-----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, AjOJsgfLWKjsS94KsSf3EIFpIIjDzSkm9B7zgv5h2WLgEsG65bmPXQWJdW5EFDyG tS7y5xspU2skrkkvP/R9aQ== 0000860520-95-000006.txt : 19950613 0000860520-95-000006.hdr.sgml : 19950613 ACCESSION NUMBER: 0000860520-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950308 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIPSCO INC CENTRAL INDEX KEY: 0000860520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 371260920 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10628 FILM NUMBER: 95519374 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-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 Securitites registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Class on Which Registered ______________ _____________________ CIPSCO INCORPORATED Common Stock, without par value New York Stock Exchange Chicago Stock Exchange CENTRAL ILLINOIS PUBLIC SERVICE COMPANY None Securities registered pursuant to Section 12(g) of the Act: CIPSCO INCORPORATED None CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, Cumulative Preferred Stock, par value $100 per share -1- 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value at February 1, 1995 of the voting stock held by non-affiliates of CIPSCO Incorporated (CIPSCO) - $986,499,200 - Common Stock, without par value. Number of shares outstanding of each of CIPSCO's classes of common stock at February 1, 1995: 34,069,542 shares of Common Stock, without par value. Aggregate market value at February 1, 1995 of the voting stock held by non-affiliates of Central Illinois Public Service Company (CIPS) - $17,021,800 - - Cumulative Preferred Stock (par value $100 per share) [Note: Excludes value of 400,000 shares of Cumulative Preferred Stock for which CIPS has been unable to determine market value.] Number of shares outstanding of each of CIPS' classes of common stock at February 1, 1995: 25,452,373 shares of Common Stock, without par value (all owned by CIPSCO). Documents Incorporated By Reference: A portion of CIPSCO's Proxy Statement relating to its 1995 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. A portion of CIPS's Proxy Statement relating to its 1995 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. ============================================================================= -2- CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 1994 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE Item 1. Business CIPSCO Incorporated and its Subsidiaries. . . . . . . 5 Non-Utility Subsidiary - CIPSCO Investment Company. . 5 Utility Subsidiary - Central Illinois Public Service Company . . . . . . . . . . . . . . . . . . 6 General . . . . . . . . . . . . . . . . . . . . . . 6 Revenues. . . . . . . . . . . . . . . . . . . . . . 6 Competition -- General. . . . . . . . . . . . . . . 8 Competition -- Electric Business. . . . . . . . . . 8 Competition -- Gas Business . . . . . . . . . . . . 9 Utility Industry. . . . . . . . . . . . . . . . . . 10 Construction Program and Financing. . . . . . . . . 10 Rate Matters. . . . . . . . . . . . . . . . . . . . 12 Electric Operations . . . . . . . . . . . . . . . . 13 Electric Power Sales/Participation Agreements . . . 15 Gas Operations. . . . . . . . . . . . . . . . . . . 16 Fuel. . . . . . . . . . . . . . . . . . . . . . . . 17 Regulation. . . . . . . . . . . . . . . . . . . . . 18 Environmental Matters . . . . . . . . . . . . . . . 19 Employees . . . . . . . . . . . . . . . . . . . . . 20 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 21 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 22 Item 4. Submission of Matters to a Vote of Security Holders. . . 23 Executive Officers of the Registrants. . . . . . . . . . 23 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . 26 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . 28 Item 8. Financial Statements and Supplementary Data. . . . . . . 37 CIPSCO Consolidated Financial Statements . . . . . . . . 37 Report of Independent Public Accountants . . . . . . . . 44 Notes to Consolidated Financial Statements . . . . . . . 45 CIPS Financial Statements. . . . . . . . . . . . . . . . 67 Report of Independent Public Accountants . . . . . . . . 74 Notes to Financial Statements. . . . . . . . . . . . . . 75 -3- Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . 84 PART III Item 10. Directors and Executive Officers of the Registrants. . . 84 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 85 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . 85 Item 13. Certain Relationships and Related Transactions . . . . . 86 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 86 Signatures . . . . . . . . . . . . . . . . . . . . . . . 92 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 94 -4- PART I Item 1. Business CIPSCO INCORPORATED AND ITS SUBSIDIARIES ________________________________________ GENERAL. CIPSCO Incorporated (CIPSCO) was incorporated in the State of Illinois on July 11, 1986. CIPSCO has two first-tier subsidiaries: CIPSCO Investment Company (CIC), an investment subsidiary, and Central Illinois Public Service Company (CIPS), an electric and gas public utility engaged in the sale of electricity and natural gas in portions of central and southern Illinois. Effective October 1, 1990, CIPSCO became the parent holding company of CIPS. CIPSCO owns 100% of the outstanding common stock of CIPS representing in excess of 96% of the voting securities of CIPS. CIPSCO was created as a holding company to provide the flexibility and capability to respond to increasing competition and risks in the utility business, thereby enhancing the long-term earnings potential of the organization while maintaining the strength of the utility business of CIPS as the predominant part of the holding company. CIPSCO's business is conducted through properties and employees of CIPS and CIPSCO reimburses CIPS for their use. Each of CIPSCO's officers is also an officer of CIPS. CIPSCO's principal executive office is located in Springfield, Illinois. CIPSCO is a public-utility holding company as defined in the Public Utility Holding Company Act of 1935, but is exempt, by virtue of an order issued September 18, 1990, from all the provisions of that act except provisions relating to the acquisition of securities of public utility companies. CIPSCO is not subject to regulation as a utility under the Illinois Public Utilities Act or the Federal Power Act. The ability of CIPSCO to pay dividends on its common stock is dependent upon distributions made to it by CIPS and on amounts earned by CIPSCO on its other investments. NON-UTILITY SUBSIDIARY - CIPSCO INVESTMENT COMPANY __________________________________________________ GENERAL. CIPSCO Investment Company (CIC), an Illinois corporation and the non-utility subsidiary of CIPSCO, was incorporated on October 2, 1990. CIC was formed for the purpose of managing non-utility investments and providing investment management services to CIPSCO and its affiliates. CIC's investment portfolio includes money-market investments, common stocks, mutual -5- funds, hedged preferred stocks, hedged common stocks, and equity interests in lease transactions and energy related projects. Investments are held in the four subsidiaries of CIC: CIPSCO Securities Company, CIPSCO Leasing Company, CIPSCO Energy Company and CIPSCO Venture Company. CIPSCO Securities Company invests in marketable securities, CIPSCO Leasing Company makes long-term investments in leveraged lease transactions, CIPSCO Energy Company makes investments in energy-related projects and CIPSCO Venture Company makes investments within the CIPS utility service territory. UTILITY SUBSIDIARY - CENTRAL ILLINOIS PUBLIC SERVICE COMPANY ____________________________________________________________ GENERAL. Central Illinois Public Service Company (CIPS), an Illinois corporation, was organized in 1902. CIPS is a public utility operating company engaged in the sale of electricity and natural gas in portions of central and southern Illinois. CIPS generates, transmits and distributes electricity and, through interchange agreements with other utility systems, purchases and sells power on a firm basis, in emergency situations or when economical to do so. CIPS sells and distributes natural gas which it purchases from natural gas producers and other suppliers and transports natural gas purchased by end-users directly from suppliers. The principal executive offices of CIPS are located in Springfield, Illinois. CIPS furnishes electric service to about 317,000 retail customers in 557 incorporated and unincorporated communities and adjacent suburban and rural areas. See Business - Electric Operations and - Electric Power Sales/Participation Agreements regarding certain electric power arrangements with other utility systems. CIPS also furnishes natural gas service to about 166,000 retail customers in 267 incorporated and unincorporated communities and adjacent suburban and rural areas and provides gas transportation service to about 320 end-users. CIPS furnishes both electric and natural gas service in 236 of the communities served by it. The territory served by CIPS, located in 66 counties in Illinois, has an estimated population of 820,000 and is devoted principally to agriculture and diversified industrial operations. Key industries include petroleum and petrochemical industries, food processing, metal fabrication and coal mining. The electric and gas utility business of CIPS is expected to provide the major portion of CIPSCO's assets and earnings for the foreseeable future. REVENUES. The total operating revenues of CIPS for the year 1994 were $835,882,000 of which about 83% was derived from the sale of electricity and about 17% from the sale of natural gas. The retail electric revenues were derived approximately as follows (percentage of total electric operating revenue): 31% from residential customers, 26% from commercial customers, 17% from industrial customers and 2% from public authorities and other. The -6- electric revenues from sales for resale were derived approximately as follows (percentage of total electric operating revenue): 11% from power supply agreements, 10% from interchange sales (economy/emergency) and 3% from cooperatives and municipal customers. Sales of power to the petroleum, related petrochemical industries and to the coal mining industry contributed about 6% of total electric revenues. Sales to these three industries accounted for approximately 37% of the 1994 electric revenue derived from the industrial customer group. Revenues from the coal mining industry may decline in the future as a result of declining consumption of Illinois coal, as many industrial coal customers shift to lower sulfur coal or other fuels as a means of complying with the Clean Air Act Amendments of 1990. The natural gas revenues for the year 1994 were derived approximately as follows: 63% from residential customers, 22% from commercial customers, 9% from industrial customers and 6% from transportation service customers and miscellaneous. The sources of the operating revenues of CIPS for the years indicated were as follows: Electric 1994 1993 1992 ________ ________ ________ ________ (in thousands) Residential . . . . . . . . . . . . . . . . $213,377 $219,510 $197,120 Commercial. . . . . . . . . . . . . . . . . 178,723 176,154 169,460 Industrial. . . . . . . . . . . . . . . . . 118,917 112,382 109,648 Public authorities and other. . . . . . . . 13,799 15,144 12,970 ________ ________ ________ Total retail revenues . . . . . . . . . 524,816 523,190 489,198 ________ ________ ________ Power supply agreements . . . . . . . . . . 78,613 69,668 59,768 Interchange sales (economy/emergency) . . . 71,779 74,644 27,094 Cooperatives and municipals . . . . . . . . 22,250 21,347 19,582 ________ ________ ________ Total sales for resale . . . . . . . . . 172,642 165,659 106,444 ________ ________ ________ Total electric revenues. . . . . . . . . $697,458 $688,849 $595,642 ======== ======== ======== Natural Gas 1994 1993 1992 ___________ ________ ________ ________ (in thousands) Residential . . . . . . . . . . . . . . . . $ 86,919 $ 92,213 $ 86,968 Commercial. . . . . . . . . . . . . . . . . 30,577 32,023 31,036 Industrial. . . . . . . . . . . . . . . . . 12,897 12,139 6,445 Transportation service. . . . . . . . . . . 7,586 8,915 9,269 Miscellaneous . . . . . . . . . . . . . . . 445 417 42 -------- -------- -------- Total gas revenues. . . . . . . . . . . . $138,424 $145,707 $133,760 ======== ======== ======== -7- The portions of operating income of CIPS, before income taxes, attributable to electric operations were approximately $147,070,000 (93%) in 1994, $154,779,000 (95%) in 1993 and $123,228,000 (92%) in 1992. The portions of operating income, before income taxes, attributable to gas operations were approximately $11,528,000 (7%) in 1994, $7,621,000 (5%) in 1993 and $10,916,000 (8%) in 1992. Identifiable assets relating to electric and gas operations were as follows: 1994 1993 1992 __________ __________ __________ (in thousands) Electric operations . . . . . . . . . . $1,469,601 $1,459,073 $1,443,578 Gas operations. . . . . . . . . . . . . 176,788 177,857 188,321 Other . . . . . . . . . . . . . . . . . 32,261 31,532 13,160 ---------- ---------- ---------- Total assets. . . . . . . . . . . . . $1,678,650 $1,668,462 $1,645,059 ========== ========== ========== COMPETITION -- GENERAL. In order to assess the various opportunities in the electric and natural gas energy marketplace and to implement strategies which take advantage of those opportunities, effective January 1, 1995, CIPS established a new marketing function. The efforts of this new function will be directed at product and service development programs and activities. In early 1994 CIPS undertook a "business process re-engineering" program for the purpose of consolidating and streamlining its electric and natural gas utility business segments, in both its corporate headquarters and in its field operations. The changes resulting from the program are designed to enable CIPS to better serve its customers while controlling and reducing overall operating costs. Early in 1995, CIPS instituted a voluntary separation plan. Under the plan, eligible employees could leave CIPS and receive a package of benefits. The final date for eligible employees to accept the offer under the separation plan was February 25, 1995. The one-time cost of the plan is expected to be approximately $5 million (pre-tax), but is expected to be partially offset in 1995 and create additional savings in future years by reducing total annual operating expenses. COMPETITION -- ELECTRIC BUSINESS. Competition among suppliers of electric energy is increasing. In particular, competition for interchange sales, which is based primarily on price and availability of energy, has become much more intense in recent years. CIPS is responding to overall increased competition in a number of ways designed to lower its costs and increase sales. Since instituting an economic development incentive rate in 1985, the CIPS economic development program has -8- been expanded to include new customer and community development initiatives. The Key Account Program is an ongoing program in which senior management plays a critical role in communicating CIPS' competitive advantages to its largest industrial customers. Additional services to customers have included energy technology assistance and market development programs. CIPS works in partnership with communities throughout the service area to implement projects to respond to growth opportunities. This, in combination with the ongoing business development initiatives including industrial site location assistance, community profiles and technical development services, is designed to maximize economic development throughout the CIPS territory. In addition to a general program of controlling costs, in 1987 CIPS initiated a major program of renegotiating long-term coal supply contracts. Savings from these renegotiation efforts continued during 1994. Further renegotiation is expected in 1995. This program has helped and will continue to help CIPS control its fuel costs. CIPS faces competition from non-utility generators of power. The National Energy Policy Act of 1992 ("NEPA"), among other things, creates exempt wholesale generators who are largely exempt from traditional utility regulation. Under NEPA these producers may gain access to utility transmission lines. (See Management's Discussion and Analysis of Financial Condition and Results of Operations.) These and other developments will enhance competition over time and will give customers and CIPS opportunities to take advantage of competitive markets. In addition to non-utility generators, large retail customers may decide to install cogeneration or other facilities and supply their own electricity which will increase pressures on CIPS to be a low cost provider. It is possible that retail wheeling legislation could be introduced at any time in Illinois. The Illinois Commerce Commission (the "Illinois commission") has established a task force to gather information on these issues and help formulate an approach for Illinois. During 1994, CIPS had generating capacity sales agreements with other utility systems which represented approximately 530 megawatts or 19% of CIPS' total generating capacity. Under one such agreement a utility system reduced its participation by 115 megawatts as a result of a scheduled contract reduction, which represents about 4% of total generating capacity, effective January 1, 1995. Earlier this year CIPS reached an agreement with Union Electric Company for the sale of 150 megawatts of capacity and energy beginning June 1998 through May 2005. Over the next several years CIPS will have about 300 megawatts of capacity available to market. At the present time CIPS has offers pending to other electric systems for medium- and long-term contracts that would total 1,220 megawatts of capacity per year, subject to availability. (See Business - Utility Subsidiary - Central Illinois Public Service Company - Electric Power Sales/Participation Agreements.) COMPETITION -- GAS BUSINESS. Competition in the natural gas industry is increasing. For a number of years, CIPS customers have had the ability to purchase natural gas from producers or other suppliers and transport that gas through the interstate pipelines and the CIPS system. CIPS collects a rate -9- for transportation through its system. Recent policies of the Federal Energy Regulatory Commission ("FERC") such as Order 636 (see Gas Operations below) have increased the competitive nature of the gas business. In certain cases customers have the ability to receive their gas supply directly from pipelines and bypass the CIPS system. CIPS has negotiated or is currently negotiating with a number of its larger industrial gas customers regarding flexible rates to address the more competitive environment in which CIPS is operating. While CIPS has had to provide lower rates to retain some customers, CIPS has used this same flexibility to obtain some new loads. UTILITY INDUSTRY. CIPS is experiencing some of the problems common to electric and gas utility companies, namely, increased competition for customers, increased construction costs, delays and uncertainties in the regulatory process and costs of compliance with environmental and other laws and regulations. CONSTRUCTION PROGRAM AND FINANCING. Total construction expenditures for CIPS for 1995 through 1999 are estimated at $449 million. For 1995, anticipated construction expenditures are $98 million for replacements and improvements and consist of about $27 million for electric production facilities, $13 million for electric transmission facilities, $47 million for electric distribution and general facilities, and $11 million for gas utility facilities. Included in the 5-year construction forecast is an estimate of $40 million for environmental compliance, including compliance with regulations under the Clean Air Act Amendments of 1990. CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. Maintaining the current compliance strategy, or adoption of certain alternatives in fuel and/or environmental strategies, could result in substantial increases in capital expenditures in the 1995-1999 period from the amounts shown above. Additional external financing could be required. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements and CIPS Results of Operations (1992-1994) - Fuel Strategies and - Clean Air Act.) CIPS continuously reviews its construction program, which may be affected by numerous factors, including the rate of load growth, escalation of construction costs, fuel shortages, changes in governmental and environmental regulations, customers' patterns of consumption and conservation of energy, the adequacy of rate relief and the ability of CIPS to raise necessary capital. Load growth projections are subject to a number of uncertainties due to various influences on customer consumption, economic conditions and the effect of rates on consumption and peak load demand. CIPS has no electric generating units under construction. On May 11, 1993, the Illinois commission approved CIPS' most recent "least cost resource" plan which includes the 20-year generating unit plan of the utility. As demonstrated by the plan, CIPS will not require additional generating capacity or demand-side resources during the 1993-2013 planning period. Pursuant to the plan, CIPS will engage in several demand-side management activities -10- intended to enhance its capability to deliver demand-side management resources in the future. CIPS is in the process of developing its next "least cost resource" plan to be filed with the Illinois commission by July 1, 1995. CIPS does not anticipate any significant changes in its least cost resource plan. For a discussion of the funds requirements for the period 1995-1999 and the assumptions as to the sources of funds to meet those requirements, see Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements. Under an effective shelf registration statement on file with the Securities and Exchange Commission CIPS may issue an aggregate of up to $50 million of first mortgage bonds, medium-term notes and/or preferred stock. Current authority for such securities issuances granted by the Illinois commission extends through December 31, 1996. