includes complying with Phase I of the Amendments by switching to a lower sulfur coal at some of its units. Phase II compliance will be accomplished by additional fuel switching at various units and by increased scrubbing with its existing scrubber at Newton Unit 1. Phase I and Phase II emission provisions of the Amendments become effective in 1995 and 2000, respectively. CIPS estimates that total capital costs, primarily for modifications to boilers, precipitators, coal handling facilities, and continuous monitoring equipment for implementation of this compliance strategy, will be less than $50 million in total including amounts spent to date. Operating costs are not expected to change materially. Compliance costs could result in electric base rate increases of approximately one to two percent by the year 2000. In 1991, in accordance with the plan to switch some units to lower sulfur coal, CIPS signed a long-term coal contract with an existing supplier for lower sulfur Illinois coal. Due to the magnitude of the supplier's capital investment, the contract includes a graduated termination charge. In 1994, CIPS can terminate the contract under certain conditions, and CIPS would be required to pay up to $41 million (plus an inflation adjustment) in termination charges. Each year subsequent to 1994 the termination charge is reduced according to a formula using tons of coal purchased. The termination charge would not be effective if CIPS terminated the contract due to the failure of the coal to meet quality specifications provided for in the contract. LABOR DISPUTES - The International Union of Operating Engineers (IUOE) Local 148 and the International Brotherhood of Electrical Workers (IBEW) Local 702 each filed unfair labor practice charges in 1993 with the National Labor Relations Board (NLRB) relating to the legality of a lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued a complaint against CIPS concerning its lockout of IBEW-702 represented employees. However, the Peoria Regional Office did not find merit to a similar charge filed by the IUOE 148 and it was dismissed. The IUOE 148 appealed the dismissal within the NLRB. On July 20, 1994, CIPS received notification from the Peoria Regional Office that the Appeals Division, located in Washington D.C., reversed the earlier decision made by the Peoria Regional Office thereby finding merit to the claim by IUOE 148 that the lockout of its members was illegal. As a result of the finding -19- by the Appeals Division, the Peoria Regional Office issued a complaint against CIPS regarding the lockout of the IUOE 148 employees. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $12 million. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position or results of operations of the Company or CIPS. OTHER ISSUES - CIPS is involved in other legal and administrative proceedings before various courts and agencies with respect to rates, taxes, gas and electric fuel cost reconciliations, service area disputes, environmental and other matters. Although unable to predict the outcome of these matters, management believes that appropriate liabilities have been established and that final disposition of these actions will not have material adverse effect on the results of operations or the financial position of the Company or CIPS. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of financial condition and results of operations is for CIPSCO Incorporated and Subsidiaries ("Company") unless otherwise stated. THE OUTLOOK CIPS currently estimates that its total construction expenditures for the 1994-1998 period will be about $431 million, including about $4 million of allowance for funds used during construction. In addition to funds for construction, projected capital requirements for the remainder of 1994 and for the 1995-1998 period include $73 million for scheduled debt retirements. Capital requirements for the 1994-1998 period are expected to be provided primarily through internally generated funds. External financing to fund scheduled debt retirements may be required. CIPS has filed a shelf registration statement under the Securities Act of 1933 relating to $50 million of first mortgage bonds, medium term notes and/or preferred stock. Proceeds will be used to replace maturing long-term debt or for general corporate purposes. -20- FINANCIAL CONDITION Financial condition and changes in total Shareholder Equity of the Company and CIPS for the nine-month periods ended September 30, 1994 and 1993 are as follows: Nine Months Ended September 30, ________________________ (in thousands) The Company: 1994 1993 _________ _________ Common Shareholders' Equity Net income $ 67,560 $ 69,453 Common stock dividends paid (50,820) (49,797) Other (54) (761) ________ ________ Change in Shareholders' Equity 16,686 18,895 ======== ======== Nine Months Ended September 30, ________________________ (in thousands) CIPS: 1994 1993 _________ _________ Common Shareholder's Equity Earnings for Common stock $ 63,864 $ 65,555 Common stock dividends paid (51,400) (50,000) Other (53) (762) ________ ________ Change in Shareholder's Equity 12,411 14,793 ======== ======== OVERVIEW The Company's earnings per share were $1.00 for the quarter ended September 30, 1994, compared to $1.18 per share earned during the same period in 1993. The decrease in earnings was caused by decreased electric sales to customers of CIPS caused by cooler temperatures in the third quarter of 1994 compared to the temperatures recorded in the third quarter of 1993. In addition, the third quarter 1993 results reflected additional electric sales opportunities for CIPS due to Midwest flooding and a coal miners' strike that caused some other utilities to purchase more of their electric requirements. -21- The Company's earnings per share were $1.98 for the nine months ended September 30, 1994, compared to $2.04 per share earned during the same period in 1993. The decline in earnings was due in part by cooler summer weather in 1994 and to increased operation expenses in 1994 caused by one time labor settlement costs, increased legal expenses, and increases in public liability and injury and damages claims. The following table summarizes the components of consolidated net income and CIPS earnings for common stock for the three months and nine months ended September 30, 1994 and 1993 (see Results of Operations for further discussion). In this table, electric operating margin equals electric operating revenues less fuel for electric generation and less purchased power. Gas operating margin equals gas operating revenues less gas purchased. Third Quarter Ended Nine Months Ended September 30, September 30, ___________________ __________________ (in thousands) (in thousands) 1993 1994 1993 1994 ________ ________ ________ ________ CIPS Electric operating margin $138,796 $144,547 $347,022 $342,413 Gas operating margin 7,925 8,668 38,893 37,680 Other deductions and interest expenses 112,819 114,190 319,483 311,750 CIPS preferred stock dividends 889 853 2,568 2,788 _______ _______ _______ _______ Total earnings for common stock 33,013 38,172 63,864 65,555 _______ _______ _______ _______ NON-UTILITY Investment revenues 2,213 3,492 6,151 7,031 Other deduction and expenses 970 1,542 2,455 3,133 _______ _______ _______ _______ Total non-utility net income 1,243 1,950 3,696 3,898 _______ _______ _______ _______ Consolidated net income $ 34,256 $ 40,122 $ 67,560 $ 69,453 ======= ======= ======= ======= -22- RESULTS OF OPERATIONS The results of operations of the Company and CIPS for the three months and nine months ended September 30, 1994, compared to the same periods in 1993 are presented below. The Company Net Income (in thousands) Earnings Per Share _________________________ _________________________ Three Months Nine Months Three Months Nine Months ____________ ___________ ____________ ___________ 1994 $34,256 $67,560 $1.00 $1.98 1993 40,122 69,453 1.18 2.04 _______ _______ _____ _____ Decrease $(5,866) $(1,893) $(.18) $(.06) ======= ======= ===== ===== Percent Decrease (15%) (3%) (15%) (3%) CIPS Earnings for Common Stock (in thousands) ________________________________________ Three Months Nine Months ____________ ___________ 1994 $33,013 $63,864 1993 38,172 65,555 _______ _______ Decrease $(5,159) $(1,691) ======= ======= Percent Decrease (14%) (3%) OPERATING REVENUES The changes in electric and gas revenues described below are for the Company. The only differences between changes in electric and gas operating revenues for the Company and for CIPS are intercompany revenues that are eliminated in the consolidated financial statements. These intercompany amounts are immaterial. Electric revenues decreased 8% in the third quarter of 1994 compared to the third quarter of 1993 reflecting fewer KWH sales due to the cooler weather in the third quarter of 1994. Also, contributing to the decrease in third quarter 1994 revenues is the fact that the third quarter 1993 results reflected additional sales opportunities due to Midwest flooding and a coal miners' strike that caused other utilities to purchase more of their electric requirements from CIPS. Electric revenues increased 1% in the first nine months of 1994 compared to the same period in 1993, principally due to increased KWH sales to retail commercial and industrial customers due to a stronger economy in 1994, and increased KWH sales to wholesale power supply agreement customers due -23- principally to additional requirements of these customers. These increases more than offset the decrease in residential sales due to cooler summer weather in 1994 compared to 1993. Overall KWH sales decreased 5% in the first nine months of 1994 principally due to a 21% decrease in interchange economy and emergency sales. Interchange economy and emergency sales in 1993 reflected additional sales due to Midwest flooding and a coal miners' strike that caused other utilities to purchase more of their electric requirements from CIPS in 1993. The changes in electric revenue and KWH sales are shown below:
CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) _______________________________________________________________________________________ Third Quarter Nine Months __________________________________________ __________________________________________ Revenue Rev % KWH KWH % Revenue Rev % KWH KWH % _________ _____ _________ _____ _________ _____ _________ _____ Residential $ (8,853) (12%) (99,778) (12%) $(6,055) (3%) (68,052) (3%) Commercial (1,151) (2%) (11,524) (2%) 1,837 1% 27,945 1% Industrial (68) - 13,250 2% 2,995 3% 70,471 4% Public Authorities and Other 865 32% (107) - 1,403 15% (5,578) (4%) _______ _______ _______ _______ Total Retail $ (9,207) (6%) (98,159) (4%) $ 180 - 24,786 - Power Supply Agreements 856 5% (38,357) (9%) 7,068 14% 145,745 15% Interchange Sales (economy/emergency) (8,605) (31%) (533,038) (34%) (1,633) (3%) (743,324) (21%) Cooperatives and Municipals (591) (9%) (10,093) (7%) 622 4% 9,708 3% _______ _______ _______ _______ Total Wholesale $ (8,340) (16%) (581,488) (27%) $ 6,057 5% (587,871) (12%) _______ _______ _______ _______ Total $(17,547) (8%) (679,647) (16%) $ 6,237 1% (563,085) (5%) ======= ======= ======= =======
Gas revenues decreased 4% in the third quarter compared to the same period in 1993 due to decreased revenue from a large industrial customer principally due to a change in the method of billing the customer where revenues were reduced, with corresponding reductions in purchased gas expense. Gas transportation revenues increased 9% in the third quarter of 1994 due primarily to a 19% increase in the number of therms transported. The increase in transported therms in 1994 is a reflection of a more favorable economy in the third quarter of 1994 compared to the same period in 1993. Gas revenues increased 3% in the first nine months of 1994 when compared to the same period in 1993 primarily because therm sales to industrial and commercial customers increased in 1994 due to a more favorable economy. Gas transportation revenues decreased 13% in the first nine months of 1994 compared to the same period in 1993 even though therms transported increased 15%. The revenues decreased because the average rate per therm transported was lower in 1994 due to a special summer rate offered by CIPS to large industrial transport customers. -24- The changes in gas revenues and therm sales are shown below.
CHANGES IN GAS REVENUE AND THERM SALES INCREASE (DECREASE) FROM PRIOR YEAR (in thousands) _______________________________________________________________________________________ Third Quarter Nine Months __________________________________________ __________________________________________ Therms Therms Revenue Rev % Therms % Revenue Rev % Therms % _________ _____ _________ _____ _________ _____ _________ _____ Residential $ (345) (4%) (329) (4%) $ 261 - (351) - Commercial 80 3% 66 2% 432 2% 762 2% Industrial (611) (20%) (1,806) (21%) 2,090 27% 2,671 11% Transportation 139 9% 3,833 19% (859) (13%) 11,371 15% Miscellaneous 101 - - - 532 291% - - _____ _____ _____ ______ Total $ (636) (4%) 1,764 4% $2,456 3% 14,453 6% ===== ===== ===== ======
OPERATIONS __________ Fuel for electric generation declined 6% for the third quarter of 1994 compared to the third quarter 1993. The decline corresponded with less generation due to the cooler weather in 1994 and fewer sales opportunities to other utilities. Fuel for electric generation increased 7% for the nine months ended September 30, 1994, compared to the same period last year due to a 7% increase in generation that was primarily related to increased sales in the wholesale market. Purchased power decreased 38% for the third quarter and 17% for the nine months ended September 30, 1994, compared with the same periods in 1993 reflecting fewer marketable purchases made for resale to interchange economy and emergency customers. In the summer months of 1993, the weather, Midwest flooding and a coal miners' strike created an unusual opportunity for sales to other utilities which was not repeated in 1994. Gas purchased increased 2% for the third quarter and 2% for the nine months when compared to the same periods in 1993 primarily due to timing differences in the recoverable gas costs adjusted through the purchased gas adjustment clause. Other operation expenses increased 13% for the third quarter 1994 compared to the same period in 1993. Over half of the increase in the third quarter of 1994 is because the third quarter of 1993 contained out of quarter adjustments related to the labor disputes which reduced expenses in the third quarter of 1993. The remainder of the increase is due to increases in injury and damages claims and related legal expenses. -25- Other operation expenses increased 7% for the nine months ended September 30, 1994, compared to the same period in 1993 due to one time expenses involved with settlement of the labor disputes, increases in injury and damages claims including related legal costs, and increases in medical insurance expense because the 1993 medical insurance expense was lower than normal due to the lockout of union employees. Maintenance expenses declined 11% in the third quarter of 1994 compared to the third quarter of 1993 due to fewer maintenance projects scheduled in the third quarter of 1994. Maintenance expenses were virtually at the same level in the first nine months of 1994 when compared to 1993. Depreciation and amortization expense increased 3% in the third quarter and 3% in the first nine months of 1994 when compared to 1993 due to normal plant additions. Interest on long-term debt and preferred dividends decreased 3% in the third quarter and 5% in the first nine months of 1994 as compared with the same periods of 1993 due principally to refinancing of both long- term debt and preferred stock in 1993 which lowered interest and dividend rates. -26- PART II. OTHER INFORMATION Item 1. Legal Proceedings See Note 2 to the "Condensed Notes to Financial Statements" in Part I on pages 16 through 20 for a discussion of certain additional information which relates to environmental remediation sites, FERC Order 636 and labor disputes. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits: Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges Plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. Exhibit 27 Financial Data Schedule for CIPSCO (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). Financial Data Schedule for CIPS (required for electronic filing only in accordance with Item 601(c)(1) of Regulation S-K). (B) Reports on Form 8-K: None -27- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, CIPSCO Incorporated, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIPSCO Incorporated Date: November 14, 1994 /s/ J. C. Fiaush J. C. Fiaush Controller (Chief Accounting Officer) -28- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Central Illinois Public Service Company, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Central Illinois Public Service Company Date: November 14, 1994 /s/ J. C. Fiaush J. C. Fiaush Controller (Principal Accounting Officer) -29- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994 Exhibit No. Description ___________ ___________ 12 Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges plus Preferred Stock Dividend Requirements Before Income Taxes for CIPS. 27 Financial Data Schedule for CIPSCO Financial Data Schedule for CIPS -30- EX-12 2 Exhibit 12 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS BEFORE INCOME TAXES (in thousands)
12 Months Ended _______________________________________________________________ December 31, September 30, ________________________________________________ 1994 1993 1992 1991 1990 1989 _____________ ________ ________ ________ ________ ________ Net income. . . . . . . . . . . . . . . . . . . $ 82,101 $ 84,011 $ 72,601 $ 75,683 $ 71,562 $ 71,222 Add--Federal and state income taxes: Current . . . . . . . . . . . . . . . . . . . 54,321 50,441 6,110 36,316 39,380 45,464 Deferred (net). . . . . . . . . . . . . . . . (3,169) 1,674 33,998 7,573 (2,964) (2,774) Investment tax credit amortization. . . . . . (3,367) (3,366) (3,336) (3,464) (3,306) (3,288) Income tax applicable to nonoperating activities. . . . . . . . . . . . . . . . . 883 631 2,989 2,413 2,986 3,246 Income tax applicable to provision for prior period revenue refunds. . . . . . - - - - - (7,465) _______ _______ _______ _______ _______ _______ 48,668 49,380 39,761 42,838 36,096 35,183 _______ _______ _______ _______ _______ _______ Net income before income taxes. . . . . . . . . 130,769 133,391 112,362 118,521 107,658 106,405 _______ _______ _______ _______ _______ _______ Add--Fixed charges Interest on long-term debt. . . . . . . . . . 31,388 32,823 35,534 36,652 36,589 36,604 Interest on provision for revenue refunds . . - - (803) 4,261 3,396 3,432 Other interest. . . . . . . . . . . . . . . . 131 479 392 1,231 1,070 1,052 Amortization of net debt premium and discount. . . . . . . . . . . . . . . . . . 1,685 1,598 863 338 326 290 _______ _______ _______ _______ _______ _______ 33,204 34,900 35,986 42,482 41,381 41,378 _______ _______ _______ _______ _______ _______ Earnings as defined . . . . . . . . . . . . . . $163,973 $168,291 $148,348 $161,003 $149,039 $147,783 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges. . . . . . . 4.94 4.82 4.12 3.79 3.60 3.57 Earnings required for preferred dividends: Preferred stock dividends . . . . . . . . . . $ 3,498 $ 3,718 $ 4,549 $ 5,396 $ 5,617 $ 5,856 Adjustment to pre-tax basis*. . . . . . . . . 2,074 2,185 2,491 3,054 2,833 2,893 _______ _______ _______ ________ ______ _______ $ 5,572 $ 5,903 $ 7,040 $ 8,450 $ 8,450 $ 8,749 _______ _______ _______ ________ _______ _______ Fixed charges plus preferred stock dividend requirements . . . . . . . . . . . . $ 38,776 $ 40,803 $ 43,026 $ 50,932 $ 49,831 $ 50,127 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges plus preferred stock dividend requirements . . . . 4.23 4.12 3.45 3.16 2.99 2.95 * An additional charge equivalent to earnings required to adjust dividends on preferred stock to a pre-tax basis (See below.) { Net income before income taxes } { ______________________________ -100% } X preferred dividends = earnings required for preferred dividends { Net income }
-31- EX-27 3
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME, STATEMENT OF CASH FLOWS, BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000860520 CIPSCO Inc. 1,000 9-MOS DEC-31-1993 JAN-01-1994 SEP-30-1994 PER-BOOK 1,427,620 95,758 200,743 0 43,162 1,767,283 357,212 0 292,804 650,016 0 80,000 459,543 850 0 0 15,000 0 0 0 561,874 1,767,283 644,397 42,247 510,604 552,851 91,546 2,673 94,219 24,091 70,128 2,568 67,560 50,820 0 144,942 1.98 1.98 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY -32-
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