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financing Requirements. The issuance by CIPS of first mortgage bonds, medium-term notes and/or other secured debt securities, common stock, preferred stock and certain unsecured debt securities is subject to the receipt of necessary regulatory approvals. (See Business - Utility Subsidiary - Central Illinois Public Service Company - Regulation.) The Mortgage Indenture of CIPS, as presently operative, permits the issuance of additional first mortgage bonds up to 60% of available net expenditures for bondable property, provided the "net earnings" of CIPS (determined after deducting income taxes and otherwise as provided in the Mortgage Indenture) for a recent 12-month period equal at least twice the annual interest requirements on all first mortgage bonds outstanding (and on all equally secured and prior lien indebtedness) and on the bonds then to be issued. At December 31, 1994, the more restrictive of these requirements was the "net earnings" test. The "net earnings" of CIPS for the year ended December 31, 1994, so computed, were equal to 5.73 times the interest for one year on the aggregate amount of bonds outstanding under the Mortgage Indenture at December 31, 1994. Based on the "net earnings" of CIPS (so computed) for the year ended December 31, 1994, and the bonds outstanding under the Mortgage Indenture at December 31, 1994, CIPS could have issued about $450 million of additional first mortgage bonds under the foregoing interest coverage provision (assuming an annual interest rate of 8.3% on such bonds). The Articles of Incorporation of CIPS provide, in effect, that so long as any CIPS preferred stock is outstanding, CIPS shall not, without the requisite vote of the holders of preferred stock, unless the retirement of such stock is provided for, (a) issue any preferred or equal ranking stock (except to retire or in exchange for an equal amount thereof) unless the "gross income available for interest" of CIPS for a recent 12-month period is at least one and one- half (1-1/2) times the sum of (i) one year's interest on all funded debt and notes maturing more than 12 months after the date of issuance of such shares and (ii) one year's dividend requirement on all preferred stock to be -11- outstanding after such issue, or (b) issue or assume any unsecured debt securities maturing less than two years from the date of issuance or assumption (except for certain refunding or retirement purposes) if immediately after such issuance or assumption the total amount of all such unsecured debt securities would exceed 20% of the sum of all secured debt securities and the capital and surplus of CIPS. For the year ended December 31, 1994, the "gross income available for interest" of CIPS equalled 3.17 times the sum of the annual interest charges and dividend requirements on all such funded debt, notes and preferred stock outstanding at December 31, 1994. Such "gross income available for interest" was sufficient under the test to support the issuance of additional preferred stock (assuming an annual dividend rate on such preferred stock of 8.25%) in an amount in excess of the maximum amount ($185 million) of authorized and unissued preferred stock under the Articles. RATE MATTERS. The most recent CIPS retail rate case before the Illinois commission resulted in electric and natural gas rate increases which became effective March 20, 1992. In its decision, the Illinois commission allowed a return on net original cost rate base of 9.77% (electric) and 9.88% (natural gas) and a return on common equity of 12.28% (electric) and 12.50% (natural gas). On March 6, 1991, the Illinois commission commenced a generic proceeding (Docket No. 91-0081 for CIPS) to consider whether costs related to the cleanup and restoration of former manufactured gas plant sites (environmental remediation sites) should be recoverable from ratepayers by Illinois utilities (including CIPS) and, if recoverable, what recovery mechanism should be utilized. See Note 2 of Notes to Consolidated Financial Statements included under Item 8 of this report for a discussion of the regulatory and legal proceedings related to the recovery of remediation and related costs. On March 26, 1993, the Illinois commission entered an order accepting the proposed riders filed by CIPS designed to recover environmental cleanup costs and associated legal expenses relating to its environmental remediation sites (including costs previously incurred and deferred). The riders were filed in response to the Illinois commission's generic order described in Note 2 of Notes to Consolidated Financial Statements. CIPS began recovering amounts under the riders in April, 1993. A total of $2.9 million was collected from customers through December 31, 1994 under the electric environmental adjustment clause rider and the gas environmental adjustment clause rider. In April 1994 the Illinois commission initiated reconciliation proceedings to determine whether the costs incurred by CIPS for environmental remediation activities were prudently incurred costs and whether revenues collected under the riders can be reconciled with the level of prudent costs incurred for environmental remediation activities. CIPS has filed testimony and provided data to the Illinois commission regarding the reconciliation proceeding. A status hearing is scheduled for May 1995. The Illinois commission can order refunds to customers if it determines that costs incurred for environmental remediation activities were not prudently incurred or revenues collected under the riders were in excess of costs properly recoverable under the riders. -12- The Illinois commission conducts annual proceedings to determine whether the electric fuel and purchased gas charges collected by CIPS in each year pursuant to the applicable fuel adjustment and purchased gas adjustment clauses reflect the actual costs of electric fuel and natural gas prudently purchased in that year and to reconcile revenues collected under the clauses during the year with actual costs incurred. The Illinois commission can order refunds to customers if it determines that actual costs of fuel or purchased gas were less than the amounts charged to customers pursuant to the clauses or if it finds that CIPS was imprudent in its purchases of fuel or gas. The Illinois commission has completed its review of fuel adjustment and purchased gas adjustment charges for all years prior to 1993. No significant refunds or adjustments were required for those years. Fuel reconciliation proceedings for the year 1993 commenced in July 1994. (See Business - Utility Subsidiary - - Central Illinois Public Service Company - Fuel.) The most recent general rate increase of CIPS approved by the FERC became effective in 1984. There are currently no rate proceedings pending at the FERC, and CIPS has no plans for any such rate increase filings. All of CIPS' requirements sales to cooperatives and municipals for resale are through negotiated service agreements. As a result of the retail rate increase granted to CIPS in 1992 referred to above, a corresponding rate adjustment was granted by the FERC for certain customers who purchase power from CIPS for resale. This rate adjustment was provided for in the service agreements between CIPS and these customers. In January 1985, CIPS received approval from the Illinois commission for an economic development rate which is designed to encourage industrial expansion and stimulate job creation in the service territory of CIPS. Under the economic development rate, each qualifying electric customer receives incentive rates for a maximum period of five years. In June 1986, CIPS received further approval which grants flexibility to negotiate agreements to fit the specific needs of certain industrial prospects. Effective June 13, 1994 the Illinois commission granted CIPS approval to offer qualifying customers the economic development rate through January 1, 2000. The scope of the rate was broadened to include those cutomers who receive service under the commercial time of use rate classification. In addition, the minimum of incremental load necessary to qualify for the special contract rate was lowered to 500 KW from 2,000 KW. Since the rate was instituted in 1985, about 150 new or existing business expansions have led to the creation of over 10,000 new jobs in the CIPS service territory. ELECTRIC OPERATIONS. Since late 1977 CIPS has been a net off-system seller of electricity and during 1994 it generated 123% of its system requirements. The maximum gross system load to date on the CIPS electrical system, on a one-hour integrated basis, occurred on July 5, 1994, and was 2,194,000 kilowatts. Gross system load includes sales to electric cooperative and -13- municipal customers (but excludes emergency and interchange sales). The 1994 maximum gross system load of 2,194,000 kilowatts was 1.7% greater than the historical maximum gross system load of 2,157,000 which occurred in 1993. CIPS, Illinois Power Company and Union Electric Company are parties to an Interconnection Agreement providing for the coordination and interconnected operation of their respective electric systems and the interchange of power and energy at rates and under conditions set forth therein, including the maintenance by the parties of minimum reserve capacity positions. The Agreement provides that CIPS will maintain a minimum 15% system reserve capacity. CIPS, Illinois Power and Union Electric are parties to an Interconnection Agreement with Tennessee Valley Authority (TVA) providing for the interconnection of the TVA system with the systems of the three companies to exchange economy and emergency power and for other working arrangements. In addition, CIPS has interconnection agreements with various other neighboring utilities, including Central Illinois Light Company, Commonwealth Edison Company, Indiana Michigan Power Company, Public Service Company of Indiana, Inc., Iowa Electric Light and Power Company and Northern Indiana Public Service Company. These agreements provide for various interchanges, emergency services and other working arrangements. CIPS owns 20% (and three other utilities own the remaining 80%) of the common stock of Electric Energy, Inc., and is entitled to receive from it varying amounts of power. Electric Energy, Inc. owns and operates a 1,015,000 kilowatt coal-fired power station located in Joppa, Illinois. CIPS is a member of the Mid-America Interconnected Network reliability council made up of utilities, public power generators, power marketers and others, which has as its purpose the promotion of maximum coordination of planning, construction and utilization of generation and transmission facilities on a regional basis in order to assure the reliability of electric bulk power supply in the area served. One municipal agency, two municipal electric systems, one cooperative agency and one cooperative are engaged in the generation of electricity within, or in close proximity to, portions of the territory served by CIPS. Electric and magnetic fields (sometimes referred to as EMF) surround electric wires or conductors of electricity, such as electrical tools, household wiring and appliances and electric transmission and distribution lines, such as those owned by CIPS. A number of statistical and laboratory studies have investigated whether EMF pose human health risks. The United States Environmental Protection Agency (USEPA) stated in its December 1992 brochure "Questions and Answers about Electric and Magnetic Fields" that "Some epidemiological evidence is suggestive of an association between surrogate measurements of magnetic field exposure and certain cancer outcomes. Though the body of evidence cannot be dismissed, it is not complete enough at this time to draw meaningful conclusions." The nation's electric utilities, including CIPS, have participated in the sponsorship of millions of dollars of -14- EMF research. CIPS has also agreed to participate in the National EMF Research and Public Information Dissemination Program, a 5-year $65 million effort headed by the United States Department of Energy aimed at furthering EMF research. Through its participation with Electric Power Research Institute, CIPS will continue its investigation and research with regard to the possible health effects posed by exposure to EMF. ELECTRIC POWER SALES/PARTICIPATION AGREEMENTS. As shown in the table below, CIPS currently has contracts with Norris Electric Cooperative, City of Newton, Village of Greenup and Mt. Carmel Public Utility Company for the sale of electric power. These contracts provide for firm full requirements service which obligates CIPS to maintain adequate system reserves to support the contracts, or to supply the requirements with off-system purchases. Peak Contract Demand Expiration Contract (Megawatts) Date ________ ___________ __________ Norris Electric Cooperative. . . . . . . . . 49 MW 2007 City of Newton . . . . . . . . . . . . . . . 5 MW 1999 Village of Greenup . . . . . . . . . . . . . 2 MW 1999 Mt. Carmel Public Utility Co. . . . . . . . 40 MW 2001 In 1990, CIPS entered into an agreement with Central Illinois Light Company ("CILCO") to sell to CILCO, beginning January 1, 1991, limited term power through May, 1998. The agreement calls for a minimum contract delivery rate of 70 megawatts in 1995 rising to 90 megawatts by the end of the contract period. At CILCO's request, and provided the capacity is available, purchases can be increased to 100 megawatts at any time during the contract period with prior written notice. In November 1992, CIPS entered into an agreement with CILCO to sell to CILCO limited term power for the period of June, 1998 through May, 2002. The agreement calls for a minimum contract delivery rate of 100 megawatts for the entire period. At CILCO`s request, and provided the capacity is available, purchases can be increased to 150 megawatts with prior written notice. In addition, CIPS sells electric power to three power pooling agencies through negotiated capacity participation agreements identified in the following table. These agencies include Soyland Power Cooperative (Soyland), Illinois Municipal Electric Agency (IMEA) and Wabash Valley Power Association (WVPA). Maximum Capability Contract Entitlement Expiration Contract (Megawatts) Date ________ ___________ __________ Soyland . . . . . . . . . 102 MW 1999 IMEA. . . . . . . . . . . 122 MW 2014 WVPA. . . . . . . . . . . 65 MW 2011 -15- GAS OPERATIONS. CIPS distributes and sells natural gas to 267 incorporated and unincorporated communities located in 41 counties of central and southern Illinois. The CIPS service territory is predominantly made up of small towns and rural areas. Of the communities served, only 5 have populations greater than 15,000. CIPS operates 4,551 miles of transmission and distribution mains, and its customer density is approximately 36 customers per mile of main. Six interstate pipelines pass through various portions of the CIPS service area: Panhandle Eastern Pipe Line Company, Texas Eastern Transmission Corporation, Natural Gas Pipeline Company, Texas Gas Transmission Company, Midwestern Gas Transmission Company and Trunkline Gas Company. CIPS has multiple interconnections with each of these pipelines, with the total of all such interconnections being 46. Most of the CIPS system is integrated by virtue of CIPS owned pipelines, or by transportation agreements with interstate pipelines. CIPS owns and operates four underground storage fields which provide a total peak day capacity of 41,500 thousand cubic feet per day (mcf/day). CIPS also operates one propane-air peak shaving facility which has a peak day capacity rating of 10,000 mcf/day. The peak day firm demand recorded by CIPS in 1994 was 306,859 mcf which was reached on January 15, 1994. This demand level is 3.8% less than the all- time peak demand of 319,033 mcf which occurred on December 24, 1983. During 1994, the CIPS throughput (total of sales and transportation) was 35.6 billion cubic feet (bcf) compared to 36.5 bcf experienced in 1972, the year of highest historical throughput. In 1994, CIPS transported 12.0 bcf of customer-owned gas which represented 34% of the total system throughput. Volumes of customer-owned gas transported in 1993 and 1992 were 10.8 bcf and 11.8 bcf, respectively. The average cost per mcf of natural gas purchased from all suppliers was about $3.41 in 1994, $3.66 in 1993 and $3.66 in 1992. The rate schedules of CIPS applicable to all of its gas sales include a uniform purchased gas adjustment clause, which permits CIPS to adjust its rates to its customers to reflect substantially all changes in the cost of purchased gas. (See Note 1 of Notes to Consolidated Financial Statements included under Item 8 of this report. See Business - Utility Subsidiary - Central Illinois Public Service Company - Rate Matters.) In 1992, the FERC issued orders (together called Order 636) which address pipeline service restructuring. Order 636 required interstate pipelines to "unbundle" their sales service, and offer separately the components of that service (i.e., gas supply, transportation and storage). Order 636 essentially precludes interstate pipelines from selling natural gas. However, many pipelines have established separate unregulated marketing affiliates which function as gas merchants in competition with producers and other sellers of gas. The Illinois commission order permitting CIPS to collect transition costs from customers was upheld on appeal. -16- Each of the six pipelines providing service to CIPS have made restructured services filings at FERC to comply with Order 636. The last such filing was effective December 1, 1993. See Note 2 of Notes to Consolidated Financial Statements included under Item 8 of this report for a discussion of various matters related to Order 636 transition costs. Full implementation of Order 636 has resulted in several changes in CIPS' gas supply portfolio. Pipeline sales service contracts have been replaced by direct purchase gas supply contracts coupled with gas transportation contracts with various pipelines and storage contracts with pipelines or other independent storage service providers. In some cases CIPS has also contracted for so-called "no-notice" services with interstate pipelines. Under such contracts, the pipeline company combines and manages a number of independent transportation and storage contracts in order to provide flexibility in the amount of gas actually delivered to CIPS on any day. Such flexibility, which was formerly provided by the pipeline sales service, is needed for CIPS to economically meet the highly weather sensitive needs of its firm service customers. In addition to its diversified portfolio of gas supply, transportation, leased storage and no-notice service contracts, CIPS owned storage and propane-air facilities provide additional reliability and flexibility to meet peak day and peak season requirements. In recent years CIPS has made investments to construct additional pipeline interconnections, increase CIPS owned storage capacity, improve reliability of existing storage facilities, modernize propane-air facilities and improve data acquisition capabilities. At the same time CIPS has reorganized and enhanced its gas supply planning and procurement functions. FUEL. Over 99% of the net kilowatthour generation of CIPS in 1994 was provided by coal-fired generating units and the remainder by an oil-fired unit. The average costs of fuel consumed by CIPS, per ton and per million Btu, for the periods shown were as follows: 1994 1993 1992 ----- ----- ----- Per ton ($) . . . . . . . . . . . . 35.44 36.62 36.46 Per million Btu ($) . . . . . . . . 1.65 1.67 1.67 In 1994, approximately 19.6% of the coal purchased for electric generation was purchased on a spot basis at average delivered costs of $30.20 per ton and $1.36 per million Btu. The retail fuel adjustment clause (FAC) of CIPS is consistent with the uniform FAC mandated by the Illinois commission for all electric utilities as applicable to retail electric sales in Illinois. The FAC provides for the recovery of changes in electric fuel costs, including certain transportation -17- costs of coal, in billings to retail customers. CIPS adjusts fuel expense to recognize over- or under-recoveries of allowable fuel costs. The cumulative effect is deferred on the Balance Sheet as a Current Asset or Current Liability, pending automatic reflection in future billings to customers. In 1992, CIPS received Illinois commission approval to include certain coal transportation costs in the FAC in accordance with the August 1991 modifications to the Illinois Public Utilities Act. CIPS also has contractual arrangements with certain other utility system customers which contain a fuel adjustment clause or provide for a sharing of fuel costs which permit CIPS to adjust its rates to such customers to reflect substantially all changes in the cost of fuel (including all transportation costs) used to supply those customers. The amount of coal supplies on hand at the generating stations of CIPS varies from time to time. CIPS generally attempts to maintain a 65-day supply. Approximately 80% of the annual coal requirements of the generating facilities of CIPS are being met by long-term coal contracts expiring at various dates from 1995 to 2010. As contracts approach their expiration, or when appropriate, CIPS evaluates alternative supply arrangements based on then current and expected market conditions for coal. CIPS believes there are adequate reserves reasonably available to supply its existing generating units with the quantity and quality of coal required for the foreseeable future. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Central Illinois Public Service Company - Capital and Financial Requirements and - CIPS Results of Operations (1992-1994) - Fuel Strategies and - Clean Air Act. REGULATION. CIPS is subject to regulation by the Illinois commission as to rates, accounting practices, issuance of certain securities and in other respects as provided by Illinois law. The Electric Supplier Act of Illinois permits utilities and electric cooperatives to delineate their respective service areas, subject to the approval of the Illinois commission, and gives the Illinois commission power to determine, pursuant to guidelines provided in the Act, whether a prospective electric customer will be furnished service by a public utility or by a cooperative. (See Item 3. Legal Proceedings.) The FERC has jurisdiction under the Federal Power Act over certain of the electric utility facilities and operations, accounting practices, issuance or acquisition of certain securities and electric rates of CIPS for resale and interchange customers. CIPS has been classified as a "public utility" within the meaning of that Act. CIPS has been declared exempt from the federal Natural Gas Act. CIPS is presently exempt from all the provisions of the Public Utility Holding Company Act of 1935, except provisions thereof relating to the acquisition of securities of other public utility companies, until further action by the Securities and Exchange Commission, by virtue of an annual exemption statement filed by CIPS with the Commission pursuant to Rule 2 under the Act. -18- ENVIRONMENTAL MATTERS. CIPS is subject to regulation with respect to air and water quality standards, standards relating to the discharge and disposal of solid and hazardous wastes and other environmental matters by various federal, state and local authorities. The Illinois Pollution Control Board (the "Board") has jurisdiction over all phases of environmental control by the State of Illinois and has authority to grant variances from environmental requirements. The Illinois Environmental Protection Agency (the "Agency") has authority to issue permits, investigate violations and recommend enforcement cases. The Illinois Attorney General has the authority to prosecute enforcement cases. The USEPA has jurisdiction to promulgate and enforce air and water quality standards in addition to those standards which relate to the discharge and disposal of solid and hazardous wastes. Air pollution control regulations promulgated by the Board impose restrictions on emissions of particulate, sulfur dioxide, nitrogen oxides and other air pollutants and require that CIPS obtain permits from the Agency for the construction and operation of its generating facilities in compliance with these regulations. CIPS has secured all necessary operating permits for all of its existing generating facilities and is in substantial compliance with the provisions contained therein. Future construction projects may require additional construction permits. Current compliance strategy regarding the sulfur dioxide emission requirements of Phase I (effective in 1995) and Phase II (effective in 2000) of the Clean Air Act Amendments of 1990 is expected to be accomplished through switching to lower sulfur coal for several generating units. In addition, CIPS is evaluating various alternatives to determine whether renovations to the existing scrubber at Newton Unit 1 are required to allow existing or additional levels of scrubbing or if the compliance strategy should be changed to place more reliance on fuel switching. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - CIPS Results of Operations (1992-1994) - Fuel Strategies and - Clean Air Act.) In January 1991, CIPS entered into a long-term contract for the purchase of lower sulfur Illinois coal at its Coffeen Power Station to meet the requirements under the Clean Air Act Amendments. This new contract replaced an existing contract and, in addition to providing the source of coal for clean air compliance, resulted in lower fuel costs. The new contract provides for certain charges in the event of termination of the contract as described in Note 2 of Notes to Consolidated Financial Statements included under Item 8 of this report. Under the Clean Air Act Amendments each utility must have, beginning in 1995, sufficient emission allowances, which are granted by the USEPA, to cover the amount of sulfur dioxide to be emitted each year from its generating stations. Any emission allowances in excess of a utility's needs for a year can be retained by it for future use or sold. Based upon CIPS' current compliance program, CIPS expects to have available allowances (after consideration of allowances sold) in excess of its requirements. Water pollution control regulations promulgated by the Board impose restrictions on effluent discharges, set water quality standards and require CIPS to obtain construction permits for certain facilities and National Pollutant Discharge Elimination System ("NPDES") permits for discharges into -19- public waters. CIPS has secured all necessary NPDES permits for all of its generating units and is in substantial compliance with the currently effective provisions contained therein. In 1994, CIPS appealed to the Illinois Pollution Control Board the permit conditions then imposed in renewed permits for the Coffeen and Newton power stations, which were scheduled to take effect in 1997, on the basis that it would not be feasible to comply with certain conditions of the permits. In January 1995, the subject permits were reissued with revised conditions and the appeal was withdrawn. CIPS expects to be able to comply with the revised permit conditions. Pollution control regulations promulgated by the Board impose restrictions on the discharge and disposal of solid and hazardous waste, and determine design standards to prevent contamination of groundwater. CIPS has secured all necessary permits and authorizations for disposal and is in substantial compliance with the provisions contained therein. Future construction projects may require additional authorizations or permits. See the subcaption "Environmental Remediation Costs" under Note 2 of the Notes to Consolidated Financial Statements, included under Item 8 of this report, for information relating to costs incurred and to be incurred in connection with the remediation of certain sites where gas had been manufactured from coal and which contain potentially harmful materials. EMPLOYEES. The business of CIPSCO is conducted through the use of employees of CIPS and CIPSCO reimburses CIPS for the cost of using those employees. The composition of the work force of CIPS at the payroll period nearest year-end 1994 and 1993 was as follows: Number of Employees ------------------- Employee Group 1994 1993 - -------------- ----- ----- Salaried. . . . . . . . . . . . . . . . . 1,201 1,218 IBEW - 702. . . . . . . . . . . . . . . . 915 922 IUOE - 148. . . . . . . . . . . . . . . . 476 479 ----- ----- Total . . . . . . . . . . . . . . . . . . 2,592 2,619 ===== ===== Contracts with IBEW - 702 and IUOE - 148 extend through June 30, 1995. See Management's Discussion and Analysis of Financial Condition and Results of Operations - CIPS Results of Operations (1992-1994) -- Labor Disputes for a discussion of matters involving those employees represented by labor unions. -20- Item 2. Properties. Currently, CIPSCO principally conducts its business through the use of the properties of CIPS. CIC leases office space pursuant to a lease expiring August 31, 1995. CIPSCO has no other material properties. The electric generating facilities of CIPS consist of the following: Estimated 1995 Summer Year Capability Station and Unit Fuel Installed (KW) - ---------------- ---- --------- ----------- Newton Unit 1 . . . . . . . . . . . . . . Coal 1977 555,000 Unit 2 . . . . . . . . . . . . . . Coal 1982 555,000 Coffeen Unit 1 . . . . . . . . . . . . . . Coal 1965 325,000 Unit 2 . . . . . . . . . . . . . . Coal 1972 550,000 Grand Tower Unit 3 . . . . . . . . . . . . . . Coal 1951 82,000 Unit 4 . . . . . . . . . . . . . . Coal 1958 104,000 Hutsonville Unit 3 . . . . . . . . . . . . . . Coal 1953 76,000 Unit 4 . . . . . . . . . . . . . . Coal 1954 77,000 Diesel Unit. . . . . . . . . . . . Oil 1968 3,000 Meredosia Unit 1 . . . . . . . . . . . . . . Coal 1948 62,000 Unit 2 . . . . . . . . . . . . . . Coal 1949 62,000 Unit 3 . . . . . . . . . . . . . . Coal 1960 215,000 Unit 4 . . . . . . . . . . . . . . Oil 1975 168,000 __________ Total . . . . . . . . . . . . . 2,834,000 ========== All of the generating stations are located in Illinois on land owned in fee by CIPS. -21- At December 31, 1994, CIPS owned 13,013 pole miles of overhead electric lines and 891 miles of underground electric lines. At that date, CIPS also owned 4,551 miles of natural gas transmission and distribution mains, four underground gas storage fields and one propane-air gas plant used to supplement the available pipeline supply of natural gas during periods of abnormally high demands. Substantially all of the permanent fixed utility property of CIPS is subject to the lien of the Mortgage Indenture securing CIPS first mortgage bonds. Item 3. Legal Proceedings. CIPSCO is not involved in any material legal proceedings. With respect to CIPS, actions were brought against CIPS by Southwestern Electric Cooperative, Inc. ("Southwestern") on October 30, 1991 in the Macon County, Illinois Circuit Court and by Wayne-White Counties Electric Cooperative ("Wayne-White" and together with Southwestern, the "Distribution Cooperatives") on August 15, 1991 in the White County, Illinois Circuit Court. Soyland Power Cooperative ("Soyland"), a generating and transmission cooperative that supplies power to the Distribution Cooperatives, was also a plaintiff in the actions. In various prior cases brought before the Illinois commission and finally determined on appeal, the Distribution Cooperatives prevailed in disputes between each of them and CIPS as to which of them was entitled to serve certain electric customers under the Illinois Electric Supplier Act ("ESA") and certain service area agreements entered into pursuant to the ESA. Based on the results of the prior proceedings, these suits, in general, sought actual damages for breach of the service area agreements and punitive damages based on various grounds, such as tortious interference with contractual relationships and business expectancies and violation of the Illinois Public Utilities Act. A CIPS motion to dismiss the Southwestern/Soyland case was successful only as to certain counts. In the remaining counts, Southwestern sought $182,000 in alleged actual damages for breach of the service area agreement and an additional $5 million in punitive damages for both interference with a contractual relationship and a business expectancy (it was not clear whether these claims were intended as separate bases for the recovery of $5 million in punitive damages or were cumulative). In addition, Soyland sought $323,000 in alleged actual damages and $5 million in punitive damages for interference with a business expectancy. In the Wayne-White/Soyland action, Wayne-White sought unspecified alleged actual damages for breach of the service area agreement and additional unspecified punitive damages for violation of the Public Utilities Act and interference with a business expectancy. In addition, Soyland claimed $819,000 in alleged actual damages based on breach of the service area agreement and an additional $5 million in punitive damages based on interference with both a contractual relationship and a business expectancy and based on violation of the Public Utilities Act (again, it was not clear whether these claims were intended as separate bases for the recovery of $5 million in punitive damages or were cumulative). On March 11, -22- 1993, Soyland was dismissed from the Wayne-White action on statute of limitations grounds and the claims by Wayne-White under the Illinois Public Utilities Act were dismissed. Soyland filed an appeal of its dismissal. In early 1995, all parties (CIPS, Soyland and the Distribution Cooperatives) to the above listed legal claims and other matters entered into a settlement agreement, subject to final approval by all parties. By the terms of the settlement agreement the parties agreed that 1) the lawsuits brought against CIPS by Soyland, Southwestern and Wayne-White would be dismissed; 2) CIPS would credit $400,000 against the monthly billings CIPS issues to Soyland for electric energy Soyland purchases from CIPS and CIPS would recognize that, in certain instances, Soyland has rights under the Service Area Agreements between CIPS and Soyland's Distribution Cooperative customers. In May and Hryhorysak v. Central Illinois Public Service Company and Hanson Engineers, Inc., Docket 91-L-56, the plaintiffs brought an action in the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois claiming that, as a result of exposure to carcinogens contained in coal tar at the CIPS Taylorville gas plant site, plaintiffs' children had suffered from a rare childhood cancer known as "neuroblastoma." As amended, the complaint seeks damages on behalf of four children, one of whom is deceased. A plaintiffs' motion to amend the complaint to seek punitive damages was denied in 1994. Substantial discovery has been conducted in the case which is scheduled for trial in late summer 1995. CIPS is vigorously defending the action and believes it has meritorious defenses. Management believes that insurance may be available with respect to the defense of these claims. Management believes that final disposition of this matter will not have a material adverse effect on financial position or results of operations. See Item 1. Business - Utility Subsidiary - Central Illinois Public Service Company - Rate Matters, - Gas Operations and - Environmental Matters with respect to certain matters involving CIPS. See also Note 2 of Notes to Consolidated Financial Statements included under Item 8 of this report. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders of either CIPSCO or CIPS during the three months ended December 31, 1994. Executive Officers of CIPSCO (ages at December 31, 1994). Name Age Positions Held _____ ___ ______________ C. L. Greenwalt 61 President and Chief Executive Officer of CIPSCO* President and Chief Executive Officer of CIPS and Chairman of the Board of CIC -23- Name Age Positions Held _____ ___ ______________ R. W. Jackson 64 Senior Vice President, Secretary and Chief Financial Officer of CIPSCO* Senior Vice President - Finance and Secretary of CIPS President and Chief Executive Officer of CIC J. C. Fiaush 64 Controller, Chief Accounting Officer and Assistant Treasurer of CIPSCO and Controller of CIPS C. D. Nelson 41 Treasurer, Assistant Secretary and Assistant Controller of CIPSCO and Treasurer and Assistant Secretary of CIPS ______________________ * Messrs. Greenwalt and Jackson are directors of CIPSCO. The present term of office of the above executive officers extends to the first meeting of CIPSCO's Board of Directors after the next annual election of Directors, scheduled to be held on April 26, 1995. There is no family relationship between any executive officer and any other executive officer or any director. Each of the officers named above has been employed by CIPSCO and/or CIPS for more than the past five years in various executive capacities. Executive Officers of CIPS (ages at December 31, 1994). Name Age Positions Held _____ ___ ______________ C. L. Greenwalt 61 President and Chief Executive Officer* R. W. Jackson 64 Senior Vice President Finance and Secretary* L. A. Dodd 56 Senior Vice President Operations J. G. Bachman 46 Vice President Marketing W. A. Koertner 45 Vice President Corporate Services G. W. Moorman 51 Vice President Power Supply W. R. Morgan 58 Vice President Division Operations W. R. Voisin 59 Vice President Public Relations J. C. Fiaush 64 Controller (Principal Accounting Officer)* C. D. Nelson 41 Treasurer and Assistant Secretary* ______________________ * Messrs. Greenwalt and Jackson are directors of CIPS and are also officers and directors of CIPSCO. Mr. Fiaush and Mr. Nelson are also officers of CIPSCO. -24- The present term of office of the above executive officers extends to the first meeting of the Board of Directors of CIPS after the next annual election of Directors, scheduled to be held on April 26, 1995. There is no family relationship between any executive officer and any other executive officer or any director. All of the officers named above have been employed by CIPS in their present positions for more than the past five years except as indicated below: Mr. Dodd served as Vice President Division Operations from August 1, 1989 to July 1, 1990 when he was named Senior Vice President Operations. Mr. Bachman served as Vice President Corporate Planning from August 1, 1989 to January 1, 1995, when he was named Vice President Marketing. Mr. Koertner served as Vice President Financial Services from August 1, 1989 to April 1, 1993, when he was named Vice President Corporate Services. Mr. Morgan served as Vice President Corporate Services from August 5, 1980 to July 1, 1990, when he became Vice President Division Operations. -25- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. CIPSCO CIPSCO's common stock is publicly held and traded on both the New York Stock Exchange and the Chicago Stock Exchange. The table below sets forth, for the periods indicated, the dividends per share of common stock of CIPSCO and the high and low sales prices of the CIPSCO common stock as reported in New York Stock Exchange Composite listings. Quarter _______ 1994 First Second Third Fourth ____ _____ ______ _____ ______ Price Range High $30 5/8 $30 1/4 $28 1/2 $28 3/8 Low 27 7/8 25 1/4 25 1/2 26 1/4 Close 28 1/8 25 1/2 27 1/8 27 ______ ______ ______ ______ Cash dividends declared (cents) $ .49 $ .50 $ .50 $ .50 ====== ====== ====== ====== 1993 ____ Price Range High $32 3/4 $33 5/8 $33 3/4 $33 3/8 Low 29 1/4 31 1/4 32 29 1/4 Close 32 3/4 32 33 5/8 30 3/4 ______ ______ ______ ______ Cash dividends declared (cents) $ .48 $ .49 $ .49 $ .49 ====== ====== ====== ====== The approximate number of CIPSCO common shareholders of record as of December 31, 1994, was 40,221. -26- CIPS All the common stock of CIPS is owned by CIPSCO and is not publicly traded. The following table sets forth the cash distributions on common stock paid to CIPSCO by CIPS, which, in some cases, were used to repurchase common shares of CIPS for the periods indicated: 1994 1993 ____ ____ First Quarter . . . . . . . . . . $17,000,000 $16,500,000* Second Quarter . . . . . . . . . . $17,200,000 $16,750,000* Third Quarter . . . . . . . . . . $17,200,000 $16,750,000 Fourth Quarter . . . . . . . . . . $17,200,000 $16,750,000 * Reflects the repurchase of common shares of CIPS. DIVIDEND RESTRICTIONS CIPSCO and CIPS are subject to restrictions on the use of retained earnings for cash dividends on common stock as described in Note 6 of Notes to Consolidated Financial Statements included under Item 8 of this report. The ability of CIPSCO to pay dividends on its common stock is dependent upon distributions made to it by CIPS and on amounts earned by CIPSCO on its other investments. Item 6. Selected Financial Data. CIPSCO For the Years Ended December 31, 1994 1993 1992 1991 1990 __________ __________ __________ __________ __________ (in thousands, except per share data) Operating Revenues $ 844,615 $ 844,760 $ 739,877 $ 722,081 $ 699,721 Operating Income 165,345 170,735 142,986 154,820 144,063 Net Income 83,954 85,498 72,499 72,065 65,756 Earnings per common share 2.46 2.51 2.13 2.11 1.92 Dividends declared per common share 1.99 1.95 1.91 1.87 1.83 As of December 31, Total Assets $1,777,357 $1,757,750 $1,725,456 $1,751,574 $1,720,059 Long-Term Debt 474,619 494,323 503,700 496,420 496,319 -27- CIPS For the Years Ended December 31, 1994 1993 1992 1991 1990 __________ __________ __________ __________ __________ (in thousands) Operating Revenues $ 835,882 $ 834,556 $ 729,402 $ 710,205 $ 685,226 Operating Income 110,678 113,651 97,372 104,039 97,135 Net Income 81,913 84,011 72,601 75,683 71,562 Preferred Dividends 3,510 3,718 4,549 5,396 5,617 Earnings for Common Stock 78,403 80,293 68,052 70,287 65,945 As of December 31, Total Assets $1,678,650 $1,668,462 $1,645,059 $1,691,843 $1,665,614 Long-Term Debt 474,619 494,323 503,700 496,420 496,319 Preferred Stock subject to mandatory redemption - - - 18,245 21,245 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. MANAGEMENT'S DISCUSSION AND ANALYSIS ____________________________________ CIPSCO Incorporated is a holding company incorporated under the laws of Illinois. Its principal subsidiary is Central Illinois Public Service Company (CIPS), an electric and natural gas utility. Another subsidiary, CIPSCO Investment Company (CIC), has subsidiaries engaged in non-utility investing activities. Material changes in the consolidated financial condition and results of operations are primarily attributable to CIPS operations, except where noted. CIPSCO Incorporated Fundamental strengths of the financial position of CIPSCO and its subsidiaries remained intact during 1994. CIPSCO's business activities are conducted by CIPS and CIC. A discussion of the financial condition of CIPS and CIC follows in the sections below. CIPSCO may become involved in additional businesses or investments directly, through a subsidiary or through the formation of one or more additional subsidiaries. The sources of capital to finance these activities will depend on the nature of the investment and market conditions. -28- The total number of shares of common stock authorized under CIPSCO's articles of incorporation is 100 million. At year-end 1994, a total of 34,069,542 shares of common stock was outstanding. This was 38,164 shares, or 0.1 percent, lower than at year-end 1993 reflecting the repurchase of shares by the Company from holders of less than 100 shares through an oddlot repurchase program. No underwritten offerings of common stock are planned through 1999. CIPSCO is authorized to issue 4.6 million shares of preferred stock, none of which has been issued. There are no constraints in the CIPSCO articles of incorporation as to the amount of debt which may be issued. However, CIPSCO has had no debt outstanding. At year-end 1994, CIPSCO had no temporary investments or short-term borrowings. CIPSCO Investment Company At year-end 1994 there were $98 million of non-utility investments managed by CIC and subsidiaries. One of those subsidiaries, CIPSCO Securities Company, invests in marketable securities. At year end it had invested approximately $44 million in hedged portfolios of preferred and common stocks and other marketable securities. Another subsidiary, CIPSCO Leasing Company, invests in long-term leveraged lease transactions. At year end, $34 million was invested in leased assets consisting of a commercial jet aircraft, an interest in a natural gas liquids plant, natural gas processing equipment and retail department store properties. A third subsidiary, CIPSCO Energy Company (CEC), seeks energy-related investment opportunities. Through 1994, it purchased existing leases, or interests in such leases, for nine combustion turbine generating units leased to five investor-owned utilities in the United States. At year-end 1994 CEC had $16 million invested. A fourth subsidiary, CIPSCO Venture Company (CVC), was established in 1994 primarily to invest within the CIPS service territory. CVC's initial investment consisted of $.5 million for the construction of a building which is leased to a manufacturing firm. In the near term, CIC will seek additional investments which yield higher returns than the types of temporary investments available to CIPS. The long- term goal of CIC's investment policy is to earn returns that exceed the allowed return in the regulated utility business. CIC may become involved in additional non-utility activities directly, through a subsidiary or through the formation of one or more additional subsidiaries. The sources of capital to finance these activities will depend on the nature of the investment and market conditions. At year-end 1994, CIC had $3.3 million of temporary investments and no short-term borrowings. -29- Central Illinois Public Service Company FINANCIAL CONDITION. The utility's financial position remained fundamentally strong during 1994. In recent years a strong capital structure and ample cash flows have minimized the need to access capital markets, other than for refinancings. Neither CIPSCO nor CIPS has had to raise additional capital through the sale of common stock to the general public since 1980. Common stock was issued and sold to existing shareholders by CIPS through a dividend reinvestment plan until 1984. The long-range financial objectives for the capital structure of the utility subsidiary are: a debt ratio of no more than 45 percent, a common equity ratio of no less than 45 percent, and a preferred equity ratio of no more than 10 percent. At December 31, 1994, capitalization consisted of 42 percent long-term debt, 51 percent common equity and 7 percent preferred stock. At year end, 25,452,373 shares of CIPS common stock were outstanding, all of which were held by CIPSCO Incorporated. CAPITAL AND FINANCING REQUIREMENTS. Construction expenditures were $97 million in 1994. Of that amount, $83 million and $14 million related to improvements and replacements to the electric and natural gas systems, respectively. In 1995 construction expenditures are expected to be about $98 million. Of that amount, $87 million is scheduled for electric facilities, while gas system expenditures are estimated at $11 million. For the five-year period 1995-1999, construction expenditures are estimated at $449 million. This is $47 million, or 9 percent, less than was spent in the preceding five years. The projected five-year amounts include about $40 million for environmental compliance including compliance with the Clean Air Act Amendments of 1990. In addition to construction funds, projected capital requirements for the 1995-1999 period include $123 million for scheduled debt retirements. Capital requirements for the 1995-1999 period are expected to be met primarily through internally generated funds. External financing to fund scheduled debt retirements may be required. If external financing were needed to fund the construction program, such financing could consist of funds from the parent, including the issuance of CIPS common stock to the parent, the issuance of short-term debt, long-term debt or preferred stock, or any combination of the four. Refinancings to lower the costs of capital may also occur, depending on market conditions. During the year, CIPS received extended authority from the Illinois Commerce Commission to issue up to $60 million of first mortgage bonds, medium-term notes and/or preferred stock through December 31, 1996. Capital and financing requirements may be affected by such factors as availability and cost of capital, load growth, changes in construction expenditures, regulatory developments, changes in environmental regulations and other governmental activities. -30- CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. The current compliance strategy, or adoption of certain alternatives in fuel and/or environmental strategies, could result in substantial increases in capital expenditures in the 1995-1999 period from the amounts shown above. Additional external financing could be required. (See Fuel Strategies and Clean Air Act below.) FINANCING FLEXIBILITY AND LIQUIDITY. The utility's ability to finance the construction program at reasonable cost and to provide for other capital needs is dependent upon its ability to earn a fair return on capital. Financing flexibility is enhanced by providing a high percentage of total capital requirements from internal sources and having the ability, if necessary, to issue long-term securities and to obtain short-term credit. Flexibility also is provided by the parent corporation which is capable of providing additional capital if circumstances warrant. Security issues by the utility are subject to regulatory approvals. The utility's mortgage indenture limits the amount of first mortgage bonds which may be issued. At December 31, 1994, CIPS could have issued about $450 million of additional first mortgage bonds under the indenture, assuming an annual interest rate of 8.3 percent. CIPS' articles of incorporation limit amounts of preferred stock which may be issued. Assuming a preferred dividend rate of 8.25 percent, the utility could have issued all $185 million of authorized, but unissued preferred stock remaining as of year end. At year-end 1994, CIPS had $2.6 million of temporary investments and $15.0 million of short-term borrowings. CONSOLIDATED RESULTS OF OPERATIONS ---------------------------------- (1992-1994) EARNINGS. Net income and earnings per share declined 1.8 percent in 1994 to $84.0 million and $2.46, respectively, compared with an increase of 18 percent in 1993. The return on average common equity for 1994 was 13.1% compared with 13.7% in 1993 and 11.8% in 1992. The declines in net income, earnings per share, and return on average common equity in 1994 were in line with expectations, as the increases in 1993 were primarily attributable to unusually high interchange sales by CIPS to other utilities caused by hot weather, a coal miners' strike and Midwest flooding. Contributing to the declines in 1994 were higher operating expenses primarily attributable to labor settlement costs and higher maintenance costs. INVESTMENT REVENUES. Investment revenues are comprised of income from temporary investments, long-term marketable securities, and leveraged leases. Investment revenues declined $1.5 million in 1994 due principally to reduced revenue from leasing investment transactions. In 1993, investment revenues decreased slightly due to a decline in average temporary investment balances in 1993 compared with 1992. -31- CIPS RESULTS OF OPERATIONS -------------------------- (1992-1994) ELECTRIC OPERATIONS. Electric kilowatthour sales, including interchange sales, declined 3 percent in 1994. Cooling degree days for 1994 were 11 percent lower than in 1993 and 9 percent lower than average. The 1994 electric margin (revenues less revenue taxes, fuel and purchased power) was $421.6 million compared to $418.2 million in 1993 and $381.4 million in 1992. The 1994 margin was favorably impacted by sales growth to commercial and industrial customers and by higher margin ratios on interchange economy and emergency sales to other utilities. The 1993 margin was favorably impacted by hot summer weather and increased interchange sales opportunities resulting from the hot weather, a coal miner's strike and Midwest flooding. Fuel costs were $1.65 per million Btu in 1994 and $1.67 per million Btu in 1993 and 1992. Purchased power amounts fluctuated between years according to system requirements and sales opportunities. GAS OPERATIONS. Therm sales declined 1.3 percent in 1994 due principally to the mild weather in the fourth quarter of 1994 as compared to the same quarter in 1993. Heating degree days for 1994 were 8 percent lower than in 1993 and 4 percent lower than average. The 1994 gas margin (revenue less revenue taxes and gas costs) was $46.1 million compared to $48.2 million in 1993 and $44.6 million in 1992. The 1994 gas margin was negatively impacted by mild weather during 1994. Gas costs fluctuated according to system requirements in each year. The average price paid for gas from suppliers declined two and one-half cents per therm in 1994 and remained unchanged in 1993 and 1992. OPERATING EXPENSES. Other operation expenses declined 2 percent in 1994, due principally to a reduction in the postretirement medical costs and deferral of certain litigation expenses involved with an environmental matter. Consistent with the ratemaking treatment for environmental remediation site costs, $1.9 million expensed in 1993 was credited to expense and deferred in 1994. Other operation expenses increased 9 percent in 1993 compared with 1992 due principally to postretirement medical costs which CIPS began accruing in April 1992. Maintenance expense changes between years are due to the normal planning and scheduling of major power plant maintenance outages. Depreciation and amortization expense increases are primarily due to property additions. Taxes other than income taxes generally will change as retail revenues change; however, taxes other than income taxes increased in 1994 compared to 1993, primarily due to payroll taxes which were reduced in 1993 due to the lockout of union-represented employees. Interest on long-term debt decreased in both 1994 and 1993 due to retirement of debt in 1994 and refinancing of long-term debt in 1993 at lower interest rates. -32- Miscellaneous, net, for 1993 decreased due to a one-time increase in miscellaneous income in 1992 resulting from a Federal Energy Regulatory Commission (FERC) order involving wholesale customers. Income tax expense reflects the changes in pre-tax income between years. In addition, the federal tax rate changed from 34 percent to 35 percent effective January 1, 1993. OTHER MATTERS. Customer usage of electricity and natural gas varies with weather conditions, general business conditions, the state of the economy and the cost of energy services. The level of sales also is impacted by conditions in the interchange market. Further, certain large gas customers can purchase gas from alternative suppliers or bypass the utility system by switching to other fuels or by connecting directly to pipelines. Rates for retail electric and gas service are regulated by the Illinois Commerce Commission. Non-retail electric rates are regulated by FERC. The utility's rates are designed to recover operating costs including depreciation on utility plant investment. Changes in the cost of fuel for electric generation and gas costs generally are reflected in billings to customers on a timely basis through fuel and purchased gas adjustment clauses. Inflation continues to be a factor affecting operations, earnings, shareholders' equity and financial performance. The capacity participation agreement with one of CIPS's wholesale customers calls for a 115-megawatt reduction for the customer starting in 1995. This scheduled contract reduction will reduce wholesale power supply participation revenues for CIPS by approximately $9 million ($5.5 million after tax) per year. The reduction in revenues is expected to be partially offset by increases in revenues through normal growth and other marketing initiatives. Taking into account the recent reduction, CIPS has about 300 megawatts of uncommitted generating capacity over the next several years. CIPS expects other sales opportunities in the retail and wholesale electric markets will be forthcoming. A new marketing group was established January 1, 1995 in order to enhance the ability of CIPS to increase its market share. Recently CIPS reached an agreement with Union Electric Company to sell 150 megawatts of capacity and energy from 1998 to 2005. The sale to UE is subject to regulatory approval. On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). Under the statement, the Company's investments in debt and marketable securities are reported at fair value with unrealized gains and losses reported as a net amount in a separate component of shareholders' equity until realized. The adoption of SFAS No. 115 did not have a material effect on financial position or results of operations. During 1994, CIPS initiated a business process re-engineering study to review all aspects of the utility's business. Initial recommendations to make operations more efficient and cost effective have been made. The study will continue into 1995 when final recommendations and implementation of plans to streamline the utility's business processes will take place. CIPS plans to accomplish personnel reductions of 13 to 15 percent over the next several years through voluntary separation and attrition. Early in 1995, CIPS offered a voluntary separation program to most regular salaried -33- employees. The voluntary separation program provides eligible employees the option of leaving the utility and receiving a package of benefits. The program is expected to cost about $5 million (pre-tax), but will be partially offset in 1995 and create additional savings in future years by reducing total annual operating expenses. ENVIRONMENTAL REMEDIATION COSTS. The utility has identified 13 former manufactured gas plant sites (environmental remediation sites) which contain potentially harmful materials. In 1990, one site was added to the United States Environmental Protection Agency (USEPA) Superfund list. The utility is implementing an approved long-term remedial plan for the site. Costs and associated legal expenses related to studies and remediation work have been incurred at other sites. Since 1987, the estimated incurred costs related to studies and remediation at these 13 sites and associated legal expenses and certain carrying charges are being accrued and deferred rather than expensed currently, pending recovery either from rates, from insurance carriers or from other parties. Management believes that 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 financial position or results of operations. (See Note 2 to Consolidated Financial Statements.) FUEL STRATEGIES. In order to reduce fuel costs and other expenses while remaining in compliance with environmental requirements, CIPS is evaluating various alternatives. These alternatives involve one or more of the following; renegotiation of existing fuel contracts; buyout, buydown, replacement or termination of fuel contracts; switching to other coal suppliers; switching to lower sulfur coal; discontinuance of, or renovation and continued operation of, the scrubber at Newton Unit 1. The study of these alternatives is not complete and management has not decided whether its fuel and environmental compliance strategies will change. Maintaining the current compliance strategy, or adoption of certain alternatives in fuel and/or environmental strategies, could have a significant effect on operation and maintenance expense, fuel expense, construction expenditures, financing needs and rate-making treatment. Capital expenditures for the various alternatives could range from $20 to $80 million over the 1995-1999 period. External financing to fund such additional capital requirements may be required. If the entire additional amount were financed with new debt capital, management anticipates the debt ratio would not exceed the stated financial objective of maintaining a debt ratio of no more than 45 percent. CLEAN AIR ACT. CIPS' current compliance strategy for Phases I and II of the Clean Air Act Amendments of 1990 is to switch to lower sulfur coal at some generating units along with increased scrubbing at Newton Unit 1. The currently estimated capital costs of compliance based on the current strategy are included in the five-year construction budget. As described under "Fuel Strategies" above, however, the five-year construction costs may increase if studies being undertaken by CIPS indicate that renovations to the Newton Unit -34- 1 scrubber are required to allow existing or additional levels of scrubbing or if such studies indicate that CIPS should change its compliance strategy to place more reliance on fuel switching. (See Note 2 to Consolidated Financial Statements.) FERC ORDER 636. During 1992, FERC issued Order No. 636. This and successor orders have resulted in substantial restructuring of the service obligations of interstate pipeline suppliers. (See Note 2 to Consolidated Financial Statements.) ENERGY POLICY ACT. The National Energy Policy Act of 1992 (NEPA) contains, among other provisions, legislation designed to promote competition in the development of wholesale power generation in the electric utility industry. NEPA exempts a new class of independent power producers from traditional utility regulation. This new class of producers may build generating plants and sell electricity in wholesale markets without the same constraints as regulated utilities. NEPA also allows FERC to order wholesale "wheeling" by public utilities to provide utility and non-utility generators access to public utility transmission facilities. Public utilities not voluntarily providing access to their transportation system at agreed upon rates may be ordered to deliver power at rates to be established by FERC. Although the final impact of the provisions of NEPA cannot be predicted, management believes increased competition in generation and transmission may affect the traditional marketing and pricing strategies of the utility business. LABOR DISPUTES. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers 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 complaints against CIPS concerning its lockout of both unions. The 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. (See Note 2 to Consolidated Financial Statements.) GRAPHIC MATERIAL APPENDIX [Graph] This bar graph displays the six-year (1989-1994) comparison of the rate of return on average common equity and would relate to the Financial Condition portion of the preceeding Management's Discussion and Analysis. Rate of Return on Average Common Equity (in percent) 11.0% 11.0% 11.9% 11.8% 13.7% 13.1% Year '89 '90 '91 '92 '93 '94 -35- [Graph] This bar graph displays the six-year (1989-1994) comparison of CIPSCO capitalization (total dollar amount for each year is either slightly above or slightly below $1.2 billion (rounded)) and would relate to the Financial Condition portion of the preceeding Management's Discussion and Analysis. CIPSCO CAPITALIZATION (in billions of dollars and percent) Long-Term Debt 42% 42% 42% 42% 41% 39% Preferred Stock 7 7 7 6 7 7 Common Equity 51 51 51 52 52 54 Year '89 '90 '91 '92 '93 '94 [Graph] This bar graph displays the six-year (1989-1994) comparison of market value to book value and would relate to the Capital and Financing Requirements portion of the preceeding Management's Discussion and Analysis. (in dollar per common share at year end) Market Value 22.88 21.75 27.88 30.25 30.75 27.00 Book Value 17.52 17.63 17.86 18.08 18.60 19.01 Year '89 '90 '91 '92 '93 '94 [Graph] This bar graph displays the six-year (1989-1994) comparison of system generating capability at the time of peak to gross system peak and would relate to the Capital and Financing Requirements portion of the preceeding Management's Discussion and Analysis. (in megawatts) System Generating Capability at Time of Peak 2,637 2,647 2,679 2,707 2,727 2,844 Gross System Peak 1,954 2,027 2,093 1,930 2,157 2,194 Year '89 '90 '91 '92 '93 '94 -36- [Graph] This bar graph displays the six-year (1989-1994) comparison of heating and cooling degree days matched against normal temperatures and would relate to the Electric Operations portion of the preceeding Management's Discussion and Analysis. (Degree days based on average daily temperature of 65 degrees) Heating Degree Days 5,632 4,681 5,013 5,030 5,702 5,222 Compared to Normal 5,441 5,441 5,441 5,441 5,441 5,441 Cooling Degree Days 1,171 1,178 1,543 884 1,213 1,078 Compared to Normal 1,182 1,182 1,182 1,182 1,182 1,182 Year '89 '90 '91 '92 '93 '94 Item 8. Financial Statements and Supplementary Data. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) Operating Revenues: Electric $ 697,427 $ 688,820 $ 593,973 Provision for revenue refunds - - 1,646 _________ _________ _________ 697,427 688,820 595,619 Gas 138,418 145,702 133,756 Investment 8,770 10,238 10,502 _________ _________ _________ Total operating revenues 844,615 844,760 739,877 _________ _________ _________ Operating Expenses: Fuel for electric generation 196,324 186,938 172,544 Purchased power 55,543 60,181 21,094 Gas costs 85,043 90,097 82,553 Other operation 140,068 142,716 131,305 Maintenance 65,176 61,218 64,092 Depreciation and amortization 81,099 78,062 74,170 Taxes other than income taxes 56,017 54,813 51,133 _________ _________ _________ -37- Total operating expenses 679,270 674,025 596,891 _________ _________ _________ Operating Income 165,345 170,735 142,986 _________ _________ _________ Interest and Other Charges: Interest on long-term debt of subsidiary 32,842 34,421 36,397 Interest on provision for revenue refunds - - (803) Other interest charges 378 603 398 Allowance for funds used during construction (919) (2,259) (3,226) Preferred stock dividends of subsidiary 3,510 3,718 4,549 Miscellaneous, net (3,502) (3,107) (7,579) _________ _________ _________ Total interest and other charges 32,309 33,376 29,736 _________ _________ _________ Income Before Income Taxes 133,036 137,359 113,250 Income taxes 49,082 51,861 40,751 _________ _________ _________ Net Income $ 83,954 $ 85,498 $ 72,499 ========== ========== ========== Average Shares of Common Stock Outstanding 34,107 34,108 34,108 Earnings Per Average Share of Common Stock $2.46 $2.51 $2.13 The accompanying notes to consolidated financial statements are an integral part of these statements. -38- CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ___________________________ 1994 1993 _____________ ____________ (in thousands) ASSETS Utility Plant, at original cost: Electric $2,264,930 $2,172,259 Gas 220,347 208,208 __________ __________ 2,485,277 2,380,467 Less--Accumulated depreciation 1,077,533 1,020,097 __________ __________ 1,407,744 1,360,370 Construction work in progress 31,816 61,104 __________ __________ 1,439,560 1,421,474 __________ __________ Current Assets: Cash 1,963 4,630 Temporary investments, at cost which approximates market 5,875 5,527 Accounts receivable, net 67,579 61,445 Accrued unbilled revenues 30,484 38,774 Materials and supplies, at average cost 39,817 40,824 Fuel for electric generation, at average cost 30,305 26,046 Gas stored underground, at average cost 13,167 14,335 Prepayments 10,925 10,142 __________ __________ 200,115 201,723 __________ __________ Investments and Other Assets: Investment in marketable securities 43,929 42,703 Investment in leveraged leases 49,933 42,216 Other 43,820 49,634 __________ __________ 137,682 134,553 __________ __________ $1,777,357 $1,757,750 ========== ========== -39- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity: Common stock, no par value, authorized shares, 100,000,000; outstanding 34,069,542 and 34,107,706 shares, respectively $ 356,812 $ 357,212 Retained earnings 292,418 277,040 Unrealized investment losses, net (1,617) - __________ __________ 647,613 634,252 Preferred stock of subsidiary 80,000 80,000 Long-term debt of subsidiary 459,619 474,323 __________ __________ 1,187,232 1,188,575 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year 15,000 20,000 Short-term borrowings 14,985 - Accounts payable 54,021 56,039 Accrued wages 9,833 12,775 Accrued taxes 12,629 12,973 Accrued interest 9,408 9,204 Other 31,488 34,902 __________ __________ 147,364 145,893 __________ __________ Deferred Credits: Accumulated deferred income taxes 313,072 294,732 Investment tax credits 55,595 58,962 Regulatory liabilities, net 74,094 69,588 __________ __________ 442,761 423,282 __________ __________ $1,777,357 $1,757,750 ========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements. -40- CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) OPERATING ACTIVITIES: Net income $ 83,954 $ 85,498 $ 72,499 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 81,099 78,062 74,170 Allowance for equity funds used during construction (AFUDC) (630) (1,459) (2,162) Deferred income taxes, net 19,891 7,900 20,149 Investment tax credit amortization (3,367) (3,366) (3,336) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues 2,156 (15,603) 4,900 Fuel for electric generation (4,259) 8,336 2,872 Other inventories 2,175 (4,450) (667) Prepayments (783) 5,502 21,159 Other assets 5,814 19,231 (19,761) Accounts payable and other (5,433) 6,009 19,225 Accrued wages, taxes and interest (3,082) 5,867 (4,580) Accumulated provision for revenue refunds - - (75,449) Other 626 4,400 (5,580) __________ __________ _________ Net cash provided by operating activities 178,161 195,927 103,439 __________ __________ _________ INVESTING ACTIVITIES: Utility construction expenditures, excluding AFUDC (95,682) (85,453) (117,198) Allowance for borrowed funds used during construction (289) (800) (1,064) Changes in temporary investments (348) (2,949) 95,575 Long-term investment in marketable securities (2,843) (2,790) (3,510) Long-term investment in leveraged leases (7,717) (10,832) (13,388) __________ __________ _________ Net cash used in investing activities (106,879) (102,824) (39,585) __________ __________ _________ -41- FINANCING ACTIVITIES: Common stock dividends paid (67,874) (66,510) (65,146) Proceeds from issuance of long-term debt of subsidiary - 195,000 199,000 Repayment of long-term debt of subsidiary (20,000) (205,000) (190,500) Retirement of common stock (1,020) - - Redemption of preferred stock of subsidiary - (27,500) (18,245) Proceeds from issuance of preferred stock of subsidiary - 42,500 - Proceeds from issuance of (repayment of) short-term borrowings 14,985 (21,393) 21,393 Issuance expense, discount and premium (40) (7,104) (11,718) _________ _________ _________ Net cash used in financing activities (73,949) (90,007) (65,216) _________ _________ _________ Net increase (decrease) in cash (2,667) 3,096 (1,362) Cash at beginning of year 4,630 1,534 2,896 _________ _________ _________ Cash at end of year $ 1,963 $ 4,630 $ 1,534 ========= ========= ========= Supplemental disclosures of cash flow information: Cash payments during the year: Interest, net of amounts capitalized $ 30,714 $ 31,058 $ 38,382 Income taxes $ 34,264 $ 36,718 $ 10,326 The accompanying notes to consolidated financial statements are an integral part of these statements. -42- CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) Balance, beginning of year $ 277,040 $ 259,338 $ 251,893 Add (deduct): Net income 83,954 85,498 72,499 Common stock dividends ($1.99, $1.95 and $1.91 per share, respectively) (67,874) (66,510) (65,146) Other (702) (1,286) 92 _________ _________ _________ Balance, end of year $ 292,418 $ 277,040 $ 259,338 ========= ========= ========= The accompanying notes to consolidated financial statements are an integral part of these statements. -43- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CIPSCO Incorporated and Subsidiaries: We have audited the accompanying consolidated balance sheets of CIPSCO Incorporated (an Illinois corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CIPSCO Incorporated and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois, January 27, 1995 -44- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of CIPSCO Incorporated, a holding company, Central Illinois Public Service Company (CIPS), a combination electric and gas utility, and CIPSCO Investment Company (CIC). The four subsidiaries of CIC are CIPSCO Securities Company, which invests in marketable securities; CIPSCO Leasing Company, which invests in leveraged leases directly or through subsidiaries; CIPSCO Energy Company, which invests in energy projects or leases through subsidiary companies; and CIPSCO Venture Company, which invests in opportunities within the CIPS utility service territory to assist economic development efforts in the region. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. Certain items previously reported for years prior to 1994 have been reclassified to conform with the current-year presentation. The operating revenues of all investment activities are included under the caption Operating Revenues, "Investment." Operating expenses are included under the appropriate captions as shown on the Consolidated Statements of Income. Concentration of Credit Risk. CIPS provides electric service to about 317,000 customers in 557 communities and natural gas service to approximately 166,000 customers in 267 communities throughout a 20,000-square-mile area in central and southern Illinois. Credit risk is spread over a diversified base of residential, commercial and industrial customers. See Note 3 to Consolidated Financial Statements for a discussion of receivables related to the leveraged lease investments. Regulation. CIPS is a public utility subject to regulation by the Illinois Commerce Commission (Illinois commission) and the Federal Energy Regulatory Commission (FERC). The utility maintains its accounts in accordance with the Uniform System of Accounts as defined by these agencies. Its accounting policies conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process. Operating Revenues. CIPS accrues an estimate of electric and gas revenues for service rendered but unbilled at the end of each accounting period. Investment revenues are comprised of interest on temporary investments and income from marketable securities and leveraged leases. Utility Plant. Utility plant in service is stated at original cost. Substantially all of the utility plant of CIPS is subject to the lien of its first mortgage bond indenture. Additions to utility plant include the cost of contracted services, material, labor, overheads and an allowance for funds used during construction. Maintenance and repair of property and replacement -45- of minor items of property are charged to operating expenses. Property retired is removed from utility plant accounts and charged to accumulated depreciation. Allowance for Funds Used During Construction (AFUDC). AFUDC is included in Construction Work in Progress (CWIP) and represents the cost of financing that construction. AFUDC does not represent a current source of cash funds. The inclusion of AFUDC in CWIP affords the opportunity to earn a return on the cost of construction capital after the related asset is placed in service and included in the rate base. The AFUDC rate, based on a formula prescribed by the FERC, on a before- tax basis, was 9% in 1994 and 1993, and 10% in 1992. Depreciation. Depreciation expense is based on remaining life straight-line rates (composite, approximately 3.4% in 1994 and 1993, and 3.3% in 1992) applied to the various classes of depreciable property. Fuel and Gas Costs. CIPS adjusts fuel expense to recognize over- or under- recoveries from customers of allowable fuel costs through the uniform fuel adjustment clause (FAC). The FAC provides for the current recovery of changes in the cost of fuel for electric generation in billings to customers. Monthly, the difference between revenues recorded through application of the FAC and recoverable fuel costs is recorded as a current asset or liability, pending reflection in future billings to customers, with a corresponding decrease or increase in cost of fuel for electric generation. The uniform purchased gas adjustment clause (PGA) provides a matching of gas costs with revenues. Monthly, the difference between revenues recorded through application of the PGA and recoverable gas costs is recorded as a current asset or liability with a corresponding decrease or increase in the gas cost. The cumulative difference for the calendar year is collected from, or refunded to, customers over a one-year period beginning in the following April. The Illinois commission conducts annual reconciliation proceedings with respect to each year's FAC and PGA revenues and has completed its review for all years prior to 1993. Reconciliation proceedings for 1993 commenced in July 1994. No reconciliation proceeding has yet commenced for the year 1994. Income Taxes and Investment Tax Credits. Deferred income taxes are recorded which result from the use of accelerated depreciation methods, rapid amortization, repair allowance and certain other temporary differences in recognition of income and expense for tax and financial statement purposes. CIPSCO and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the individual companies, based on their respective taxable income or loss. Investment tax credits are being amortized over the estimated average useful lives of the related properties. The Company adopted, effective January 1, 1993, the liability method of accounting for deferred income taxes required by Statement of Financial Accounting Standards (SFAS) No. 109. This statement required the establishment of deferred tax liabilities and assets for all temporary -46- differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. (See Note 10 to Consolidated Financial Statements.) Cash and Temporary Investments. Temporary investments consist of deposits and U.S. Treasury obligations. For purposes of Consolidated Statements of Cash Flows, temporary investments are not considered cash equivalents. Marketable Securities. CIC holds a portfolio consisting primarily of common and preferred stocks that are substantially hedged with futures and options. (See Note 11 to Consolidated Financial Statements.) All securities are publicly traded. The investments and related hedging instruments are managed by professional investment managers in an overall managed portfolio strategy. Common stocks consist of investments that are representative of the Standard & Poor's 100 Index. Preferred stocks consist of perpetual and sinking fund issues primarily of public utilities, utility holding companies, commercial banks and bank holding companies. The portfolio also includes an investment in a limited partnership which pools money from multiple investors to invest in a variety of investment vehicles. The investments in common and preferred stocks and the options and futures used to hedge these investments are measured at market value on the Consolidated Balance Sheets with the change in value reflected in the valuation caption of the capitalization section in conformity with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Gains and losses on marketable securities are recognized when realized for Income Statement purposes. Gains and losses on purchased hedges are deferred until the gains and losses on the underlying securities are realized and recognized. For hedged investments, the investment and related hedging instrument have been combined on the Consolidated Balance Sheets. -47- 2. COMMITMENTS AND CONTINGENCIES Environmental Remediation Costs. The utility 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. The utility has identified 13 of these former manufactured gas plant sites (environmental 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 with certain environmental sites. As of December 31, 1994, all but two insurance carriers have settled. In 1991, a circuit court entered a verdict in favor of CIPS involving the coverage under one environmental 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 filed an appeal to the Illinois Supreme Court on December 27, 1994. The Illinois Supreme Court has discretion to accept or deny the appeal. The estimated incurred costs relating 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 other parties. At December 31, 1994, the $38.7 million has been deferred representing costs incurred and estimates for costs of completing studies at various sites and an estimate of remediation costs at the Superfund site. The total of the costs deferred, net of recoveries from insurers and through rate riders described below, was $1.3 million at December 31, 1994. In 1992, the Illinois commission issued an Order (the Generic Order) in its consolidated generic proceeding 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 cost 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 -48- 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. On April 6, 1994, the Illinois Supreme Court granted an intervenor's Petition for Leave to Appeal. The intervenor maintains that recovery of clean-up costs should not be allowed and that use of a rider mechanism for cost recovery is unlawful. CIPS and other utilities opposed the arguments of the intervenor and argued that the Illinois commission's decision to deny recovery of carrying costs associated with unrecovered balance of clean-up costs should be reversed. Management cannot predict what action the Illinois Supreme Court may 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 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, 1994, CIPS collected $2.9 million from its customers pursuant to the riders. The total costs 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 financial position or results of operations. FERC Order 636. During 1992, FERC issued Order No. 636. This and successor orders have resulted in substantial restructuring of the service obligations of interstate pipeline suppliers. Order No. 636 provided mechanisms for pipelines to recover transition costs associated with the restructuring. CIPS has paid substantially all direct transition costs associated with the pipeline restructuring and is currently recovering all transition costs in its rates. Any future transition costs identified and billed from pipeline suppliers are expected to be recoverable from customers of CIPS. -49- Clean Air Act. CIPS' current compliance strategy to meet Phase I and II of the sulfur dioxide emission reduction requirements of the Clean Air Act Amendments of 1990 (Amendments) is to switch to a lower sulfur coal at some of its units along with increased scrubbing with its existing scrubber at Newton Unit 1. The current estimated capital costs of compliance based on the current strategy is included in the five-year construction budget. However, the five-year construction costs may increase if studies being undertaken by CIPS indicate that renovations to the Newton Unit 1 scrubber are required to allow existing or additional levels of scrubbing or if such studies indicate that CIPS should change its compliance strategy to place more reliance on fuel switching. In 1991, in accordance with the plan to switch some units to lower sulfur coal, the utility 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 1995 CIPS can terminate the contract under certain conditions, and CIPS would be required to pay approximately $41 million (plus an inflation adjustment) in termination charges. During 1995, and each subsequent year, 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 failure of the coal to meet quality specifications provided for in the contract. Labor Disputes. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 have both filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued complaints against CIPS concerning its lockout of both unions. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $12 million dollars. A hearing, before an administrative law judge of the NLRB, began in 1994 and is scheduled to be completed during 1995. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position or results of operations of the Company or CIPS. Other Issues. CIPSCO's utility subsidiary is involved in other legal and administrative proceedings before various courts and agencies with respect to rates, taxes, gas and electric fuel cost reconciliations, service area disputes, environmental torts and other matters. Although unable to predict the outcome of these matters, management believes that appropriate liabilities have been established and that final disposition of these actions will not have a material adverse effect on financial position or results of operations. -50- 3. LEVERAGED LEASES CIC and its subsidiaries are the lessors in several leveraged lease arrangements involving a commercial jet aircraft, an interest in a natural gas liquids plant, natural gas processing equipment, retail department store properties, and combustion turbine generating units. These leases expire in various years beginning in 1999 through 2013. The aggregate residual values are estimated to be 42 percent of the aggregate cost. CIC's aggregate equity investment represents 22 percent of the aggregate purchase price of the properties. The remaining 78 percent was financed by nonrecourse debt provided by lenders who have been granted, as their sole remedy in the event of default by the lessees, an assignment of rentals due under the leases and a security interest in the leased properties. The following is a summary of the components of CIC's net investment in leveraged leases at December 31: 1994 1993 1992 _________ _________ ____________ (in thousands) Rentals receivable (net of nonrecourse debt) $ 24,894 $ 25,776 $ 25,196 Estimated residual value of leased property 64,599 53,671 33,094 Less - Unearned and deferred income (39,560) (37,231) (26,906) _______ _______ _______ Investment in leveraged leases 49,933 42,216 31,384 Less - Deferred taxes, net of AMT (25,817) (19,777) (7,942) _______ _______ _______ Net investment $ 24,116 $ 22,439 $ 23,442 ======= ======= ======= The following is a summary of the components of income from leveraged leases for the years ended December 31: 1994 1993 1992 _________ _________ ____________ (in thousands) Income before income taxes $ 4,664 $ 4,702 $ 3,071 Income tax expense (1,874) (2,037) (1,165) _______ _______ _______ Income from leveraged leases $ 2,790 $ 2,665 $ 1,906 ======= ======= ======= -51- 4. PENSIONS AND OTHER POSTRETIREMENT BENEFITS CIPS sponsors a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and employees' final average pay. Pension costs are accrued on a current basis in accordance with actuarial determinations. The pension plan is funded in compliance with income tax regulations and federal funding requirements. CIPS uses a September 30 measurement date for its valuation of pension plan assets and liabilities. The utility also provides certain employees with pension benefits which exceed the qualified plan limits imposed by federal tax law. Funded Status of Pension Plan (in thousands) 1994 1993 1992 _________ _________ _________ Fair value of plan assets* $188,449 $177,824 $150,729 _______ _______ _______ Accumulated benefit obligations:** Vested benefits 120,032 125,641 98,770 Nonvested benefits 3,644 559 284 Effect of projected future compensation levels (based on 4.8% annual increases in 1994, 4.3% in 1993 and 4.5% in 1992) 38,974 41,214 37,025 _______ _______ _______ Total projected benefit obligation 162,650 167,414 136,079 _______ _______ _______ Plan assets in excess of projected benefit obligation $ 25,799 $ 10,410 $ 14,650 ======= ======= ======= ________________________ * Plan assets are invested in common and preferred stocks, bonds, money market instruments, guaranteed income contracts and real estate. ** The assumed weighted average discount rate was 7.75% for 1994, 6.50% for 1993 and 7.25% for 1992. -52- Pension Plan Assets in Excess of Projected Benefit Obligation (in thousands) 1994 1993 1992 _________ _________ _________ Plan assets in excess of projected benefit obligation $ 25,799 $ 10,410 $ 14,650 Unrecognized transition asset (being amortized over 18.2 years) (4,399) (4,862) (5,325) Unrecognized net (gain) loss (23,146) (5,188) (13,617) Unrecognized prior service cost 5,679 760 1,590 _______ _______ _______ Prepaid (Accrued) pension costs at September 30 3,933 1,120 (2,702) Expense, net of funding October to December (80) 1,944 91 _______ _______ _______ Prepaid (Accrued) pension costs at December 31 $ 3,853 $ 3,064 $ (2,611) ======= ======= ======= Components of Net Pension Expense (in thousands) 1994 1993 1992 _________ _________ _________ Service cost (present value of benefits earned during the year) $ 8,053 $ 6,398 $ 5,721 Interest cost on projected benefit obligation 10,846 10,193 9,302 Actual return on plan assets (expected long-term rate of return was 8%) (6,795) (21,101) (13,755) Deferred investment gains (losses) (6,242) 10,071 4,834 Amortization of the unrecognized prior service cost 61 118 118 Amortization of the transition amount (463) (463) (463) _______ _______ _______ Net pension expense $ 5,460 $ 5,216 $ 5,757 ======= ======= ======= Effective January 1, 1993, CIPS adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The standard requires companies to recognize the cost of providing postretirement medical and life insurance benefits over the employees' service period. CIPS is funding the -53- medical benefits under two Voluntary Employee Beneficiary Association trusts (VEBA), and a 401(h) account established within the CIPS retirement income trust. CIPS sponsors postretirement plans providing medical and life benefits for certain of its retirees and their eligible dependents. The medical plan pays percentages of eligible medical expenses incurred by covered retirees after a deductible has been met, and after taking into account payment by Medicare or other providers. Currently, participants become eligible for coverage if they retire from CIPS after meeting age and years of service eligiblity requirements. The life insurance plan continues for all retirees who have been in the plan as employees for ten years or more. CIPS uses a September 30 measurement date for its valuation of postretirement assets and liabilities. Funded Status of Postretirement Benefit Plans (in thousands) 1994 1993 _________ ________ Fair value of plan assets* $ 26,874 $ 13,302 _______ _______ Accumulated benefit obligations: Retirees 47,494 47,269 Fully eligible active employees 15,407 15,006 Other active employees 64,188 67,007 _______ _______ Total accumulated benefit obligations 127,089 129,282 _______ _______ Accumulated benefit obligations in excess of plan assets (100,215) (115,980) Unrecognized transition obligation (being amortized over 20 years) 104,695 110,511 Unrecognized net (gain) loss (including changes in assumptions) (21,307) (11,185) _______ _______ Accrued postretirement benefit cost at September 30 (16,827) (16,654) Expense, net of funding, October to December 14,906 14,912 _______ _______ Accrued postretirement benefit cost at December 31 $ (1,921) $ (1,742) ======= ======= * Plan assets are invested in common and preferred stocks, bonds, money market instruments, guaranteed income contracts and real estate. -54- Components of Postretirement Benefit Cost (in thousands) 1994 1993 _________ _________ Service costs on benefits earned $ 4,108 $ 4,215 Interest costs on accumulated benefit obligations 8,918 9,948 Actual return on plan assets (212) (1,038) Deferred investment gains (losses) (1,601) 397 Amortization of transition amounts 5,816 5,816 _______ _______ Postretirement benefit cost $ 17,029 $ 19,338 ======= ======= For purposes of calculating the postretirement benefit obligation it is assumed that health-care costs will increase by 11.4% in 1995, and that the rate of increase thereafter (the health-care cost trend rate) will decline to 4% in 2007 and subsequent years. The health-care cost trend rate has a significant effect on the amounts reported for costs each year as well as on the accumulated postretirement benefit obligation. To illustrate, increasing the assumed health-care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of September 30, 1994 by $18.8 million and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost $2.5 million annually. The weighted-average discount rate used to determine the accumulated postretirement benefit obligation was 8.25 percent in 1994 and 7 percent in 1993. The expected long-term rate of return on plan assets was 8 percent in both years. In March 1992, CIPS was granted rates by the Illinois commission which included CIPS' estimated postretirement costs determined on an accrual basis of accounting. CIPS' financial reporting for postretirement costs is consistent with the rate treatment. Therefore, adoption of SFAS No. 106 did not have a material effect on financial position or results of operations. The Company adopted SFAS No. 112, "Employers' Accounting for Postretirement Benefits," in 1993. The statement required the accrual of certain postemployment benefits for former or inactive employees. The adoption of SFAS No. 112 did not have a material effect on financial position or results of operations. -55- 5. PREFERRED STOCK OF SUBSIDIARY
The CIPS preferred stock is generally redeemable at the option of CIPS, on 30 days notice at the redemption prices shown below. At December 31, 1994 and 1993 the preferred stock authorized and outstanding was: 1994 1993 Current Amount Amount Shares Par Redemption Shares (in (in Authorized Value Series Price(a) Issued thousands) thousands) __________ _____ ______ __________ ______ __________ __________ CIPSCO 4,600,000(b) - - - - - - CIPS Cumulative 2,000,000(b) $100 4.00% $101.00 150,000 $ 15,000 $ 15,000 100 4.25% 102.00 50,000 5,000 5,000 100 4.90% 102.00 75,000 7,500 7,500 100 4.92% 103.50 50,000 5,000 5,000 100 5.16% 102.00 50,000 5,000 5,000 100 1993 Auction(c) 100.00 300,000 30,000 30,000 100 6.625% 100.00(d) 125,000 12,500 12,500 _______ _______ _______ 800,000 80,000 80,000 CIPS No par(e) 2,600,000(b) - - - - - - _______ _______ _______ 800,000 $ 80,000 $ 80,000 ======= ======= ======= -56- _________________________ (a) Accrued dividends, if any, would be added to the current redemption price. (b) The Board of Directors has the authority to fix and determine the relative rights and preferences of the authorized and unissued shares. (c) Dividend rate for each dividend period (currently every 49 days) is set at a then current market rate according to an auction procedure. The rate at December 31, 1994 was 4.19% (d) Not redeemable prior to October 1, 1998. (e) Aggregate stated value cannot exceed $65,000,000.
-57- 6. COMMON SHAREHOLDERS' EQUITY Common Stock. In December 1994, CIPSCO purchased 38,164 shares from shareholders who held less than 100 shares. The repurchase reduced common stock and retained earnings. Retained Earnings. CIPSCO is subject to restrictions on the use of retained earnings for cash dividends on common stock applicable to all corporations under the Illinois Business Corporation Act. CIPS is subject to the same restrictions, as well as those contained in its mortgage indenture and articles of incorporation. At December 31, 1994, 1993 and 1992, no amount of retained earnings was restricted. 7. LINES OF CREDIT AND SHORT-TERM BORROWINGS External financing needs may be met from the sale of commercial paper or short- term borrowings from banks. CIPSCO and CIC have joint bank lines of credit of $30 million. The banks are compensated for these lines of credit. CIPS has arrangements for bank lines of credit which totaled $72.8 million at December 31, 1994. CIPS compensates banks for lines of credit totaling $60 million. The bank lines of credit are for corporate purposes including the support of any commercial paper borrowings. At December 31, 1994 there were no short-term borrowings from the lines of credit at CIPSCO, CIC, or CIPS, however, CIPS did have $15.0 million in commercial paper outstanding. 8. LONG-TERM DEBT OF SUBSIDIARY Maturities and sinking fund requirements of CIPS' long-term debt through 1999 are as follows: Sinking Fund Maturities Requirements Total __________ ____________ _______ (in thousands) 1995 $15,000 $150 $15,150 1996 - 150 150 1997 58,000 - 58,000 1998 - - - 1999 50,000 - 50,000 -58- In 1994 and 1993 the sinking fund requirements were satisfied by the application of net expenditures for bondable property in an amount equal to 166-2/3 percent of the annual requirement. The utility expects to meet the 1995 requirement in the same manner. Long-term debt outstanding at December 31, was: 1994 1993 Amount Amount ______ ______ (in thousands) First mortgage bonds (principal amount): Series J, 4 1/2% due 5/1/1994 $ - $20,000 Series K, 4 5/8% due 6/1/1995 15,000 15,000 Series L, 5 7/8% due 5/1/1997 15,000 15,000 Series 6 5/8% due 8/1/2009 (for Newton pollution control) 1,000 1,000 Series W, 7 1/8% due 5/15/1999 50,000 50,000 Series W, 8 1/2% due 5/15/2022 33,000 33,000 Series X, 6 1/8% due 7/1/1997 43,000 43,000 Series X, 7 1/2% due 7/1/2007 50,000 50,000 Series Y, 6 3/4% due 9/15/2002 23,000 23,000 Series Z, 6% due 4/1/2000 25,000 25,000 Series Z, 6 3/8% due 4/1/2003 40,000 40,000 _______ _______ 295,000 315,000 _______ _______ Pollution control loan obligations: 1990 Series A, 7.60% due 3/1/2014 20,000 20,000 1990 Series B, 7.60% due 9/1/2013 32,000 32,000 1993 Series A, 6 3/8% due 1/1/2028 35,000 35,000 1993 Series B-1, 4 3/8% due 6/1/2028 17,500 17,500 1993 Series B-2, 5.90% due 6/1/2028 17,500 17,500 1993 Series C-1, 4.20% due 8/15/2026 35,000 35,000 1993 Series C-2, 5.70% due 8/15/2026 25,000 25,000 _______ _______ 182,000 182,000 _______ _______ Unamortized net debt premium and discount (2,381) (2,677) _______ _______ 474,619 494,323 Maturities due within one year (15,000) (20,000) _______ _______ $459,619 $474,323 ======= ======= -59- Interest rates on the 1993 Series B-1 and 1993 Series C-1 bonds will be adjusted to a then current market rate on June 1, 1998 and August 15, 1998, respectively. Interest rates on the 1993 Series B-2 and 1993 Series C-2 bonds are subject to redetermination at the option of the utility commencing June 1, 2003 and August 15, 2003, respectively. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1994 and 1993 of each class of financial instruments for which it is practicable to make such estimates. Cash and Temporary Investments - The carrying amounts approximate fair value because of the short-term maturity of these instruments. Marketable Securities - The fair value is based on quoted market prices obtained from dealers or investment managers. Financial Derivatives - The fair value was estimated using market values of options, calls and futures contracts on organized exchanges. Short-Term Borrowings - The carrying amounts approximate fair value due to their short-term maturities. Preferred Stock of Subsidiary - The fair value was estimated using market values provided by independent pricing services. Long-Term Debt of Subsidiary - The fair value was estimated using market values provided by independent pricing services. The estimated fair values of the Company's financial instruments as of December 31, are shown below: 1994 1993 _________________ _________________ Carrying Fair Carrying Fair Value Value Value Value ________ _____ ________ _____ (in thousands) Marketable Securities $ 43,131 $ 43,131 $ 42,035 $ 43,045 Financial Derivatives 798 798 668 668 Preferred Stock 80,000 52,684 80,000 68,403 Long-term Debt 459,619 447,323 474,323 504,478 -60- 10. INCOME TAXES The Company uses the liability method of accounting for deferred income taxes in compliance with SFAS No. 109 "Accounting for Income Taxes" effective January 1, 1993. Income tax expense includes provisions for deferred taxes to reflect the effect of temporary differences between the time certain costs are recorded for financial reporting and when they are deducted for income tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes and a portion of the regulatory assets and liabilities are also reversed. Investment tax credits have been deferred and will continue to be credited to income over the lives of the related property. The components of federal and state income tax provisions and investment tax credits at December 31, were: 1994 1993 1992 ________ ________ ________ (in thousands) Current - - Federal $ 29,048 $ 34,340 $ 7,070 - - State 4,534 6,980 (1,690) _______ _______ _______ 33,582 41,320 5,380 _______ _______ _______ Deferred - - Federal 14,738 12,315 29,679 - - State 4,129 1,592 9,028 _______ _______ _______ 18,867* 13,907* 38,707* _______ _______ _______ Amortization of investment tax credits (3,367) (3,366) (3,336) _______ _______ _______ Total income taxes $ 49,082 $ 51,861 $ 40,751 ======= ======= ======= -61- 1994 1993 1992 ________ ________ ________ (in thousands) *Detail of Deferred Taxes: Excess of tax depreciation and amortization over book $ 6,534 $ 5,825 $ 5,588 Revenue refunds - - 29,526 Leveraged leases 6,040 7,511 8,489 Deferred fuel cost 484 2,782 (2,921) Deferred environmental site cleanup costs 5,190 (11,811) 62 Net operating loss carryback - 1,526 (1,526) Alternative minimum tax credit carry forward - 7,236 (6,927) Cost of removal 2,137 1,863 3,108 Unamortized loss on reacquired debt (460) 1,082 3,561 Miscellaneous (1,058) (2,107) (253) _______ _______ _______ Total $ 18,867 $ 13,907 $ 38,707 ======= ======= ======= Reconciliations with statutory federal income tax rates at December 31 were: 1994 1993 1992 ____ ____ ____ Effective income tax rate 35.9% 36.8% 34.6% Amortization of investment tax credits 2.5 2.4 2.8 Tax exempt interest and dividends 1.6 1.5 1.8 State income tax rate, net of federal income tax benefits (4.0) (3.9) (4.1) Other, net (1.0) (1.8) (1.1) ____ ____ ____ Statutory federal income tax rate 35.0% 35.0% 34.0% ==== ==== ==== -62- The components of deferred income taxes at December 31, 1994 and 1993 are: December 31, December 31, 1994 1993 ____________ ____________ (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $315,364 $310,722 Investment tax credits (22,164) (23,500) Regulatory liabilities, net (27,742) (27,423) Leveraged leases 25,817 19,777 Other 21,797 15,156 _______ _______ Accumulated deferred income taxes per balance sheet $313,072 $294,732 ======= ======= Deferred tax assets (included in prepayments) $ 7,048 $ 5,999 ======= ======= -63- 11. DERIVATIVE FINANCIAL INSTRUMENTS CIC has limited involvement with derivative financial instruments which includes futures contracts, purchased options and written options in combination with purchased options. These instruments are used to hedge the market risk associated with CIC's common and preferred stock investments. (See Note 1 to Consolidated Financial Statements.) CIC does not hold or issue these instruments for trading purposes. Financial futures contracts are for U.S. Treasury obligations and options contracts are for S & P Indexes and U.S. Treasury obligations. Futures and options contracts have terms that are one year or less and have little credit risk as these instruments are traded on organized exchanges. CIC bears the risk of unfavorable price changes associated with futures and options which are intended to hedge the opposite change in the market value of the common and preferred stocks. Gains and losses on purchased hedges of the equity securities are deferred as an adjustment to the carrying amount of the hedged equity securities until the gains or losses on the underlying securities are recognized. The amount of deferred hedge loss at December 31, 1994 and 1993 was $.2 million and $2.3 million, respectively. 12. REVENUES COLLECTED SUBJECT TO REFUND In May 1992, the Illinois commission approved a March 18, 1992 settlement agreement that resolved a proceeding regarding the impact on the utility of the reduced federal corporate income tax rates established by the Tax Reform Act of 1986. Under terms of the agreement, $73 million, including accrued interest, was refunded to customers from July through December 1992 in complete settlement of all issues related to the proceeding. For the 61-month period, March 1987 through March 1992, a total of $78.4 million had been accrued for refunds. The total liability recorded by the utility exceeded the settlement agreement amount by $5.4 million resulting in a $3.3 million (net of taxes) or $.10 per share favorable impact on consolidated earnings during 1992. -64- 13. SEGMENTS OF BUSINESS CIPSCO's primary subsidiary, CIPS, is a public utility engaged in the sale of electricity which it generates, transmits and distributes. CIPS also sells natural gas, which it purchases from producers and suppliers and distributes through its system, and transports customer-owned natural gas. The investments of CIPSCO and subsidiaries include temporary investments and long-term investments including marketable securities and leveraged leases. The following is a summary of operations: Years Ended December 31, _________________________________ 1994 1993 1992 ______ ______ ______ (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 697,427 $688,820 $ 595,619 Operating expenses, excluding provision for income taxes 550,386 534,071 472,414 _________ _________ _________ Pretax operating income 147,041 154,749 123,205 _________ _________ _________ Gas operations: Operating revenues 138,418 145,702 133,756 Operating expenses, excluding provision for income taxes 126,896 138,086 122,844 _________ _________ _________ Pretax operating income 11,522 7,616 10,912 _________ _________ _________ Investments: Operating revenues 8,770 10,238 10,502 Operating expenses, excluding provision for income taxes 1,988 1,868 1,633 _________ ________ _________ Pretax investment income 6,782 8,370 8,869 _________ ________ _________ Total 165,345 170,735 142,986 _________ ________ _________ Less interest expense and other charges 32,309 33,376 29,736 Less income taxes 49,082 51,861 40,751 _________ ________ _________ Net income per Consolidated Statements of Income $ 83,954 $ 85,498 $ 72,499 ========= ========= ========= -65- Depreciation and amortization expense: Electric $ 74,496 $ 71,876 $ 68,902 Gas 6,100 5,771 5,252 Corporate 503 415 16 _________ ________ _________ Total $ 81,099 $ 78,062 $ 74,170 ========= ========= ========= INVESTMENT INFORMATION Identifiable assets: Electric $1,469,601 $1,459,073 $1,435,755 Gas 176,788 177,857 188,019 Temporary investments 5,875 5,527 2,578 Marketable securities 43,929 42,703 39,913 Leveraged leases 49,933 42,216 31,384 Corporate 31,231 30,374 27,807 _________ ________ _________ Total $1,777,357 $1,757,750 $1,725,456 ========= ========= ========= Construction expenditues: Electric $ 82,673 $ 76,956 $ 103,023 Gas 13,928 10,756 17,401 _________ ________ _________ Total $ 96,601 $ 87,712 $ 120,424 ========= ========= ========= -66- Item 8. Financial Statements and Supplementary Data. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF INCOME Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) Operating Revenues: Electric $ 697,458 $ 688,849 $ 593,996 Provision for revenue refunds - - 1,646 _________ _________ _________ 697,458 688,849 595,642 Gas 138,424 145,707 133,760 _________ _________ _________ Total operating revenues 835,882 834,556 729,402 _________ _________ _________ Operating Expenses: Fuel for electric generation 196,324 186,938 172,544 Purchased power 55,543 60,181 21,094 Gas costs 85,043 90,097 82,553 Other operation 138,622 141,310 129,715 Maintenance 65,172 61,216 64,092 Depreciation and amortization 80,596 77,647 74,154 Taxes other than income taxes 55,984 54,767 51,106 Income taxes 47,920 48,749 36,772 _________ _________ _________ Total operating expenses 725,204 720,905 632,030 _________ _________ _________ Operating Income 110,678 113,651 97,372 _________ _________ _________ -67- Other Income and Deductions: Allowance for equity funds used during construction 630 1,459 2,162 Nonoperating income taxes (603) (631) (2,989) Miscellaneous, net 4,119 3,632 10,978 _________ _________ _________ Total other income and deductions 4,146 4,460 10,151 _________ _________ _________ Income Before Interest Charges 114,824 118,111 107,523 _________ _________ _________ Interest Charges: Interest on long-term debt 32,842 34,421 36,397 Interest on provision for revenue refunds - - (803) Other interest charges 358 479 392 Allowance for borrowed funds used during construction (289) (800) (1,064) _________ _________ _________ Total interest charges 32,911 34,100 34,922 _________ _________ _________ Net Income 81,913 84,011 72,601 Preferred stock dividends 3,510 3,718 4,549 _________ _________ _________ Earnings for Common Stock $ 78,403 $ 80,293 $ 68,052 ========== ========== ========== The accompanying notes to financial statements are an integral part of these statements. -68- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY BALANCE SHEETS December 31, ___________________________ 1994 1993 _____________ ____________ (in thousands) ASSETS Utility Plant, at original cost: Electric $2,264,930 $2,172,259 Gas 220,347 208,208 __________ _________ 2,485,277 2,380,467 Less--Accumulated depreciation 1,077,533 1,020,097 __________ __________ 1,407,744 1,360,370 Construction work in progress 31,816 61,104 __________ __________ 1,439,560 1,421,474 __________ __________ Current Assets: Cash 1,320 4,038 Temporary investments, at cost which approximates market 2,593 2,734 Accounts receivable, net 67,686 61,591 Accrued unbilled revenues 30,484 38,774 Materials and supplies, at average cost 39,817 40,824 Fuel for electric generation, at average cost 30,305 26,046 Gas stored underground, at average cost 13,167 14,335 Prepayments 10,839 9,847 __________ __________ 196,211 198,189 __________ __________ Other Assets 42,879 48,799 __________ __________ $1,678,650 $1,668,462 ========== ========== -69- CAPITALIZATION AND LIABILITIES Capitalization: Common shareholder's equity: Common stock, no par value, authorized 45,000,000 shares; outstanding 25,452,373 shares $ 121,282 $ 121,282 Retained earnings 453,463 443,741 __________ __________ 574,745 565,023 Preferred stock 80,000 80,000 Long-term debt 459,619 474,323 __________ __________ 1,114,364 1,119,346 __________ __________ Current Liabilities: Long-term debt due within one year 15,000 20,000 Short-term borrowings 14,985 - Accounts payable 53,900 55,931 Accrued wages 9,833 12,720 Accrued taxes 12,963 13,391 Accrued interest 9,408 9,204 Other 31,488 34,895 __________ __________ 147,577 146,141 __________ __________ Deferred Credits: Accumulated deferred income taxes 287,020 274,425 Investment tax credits 55,595 58,962 Regulatory liabilities, net 74,094 69,588 __________ __________ 416,709 402,975 __________ __________ $1,678,650 $1,668,462 ========== ========== The accompanying notes to financial statements are an integral part of these statements. -70- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF CASH FLOW Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) OPERATING ACTIVITIES: Net income $ 81,913 $ 84,011 $ 72,601 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 80,596 77,647 74,154 Allowance for equity funds used during construction (AFUDC) (630) (1,459) (2,162) Deferred income taxes, net 14,146 7 16,407 Investment tax credit amortization (3,367) (3,366) (3,336) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues 2,195 (15,270) 4,542 Fuel for electric generation (4,259) 8,336 2,872 Other inventories 2,175 (4,450) (667) Prepayments (992) 3,305 23,585 Other assets 5,920 14,033 (20,210) Accounts payable and other liabilities (5,438) 6,106 17,641 Accrued wages, taxes and interest (3,111) 6,217 (5,197) Accumulated provision for revenue refunds - - (75,449) Other 1,129 4,815 (5,991) __________ __________ _________ Net cash provided by operating activities 170,277 179,932 98,790 __________ __________ _________ INVESTING ACTIVITIES: Construction expenditures, excluding AFUDC (95,682) (85,453) (117,198) Allowance for borrowed funds used during construction (289) (800) (1,064) Changes in temporary investments 141 (156) 92,175 __________ __________ _________ Net cash used in investing activities (95,830) (86,409) (26,087) __________ __________ _________ -71- FINANCING ACTIVITIES: Proceeds from issuance of long-term debt - 195,000 199,000 Repayment of long-term debt (20,000) (205,000) (190,500) Proceeds from issuance of preferred stock - 42,500 - Redemption of preferred stock - (27,500) (18,245) Retirement of common stock - (33,250) (66,100) Proceeds from issuance of (repayment of) short-term borrowings 14,985 (17,393) 17,393 Dividends paid: Preferred stock (3,510) (3,718) (4,549) Common stock (68,600) (33,500) - Issuance expense, discount and premium (40) (7,104) (11,718) _________ _________ _________ Net cash used in financing activities (77,165) (89,965) (74,719) _________ _________ _________ Net increase (decrease) in cash (2,718) 3,558 (2,016) Cash at beginning of year 4,038 480 2,496 _________ _________ _________ Cash at end of year $ 1,320 $ 4,038 $ 480 ========= ========= ========= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 30,693 $ 30,909 $ 38,382 Income taxes $ 39,829 $ 48,367 $ 12,150 The accompanying notes to financial statements are an integral part of these statements. -72- CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF RETAINED EARNINGS Years Ended December 31, __________________________________ 1994 1993 1992 __________ __________ __________ (in thousands) Balance, beginning of year $ 443,741 $ 398,235 $ 330,518 Add (deduct); Net income 81,913 84,011 72,601 Dividends: Preferred stock (3,510) (3,718) (4,549) Common stock (68,600) (33,500) - Other (81) (1,287) (335) _________ _________ _________ Balance, end of year $ 453,463 $ 443,741 $ 398,235 ========= ========= ========= The accompanying notes to financial statements are an integral part of these statements. -73- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Central Illinois Public Service Company: We have audited the accompanying balance sheets of Central Illinois Public Service Company (an Illinois corporation and a wholly owned subsidiary of CIPSCO Incorporated) as of December 31, 1994 and 1993, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Illinois Public Service Company as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois, January 27, 1995 -74- Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The information contained in Note 1 of Notes to Consolidated Financial Statements on page 45 is incorporated herein by reference (except for the captions "Principles of Consolidation" and "Marketable Securities" which are not included herein). 2. COMMITMENTS AND CONTINGENCIES The information contained in Note 2 of Notes to Consolidated Financial Statements on page 48 is incorporated herein by reference. 3. LEVERAGED LEASES Not applicable. 4. PENSIONS AND OTHER POSTRETIREMENT BENEFITS The information contained in Note 4 of Notes to Consolidated Financial Statements on page 52 is incorporated herein by reference. 5. PREFERRED STOCK The information contained in Note 5 of Notes to Consolidated Financial Statements on page 56 is incorporated herein by reference. -75- 6. COMMON SHAREHOLDERS EQUITY
Common Stock. The authorized common stock, no par value, for CIPS was 45,000,000 shares as of December 31, 1994, 1993 and 1992. All outstanding shares were exchanged with CIPS shareholders for CIPSCO Incorporated stock on October 1, 1990. During 1992 and for the first half of 1993, CIPSCO Incorporated which holds all CIPS common shares, had been retiring CIPS shares as detailed in the table below: Number of Shares Outstanding Amounts (in thousands) ______________________________________ _____________________________ 1994 1993 1992 1994 1993 1992 __________ __________ __________ ________ ________ ________ Balance, beginning of year 25,452,373 26,336,718 28,410,703 $121,282 $154,532 $220,632 Common stock retired - (884,345) (2,073,985) - (33,250) (66,100) Other - - - - - - __________ __________ __________ _______ _______ ______ Balance, end of year 25,452,373 25,452,373 26,336,718 $121,282 $121,282 $154,532 ========== ========== ========== ======= ======= ======= -76- Retained Earnings. CIPS is subject to restrictions on the use of retained earnings for cash dividends on common stock applicable to all corporations under the Illinois Business Corporation Act, as well as those contained in its mortgage indenture and articles of incorporation. At December 31, 1994, 1993 and 1992, no amount of retained earnings was restricted. 7. LINES OF CREDIT AND SHORT-TERM BORROWINGS CIPS has arrangements for bank lines of credit which totaled $72.8 million at December 31, 1994. CIPS compensates banks for lines of credit totaling $60 million. The bank lines of credit are for corporate purposes including the support of any commercial paper borrowings. At December 31, 1994 there were no short-term borrowings from the lines of credit at CIPS, however, CIPS did have $15.0 million in commercial paper outstanding. 8. LONG-TERM DEBT The information contained in Note 8 of Notes to Consolidated Financial Statements on page 58 is incorporated herein by reference. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1994 and 1993 of each class of financial instruments for which it is practicable to make such estimates. Cash and Temporary Investments - The carrying amounts approximate fair value because of the short-term maturity of these instruments. Short-Term Borrowings - The carrying amounts approximate fair value due to their short-term maturities. Preferred Stock - The fair value was estimated using market values provided by independent pricing services. Long-Term Debt - The fair value was estimated using market values provided by independent pricing services. The estimated fair value of CIPS' financial instruments as of December 31, are shown below: 1994 1993 _________________ _________________ Carrying Fair Carrying Fair Value Value Value Value ________ _____ ________ _____ (in thousands) Preferred Stock $ 80,000 $ 52,684 $ 80,000 $ 68,403 Long-Term Debt 459,619 447,323 474,323 504,478 -77- 10. INCOME TAXES CIPS uses the liability method of accounting for deferred income taxes in compliance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" effective January 1, 1993. Income tax expense includes provisions for deferred taxes to reflect the effect of temporary differences between the time certain costs are recorded for financial reporting and when they are deducted for income tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes and a portion of the regulatory assets and liabilities are also reversed. Investment tax credits have been deferred and will continue to be credited to income over the lives of the related property. The components of federal and state income tax provisions and investment tax credits at December 31, were: 1994 1993 1992 ________ ________ ________ (in thousands) Current - - Federal $ 32,826 $ 42,422 $ 6,859 - - State 5,271 8,019 (749) _______ _______ _______ 38,097 50,441 6,110 _______ _______ _______ Deferred - - Federal 10,084 1,483 26,551 - - State 3,106 191 7,447 _______ _______ _______ 13,190* 1,674* 33,998* _______ _______ _______ Amortization of invest- ment tax credits (3,367) (3,366) (3,336) _______ _______ _______ Total 47,920 48,749 36,772 _______ _______ _______ Nonoperating income taxes: Current 687 1,119 2,411 Deferred (84) (488) 578 _______ _______ _______ 603 631 2,989 _______ _______ _______ Total income taxes $ 48,523 $ 49,380 $ 39,761 ======= ======= ======= -78- 1994 1993 1992 ________ ________ ________ (in thousands) *Detail of Deferred Taxes: Excess of tax depreciation and amortization over book $ 6,517 $ 5,785 $ 5,566 Revenue refunds - - 29,526 Deferred fuel cost 484 (2,782) (2,921) Deferred environmental site cleanup costs 5,190 (11,811) 62 Alternative minimum tax credit carryforward - 4,449 (4,449) Cost of removal 2,137 1,863 3,108 Unamortized loss on reacquired debt (460) 1,082 3,561 Miscellaneous (678) 3,088 (455) _______ _______ _______ Total $ 13,190 $ 1,674 $ 33,998 ======= ======= ======= Reconciliations with statutory federal income tax rates at December 31 were: 1994 1993 1992 ________ ________ ________ Effective income tax rate 37.2% 37.0% 35.4% Amortization of investment tax credits 2.6 2.5 3.0 Tax exempt interest and dividends .7 .7 1.3 State income tax rate, net of federal income tax benefit (4.2) (4.0) (4.2) Other, net (1.3) (1.2) (1.5) ____ ____ ____ Statutory federal income tax rate 35.0% 35.0% 34.0% ==== ==== ==== -79- The components of deferred income taxes at December 31, 1994 and 1993 are: 1994 1993 ________ ________ (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $315,364 $310,722 Investment tax credits (22,164) (23,500) Regulatory liabilities, net (27,742) (27,423) Other 21,562 14,626 _______ _______ Accumulated deferred income taxes per balance sheet $287,020 $274,425 ======= ======= Deferred tax assets (included in prepayments) $ 7,016 $ 5,977 ======= ======= 11. DERIVATIVE FINANCIAL INSTRUMENTS Not applicable. 12. REVENUES COLLECTED SUBJECT TO REFUND The information contained in Note 12 of Notes to Consolidated Financial Statements on page 64 is incorporated herein by reference. -80- 13. SEGMENTS OF BUSINESS CIPS is a public utility engaged in the sale of electricity which it generates, transmits and distributes. CIPS also sells natural gas, which it purchases from producers and suppliers and distributes through its system, and transports customer-owned natural gas. The following is a summary of operations: Years Ended December 31, _________________________________ 1994 1993 1992 ______ ______ ______ (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 697,458 $ 688,849 $ 595,642 Operating expenses, excluding provision for income taxes 550,388 534,070 472,414 _________ _________ _________ Pretax operating income 147,070 154,779 123,228 _________ _________ _________ Gas operations: Operating revenues 138,424 145,707 133,760 Operating expenses, excluding provision for income taxes 126,896 138,086 122,844 _________ _________ _________ Pretax operating income 11,528 7,621 10,916 _________ _________ _________ Total 158,598 162,400 134,144 _________ _________ _________ Plus other income and deductions 4,146 4,460 10,151 Less interest charges 32,911 34,100 34,922 Less income taxes 47,920 48,749 36,772 Less preferred dividends 3,510 3,718 4,549 _________ ________ _________ Earnings for common stock $ 78,403 $ 80,293 $ 68,052 ========= ========= ========= Depreciation expense: Electric $ 74,496 $ 71,876 $ 68,902 Gas 6,100 5,771 5,252 _________ ________ _________ Total $ 80,596 $ 77,647 $ 74,154 ========= ========= ========= -81- INVESTMENT INFORMATION Identifiable assets: Electric $1,469,601 $1,459,073 $1,443,578 Gas 176,788 177,857 188,321 Temporary investments 2,593 2,734 2,578 Corporate 29,668 28,798 10,582 _________ _________ _________ Total $1,678,650 $1,668,462 $1,645,059 ========= ========= ========= Construction expenditures: Electric $ 82,673 $ 76,956 $ 103,023 Gas 13,928 10,756 17,401 _________ _________ _________ Total $ 96,601 $ 87,712 $ 120,424 ========= ========= ========= -82- 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The fluctuations in the quarterly results are due to the seasonal nature of the electric and gas utility business. Total Total Earnings Operating Operating for Common Quarters Revenues Income Stock ________ _________ _________ __________ (in thousands) 1994 First $223,436 $ 20,665 $ 12,544 Second 200,406 26,288 18,307 Third 213,922 40,996 33,013 Fourth 198,118 22,729 14,539 1993 First $209,548 $ 24,726 $ 15,774 Second 187,385 20,093 11,610 Third 232,104 46,204 38,172 Fourth 205,519 22,628 14,737 -83- Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. None for CIPSCO or CIPS. PART III Item 10. Directors and Executive Officers of the Registrants. CIPSCO The information required by Item 10 relating to each person who is a nominee for election as director at CIPSCO's 1995 Annual Meeting of Shareholders is to be set forth in CIPSCO's definitive proxy statement (the "CIPSCO Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with CIPSCO's 1995 Annual Meeting of Shareholders. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Director Information" in the CIPSCO Proxy Statement. Information required by Item 10 relating to executive officers of CIPSCO is set forth under a separate caption "Executive Officers of CIPSCO" in Part I hereof. CIPS The information required by Item 10 relating to each person who is a nominee for election as director at CIPS' 1995 Annual Meeting of Shareholders is to be set forth in CIPS' definitive proxy statement (the "CIPS Proxy Statement") to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with CIPS' Annual Meeting of Shareholders. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors - -- Director Information" in the CIPS Proxy Statement. Information required by Item 10 relating to executive officers of CIPS is set forth under a separate caption "Executive Officers of CIPS" in Part I hereof. -84- Item 11. Executive Compensation. CIPSCO The information required by Item 11 is to be set forth in the CIPSCO Proxy Statement. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Executive Compensation" and -- "Directors' Compensation" appearing in the CIPSCO Proxy Statement; provided, however, that no part of the information appearing under the portion of the CIPSCO Proxy Statement entitled "Election of Directors -- Compensation Committee Report on Executive Compensation" or -- "Performance Graph" is deemed to be filed as part of this Form 10-K Annual Report. CIPS The information required by Item 11 is to be set forth in the CIPS Proxy Statement. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors -- Executive Compensation" and -- "Directors' Compensation" appearing in the CIPS Proxy Statement; provided, however, that no part of the information appearing under the portion of the CIPS Proxy Statement entitled "Election of Directors -- Compensation Committee Report on Executive Compensation" or -- "Performance Graph" is deemed to be filed as part of this Form 10-K Annual Report. Item 12. Security Ownership of Certain Beneficial Owners and Management. CIPSCO The information required by Item 12 is to be set forth in the CIPSCO Proxy Statement. Such information is incorporated herein by reference to the material appearing under the captions "Voting Securities Beneficially Owned by Principal Holders, Directors, Nominees and Executive Officers" and "Election of Directors -- Director Information" appearing in the CIPSCO Proxy Statement. CIPS The information required by Item 12 is to be set forth in the CIPS Proxy Statement. Such information is incorporated herein by reference to the material appearing under the captions "Voting Securities Beneficially Owned by Principal Holders, Directors, Nominees and Executive Officers" and "Election of Directors -- Director Information" appearing in the CIPS Proxy Statement. -85- Item 13. Certain Relationships and Related Transactions. CIPSCO AND CIPS CIPSCO is the parent company of CIPS. At December 31, 1994, CIPSCO owned 100% of the common stock of CIPS (representing 96% of the voting shares of CIPS). There are situations where CIPS interacts with its affiliated companies through the use of shared facilities, common employees and other business relationships. In these situations, CIPS receives payment in accordance with regulatory requirements for the services provided to affiliated companies. Each individual who is a member of the Board of Directors of CIPSCO is also a member of the Board of Directors of CIPS. Each of the officers of CIPSCO is also an officer of CIPS. PART IV CIPSCO AND CIPS Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Page of this Report on Form 10-K _____________ CIPSCO CIPS ______ ____ (a) 1. Financial statements Statements of Income for the years ended December 31, 1994, 1993 and 1992. . . . . . . . . . . 37 67 Balance Sheets - December 31, 1994 and 1993 . . . . . 39 69 Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992. . . . . . . . . . . 41 71 Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992. . . . . . . . 43 73 Report of Independent Public Accountants. . . . . . . 44 74 Notes to Financial Statements . . . . . . . . . . . . 45 75 (a) 2. Schedules supporting financial statements - - All Financial Statement Schedules have been omitted as not applicable or not required or because the information required to be shown therein is included in the financial statements or notes thereto. -86- Applicable to Form 10-K of _____________ CIPSCO CIPS ______ ____ (a) 3. Exhibits 3.01 Amended and Restated Articles of Incorporation of CIPSCO. (Exhibit 3.01 filed with CIPSCO's 1990 Annual Report on Form 10-K.) Incorporated by Reference. X 3.02 Restated Articles of Incorporation of CIPS. (Exhibit 3(b) filed with CIPS' Form 10-Q for the quarter ended March 1994). Incorporated by Reference. X 3.03 Bylaws of CIPSCO (Exhibit 3.02 filed with CIPSCO's 1993 Annual Report on Form 10-K). Incorporated by Reference. X 3.04 Bylaws of CIPS (Exhibit 3(c) filed with CIPS' Form 10-Q for the quarter ended March 1994). Incorporated by Reference. X -87- Applicable to Form 10-K of _____________ CIPSCO CIPS ______ ____ 4 Indenture of Mortgage or Deed of Trust dated October 1, 1941, from CIPS to Continental Illinois National Bank and Trust Company of Chicago and Edmond B. Stofft, as Trustees. (Exhibit 2.01 in File No. 2-60232.) Supplemental Indentures dated, respectively September 1, 1947, January 1, 1949, February 1, 1952, September 1, 1952, June 1, 1954, February 1, 1958, January 1, 1959, May 1, 1963, May 1, 1964, June 1, 1965, May 1, 1967, April 1, 1970, April 1, 1971, September 1, 1971, May 1, 1972, December 1, 1973, March 1, 1974, April 1, 1975, October 1, 1976, November 1, 1976, October 1, 1978, August 1, 1979, February 1, 1980, February 1, 1986, May 15, 1992, July 1, 1992, September 15, 1992 and April 1, 1993, between CIPS and the Trustees under the Indenture of Mortgage or Deed of Trust referred to above (Amended Exhibit 7(b) in File No. 2-7341; Second Amended Exhibit 7.03 in File No. 2-7795; Second Amended Exhibit 4.07 in File No. 2-9353; Amended Exhibit 4.05 in file No. 2-9802; Amended Exhibit 4.02 in File No. 2-10944; Amended Exhibit 2.02 in File No. 2-13866; Amended Exhibit 2.02 in File No. 2-14656; Amended Exhibit 2.02 in File No. 2-21345; Amended Exhibit 2.02 in File No. 2-22326; Amended Exhibit 2.02 in File No. 2-23569; Amended Exhibit 2.02 in File No. 2-26284; Amended Exhibit 2.02 in File No. 2-36388; Amended Exhibit 2.02 in File No. 2-39587; Amended Exhibit 2.02 in File No. 2-41468; Amended Exhibit 2.02 in File No. 2-43912; Exhibit 2.03 in File No. 2-60232; Amended Exhibit 2.02 in File No. 2-50146; Amended Exhibit 2.02 in File No. 2-52886; Second Amended Exhibit 2.04 in File No. 2-57141; Amended Exhibit 2.04 in File No. 2-57557; Amended Exhibit 2.06 in File No. 2-62564; Exhibit 2.02(a) in File No. 2-65914; Amended Exhibit 2.02(a) in File No. 2-66380; and Amended Exhibit 4.02 in File No. 33-3188; Exhibit 4.02 to Form 8-K dated May 15, 1992; Exhibit 4.02 to Form 8-K dated July 1, 1992; Exhibit 4.02 to Form 8-K dated September 15, 1992; Exhibit 4.02 to Form 8-K dated March 30, 1993.) Incorporated by reference. X X -88- Applicable to Form 10-K of ___________________ CIPSCO CIPS PAGE(S) ______ ____ _______ Exhibits (Continued) 10.01 Form of Deferred Compensation Agreement for Directors (Exhibit 10.01 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . X X - 10.02 Amended Form of Deferred Compensation Agreement for Directors (Exhibit 10.02 filed with CIPSCO's and CIPS' 1993 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . X X - 10.03 Form of Special Executive Retirement Plan (Exhibit 10.03 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference . . . . . . . . . . . . . . . . . . . X X - 10.04 Amendment to Form of Special Executive Retirement Plan (Exhibit 10.04 filed with CIPSCO's and CIPS' 1993 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . X X - 10.05 Form of Management Continuity Agreement. . . . . . X X 94-112 10.06 Form of Director's Retirement Income Plan (Exhibit 10.06 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference . . . . . . . . . . . . . . . . . . . X X - 10.07 Form of Excess Benefit Retirement Plan (Exhibit 10.07 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference . . X X - 10.08 Amendment to Form of Excess Benefit Retirement Plan (Exhibit 10.08 filed with CIPSCO's and CIPS' 1993 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . X X - 10.09 Form of Management Incentive Plan (Exhibit 10.09 filed with CIPSCO's and CIPS' 1990 Annual Report on Form 10-K) Incorporated by Reference. . . . . . . . . . . . . . . . . . . . . X X - -89- Applicable to Form 10-K of ___________________ CIPSCO CIPS PAGE(S) ______ ____ _______ Exhibits (Continued) 10.10 Form of Excess Benefit Plan . . . . . . . . . . . X X 113-127 10.11 Form of Special Executive Retirement Plan . . . . X X 128-145 12.01 Computation of Ratio of Earnings to Fixed Charges - CIPSCO. . . . . . . . . . . . . . . . . X 146-147 12.02 Computation of Ratio of Earnings to Fixed Charges - CIPS. . . . . . . . . . . . . . . . . . X 148-149 21 Subsidiaries of CIPSCO and CIPS . . . . . . . . . X X 150 23.01 Consent of Independent Public Accountants - CIPSCO. . . . . . . . . . . . . . . . . . . . . . X 151 23.02 Consent of Independent Public Accountants - CIPS. . . . . . . . . . . . . . . . . . . . . . . X 152 24.01 Powers of Attorney - CIPSCO . . . . . . . . . . . X 153-159 24.02 Powers of Attorney - CIPS. . . . . . . . . . . . X 160-166 27.1 Financial Data Schedule of CIPSCO*. . . . . . . . X - 27.2 Financial Data Schedule of CIPS*. . . . . . . . . X - 99.01 Description of Capital Stock - CIPSCO . . . . . . X 167-169 99.02 Description of Capital Stock - CIPS. . . . . . . X 170-171 Exhibits 10.01 through 10.11 are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 14(c) hereof. * Included in electronic filing only. The following instruments defining the rights of holders of certain unregistered long-term debt of CIPS have not been filed with the Securities and Exchange Commission but will be furnished upon request. -90- 1. Loan Agreement dated as of March 1, 1990, between CIPS and the Illinois Development Finance Authority (IDFA) in connection with the IDFA's $20,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series A due March 1, 2014 and $32,000,000 Pollution Control Revenue Refunding Bonds, 1990 Series B due September 1, 2013. 2. Loan Agreement dated January 1, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000, 6-3/8% Pollution Control Revenue Refunding Bonds (Central Illinois Public Service Company Project) 1993 Series A, due January 1, 2028. 3. Loan Agreement dated June 1, 1993, between CIPS and IDFA in connection with IDFA's $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-1 due June 1, 2028 and $17,500,000 Pollution Control Revenue Refunding Bonds, 1993 Series B-2 due June 1, 2028. 4. Loan Agreement dated August 15, 1993, between CIPS and IDFA in connection with IDFA's $35,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-1 due August 15, 2026 and $25,000,000 Pollution Control Revenue Refunding Bonds, 1993 Series C-2 due August 15, 2026. 5. CIPS Credit Agreement dated October 1, 1992 with various banks providing unsecured lines of credit in an aggregate amount of $60,000,000. (b) Reports on Form 8-K CIPSCO None. CIPS None. -91- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIPSCO Incorporated (Registrant) By /s/ C. L. GREENWALT _____________________________________ C. L. Greenwalt President and Chief Executive Officer Date: March 3, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Principal Executive Officer: /s/ C. L. GREENWALT C. L. GREENWALT President and Chief Executive Officer and Director Principal Financial Officer: /s/ R. W. JACKSON R. W. JACKSON Senior Vice President, Chief Financial Officer, Secretary, Director and as Attorney-in-Fact* Principal Accounting Officer: /s/ J. C. FIAUSH J. C. FIAUSH Controller, Chief Accounting Officer and Assistant Treasurer WILLIAM J. ALLEY* Director JOHN L. HEATH* Director GORDON R. LOHMAN* Director HANNE M. MERRIMAN* Director DONALD G. RAYMER* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 3, 1995 -92- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY (Registrant) By /s/ C. L. GREENWALT _____________________________________ C. L. Greenwalt President and Chief Executive Officer Date: March 3, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated. Signature Title Principal Executive Officer: /s/ C. L. GREENWALT C. L. GREENWALT President and Chief Executive Officer and Director Principal Financial Officer: /s/ R. W. JACKSON R. W. JACKSON Senior Vice President and Secretary, Director and as Attorney-in-Fact* Principal Accounting Officer: /s/ J. C. FIAUSH J. C. FIAUSH Controller WILLIAM J. ALLEY* Director JOHN L. HEATH* Director GORDON R. LOHMAN* Director HANNE M. MERRIMAN* Director DONALD G. RAYMER* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 3, 1995 -93-
EX-10 2 Exhibit 10.05 MANAGEMENT CONTINUITY AGREEMENT This MANAGEMENT CONTINUITY AGREEMENT (this "Agreement"), effective as of February 7, 1995, by and between CIPSCO INCORPORATED (the "Company"), and the officer identified on the signature page hereof (the "Executive"); WITNESSETH: WHEREAS, the Executive is a senior executive of the Company and/or a Subsidiary (as hereinafter defined) and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of the Company; WHEREAS, the Company recognizes that, as is the case for most publicly held companies, the possibility of a Change in Control (as that term is hereafter defined) exists; WHEREAS, the Company desires to assure itself of both present and future continuity of management in the event of a Change in Control and desires to establish certain minimum compensation rights of its key senior executive officers, including the Executive, applicable in the event of a Change in Control; WHEREAS, the Company wishes to ensure that its senior executives are not practically disabled from discharging their duties upon a Change in Control; WHEREAS, this Agreement is not intended to alter materially the compensation and benefits which the Executive could reasonably expect to receive from the Company and/or Subsidiaries absent a Change in Control and, accordingly, although effective and binding as of the date hereof, this Agreement shall become operative only upon the occurrence of a Change in Control; and WHEREAS, the Executive is willing to render services to the Company and/or Subsidiaries on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, the Company and the Executive agree as follows: 1. Operation of Agreement. (a) This Agreement shall be effective and binding immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, this Agreement shall not be operative unless and until there shall have occurred a Change 94 in Control. For purposes of this Agreement, a "Change in Control" shall have occurred if at any time during the Term (as that term is hereafter defined) any of the following events shall occur: (i) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of the Company immediately prior to such transaction; (ii) Central Illinois Public Service Company ("CIPS ) is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then- outstanding securities of such corporation or person immediately after such transaction are held by the Company or held in the aggregate by the holders of Voting Stock of the Company immediately prior to such transaction; (iii) The Company sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (iv) CIPS sells all or substantially all of its assets to any other corporation or other legal person, less than a majority of the combined voting power of the then- outstanding securities of such corporation or person immediately after such sale are held by the Company or held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale; (v) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Voting Stock"); 95 (vi) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than the Company has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of CIPS ("CIPS Voting Stock"); (vii) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (viii) CIPS files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of CIPS has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (ix) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (ix), each Director who is first elected, or first nominated for election by the Company's stockholders, by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of the Company at the beginning of any such period will be deemed to have been a Director of the Company at the beginning of such period; or (x) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of CIPS cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause (x), each Director who is first elected, or first nominated for election by CIPS' stockholders, by a vote of at least two-thirds of the Directors of CIPS (or a committee thereof) then still in office who were Directors of CIPS at the beginning of any such period will be deemed to have been a Director of CIPS at the beginning of such period. Notwithstanding the foregoing provisions of Section l(a)(v), 96 l(a)(vi), l(a)(vii) or l(a)(viii) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of the Company (the "Board"), a "Change in Control" shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (iii) any Company or Subsidiary-sponsored employee stock ownership plan or any other employee benefit plan of the Company or a Subsidiary, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or CIPS Voting Stock, whether in excess of 20% or otherwise, or because the Company or a Subsidiary reports that a change in control of the Company or CIPS has or may have occurred or will or may occur in the future by reason of such beneficial ownership. (b) Upon the occurrence of a Change in Control at any time during the Term, this Agreement shall become immediately operative. (c) The period during which this Agreement shall be in effect (the "Term") shall commence as of the date hereof and shall expire as of the later of (i) the close of business on December 31, 1998, provided, however, that commencing on January 1, 1996 and each January 1 thereafter, such date shall automatically be extended for an additional year unless, not later than September 30 of the immediately preceding year, the Company or the Executive shall have given notice that it or he, as the case may be, does not wish to have such date extended, and (ii) the expiration of the Period of Employment (as that term is hereinafter defined). Notwithstanding the foregoing and subject to Section 10 hereof, if, prior to a Change in Control, the Executive ceases for any reason to be an employee of the Company and its Subsidiaries, thereupon the Term shall be deemed to have expired and this Agreement shall immediately terminate and be of no further effect. 97 2. Employment; Period of Employment: (a) Subject to the terms and conditions of this Agreement, upon the occurrence of a Change in Control, the Company and/or any Subsidiary shall continue the Executive in its employ and the Executive shall remain in the employ of the Company and/or any Subsidiary, as the case may be, for the period set forth in Section 2(b) hereof (the "Period of Employment"), in the position and with substantially the same duties and responsibilities that he had immediately prior to the Change in Control, or to which the Company and the Executive may hereafter mutually agree in writing. Throughout the Period of Employment, the Executive shall devote substantially all of his time during normal business hours (subject to vacations, sick leave and other absences in accordance with the policies of the Company or the applicable Subsidiary as in effect for senior executives immediately prior to the Change in Control) to the business and affairs of the Company and/or any Subsidiary, but nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time during normal business hours to (i) serving as a director, trustee or member of or participant in any organization or business so long as such activity would not constitute Competitive Activity (as that term is hereafter defined) if conducted by the Executive after the Executive s Termination Date (as that term is hereafter defined), (ii) engaging in charitable and community activities, or(iii) managing his personal investments. (b) The Period of Employment shall commence on the date of an occurrence of a Change in Control and, subject only to the provisions of Section 4 hereof, shall continue until the earliest of (i) the expiration of the third anniversary of the occurrence of the Change in Control, (ii) the Executive s death, or (iii) the Executive s attainment of age 65. 3. Compensation During Period of Employment: (a) Upon the occurrence of a Change in Control, the Executive shall receive during the Period of Employment (i) annual base salary at a rate not less than the Executive s annual fixed or base compensation from the Company and any Subsidiary (payable monthly or otherwise as in effect for senior executives immediately prior to the occurrence of a Change in Control) or such higher rate as may be determined from time to time by the Board or the Compensation Committee thereof (or board or committee of the applicable Subsidiary)(which base salary at such rate is herein referred to as "Base Pay") and (ii) an annual amount equal to not less than the highest aggregate annual bonus, incentive or other payments of cash compensation in addition to the amounts referred to in clause (i) above made or to be made in regard to services rendered in any calendar year during the three calendar years immediately preceding the year in which the Change in Control occurred pursuant to any bonus, incentive, profit-sharing, performance, discretionary pay or similar agreement, policy, plan, 98 program or arrangement (whether or not funded) of the Company or the applicable Subsidiary or any successor thereto providing benefits at least as great as the benefits payable thereunder prior to a Change in Control ("Incentive Pay"); provided, however, that (A) with the prior written consent of the Executive, nothing herein shall preclude a change in the mix between Base Pay and Incentive Pay so long as that the aggregate cash compensation received by the Executive in any one calendar year is not reduced in connection therewith or as a result thereof, (B) in no event shall any increase in the Executive s aggregate cash compensation or any portion thereof in any way diminish any other obligation of the Company or the applicable Subsidiary under this Agreement, and (C) no duplicate payment hereunder will be made in respect of any amount actually paid to the Executive pursuant to any such agreement, policy, plan, program or arrangement. (b) For his service pursuant to Section 2(a) hereof, during the Period of Employment the Executive shall be a full participant in, and shall be entitled to the perquisites, benefits and service credit for benefits as provided under, any and all employee retirement income and welfare benefit policies, plans, programs or arrangements in which senior executives of the Company or the applicable Subsidiary participate, including without limitation any stock option, stock purchase, stock appreciation, savings, pension, supplemental executive retirement or other retirement income or welfare benefit, deferred compensation, incentive compensation, group and/or executive life, health, medical/hospital or other insurance (whether funded by actual insurance or self-insured by the Company or the applicable Subsidiary), disability, salary continuation, expense reimbursement and other employee benefit policies, plans, programs or arrangements that may now exist or any equivalent successor policies, plans, programs or arrangements that may be adopted hereafter by the Company or the applicable Subsidiary providing perquisites, benefits and service credit for benefits at least as great as are payable thereunder prior to a Change in Control (collectively, "Employee Benefits"); provided, however, that except as expressly provided in, and subject to the terms of, Section 3(a) hereof, the Executive s rights thereunder shall be governed by the terms thereof and shall not be enlarged hereunder or otherwise affected hereby. If and to the extent such perquisites, benefits or service credit for benefits are not payable or provided under any such policy, plan, program or arrangement as a result of the amendment or termination thereof, then the Company shall itself pay or provide therefor. Nothing in this Agreement shall preclude improvement or enhancement of any such Employee Benefits, provided that no such improvement shall in any way diminish any other obligation of the Company under this Agreement. 99 4. Termination Following a Change in Control: (a) In the event of the occurrence of a change in Control, the Executive s employment with the Company and each Subsidiary may be terminated by the Company (or the applicable Subsidiary) during the Period of Employment and the Executive shall not be entitled to the benefits provided by Sections 5 and 6 hereof only upon the occurrence of one or more of the following events: (i) The Executive's death; (ii) If the Executive shall become permanently disabled within the meaning of, and begins actually to receive disability benefits pursuant to, the long- term disability plan in effect for senior executives of the Company or the applicable Subsidiary immediately prior to the Change in Control; or (iii) "Cause," which for purposes of this Agreement shall mean that, prior to any termination pursuant to Section 4(b) hereof, the Executive shall have committed: (A) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company and/or any subsidiary; (B) intentional wrongful damage to property of the Company and/or any Subsidiary; (C) intentional wrongful disclosure of secret processes or confidential information of the Company and/or any Subsidiary; or (D) intentional wrongful engagement in any Competitive Activity; and any such act shall have been materially harmful to the Company and/or any Subsidiary. For purposes of this Agreement, no act, or failure to act, on the part of the Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company or the applicable Subsidiary. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the 100 Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive had committed an act set forth above in Section 4(a)(iii) and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Executive or his beneficiaries to contest the validity or propriety of any such determination. (b) In the event of the occurrence of a Change in Control, this Agreement may be terminated by the Executive during the Period of Employment with the right to severance compensation as provided in Sections 5 and 6 hereof upon the occurrence of one or more of the following events (regardless of whether any other reason, other than Cause as hereinabove provided, for such termination exists or has occurred, including without limitation other employment): (i) Any termination by the Company and Subsidiaries of the employment of the Executive prior to the date upon which the Executive shall have attained age 65, which termination shall be for any reason other than for Cause or as a result of the death of the Executive or by reason of the Executive s disability and the actual receipt of disability benefits in accordance with Section 4(a)(ii) hereof; or (ii) Termination by the Executive of his employment with the Company and Subsidiaries during the Period of Employment upon the occurrence of any of the following events: (A) Failure to elect or reelect or otherwise to maintain the Executive in the office or the position, or a substantially equivalent office or position, of or with the Company and/or Subsidiaries which the Executive held immediately prior to a Change in Control, or the removal of the Executive as a Director of the Company and/or Subsidiaries (or any successor thereto) if the Executive shall have been a Director of the Company and/or Subsidiaries immediately prior to the Change in Control; (B) A significant adverse change in the nature or scope of the authorities, powers, functions, responsibilities or duties attached to the position with the Company and any Subsidiary which the Executive held immediately prior to the Change in Control, a reduction in the aggregate of the Executive s Base Pay and Incentive Pay received from the Company and Subsidiaries, or the termination or denial of the Executive s rights to Employee Benefits as herein provided, any of which is not remedied within 10 calendar days after receipt by the Company of written notice from the Executive of such change, reduction or 101 termination, as the case may be; (C) A determination by the Executive made in good faith that as a result of a Change in Control and a change in circumstances thereafter significantly affecting his position, including without limitation a change in the scope of the business or other activities for which he was responsible immediately prior to a Change in Control, he has been rendered substantially unable to carry out, has been substantially hindered in the performance of, or has suffered a substantial reduction in, any of the authorities, powers, functions, responsibilities or duties attached to the position held by the Executive immediately prior to the Change in Control, which situation is not remedied within 10 calendar days after written notice to the Company from the Executive of such determination; (D) The liquidation, dissolution, merger, consolidation or reorganization of the Company or the Subsidiary which is the employer of the Executive or transfer of all or a significant portion of its business and/or assets, unless the successor or successors (by liquidation, merger, consolidation, reorganization or otherwise) to which all or a significant portion of its business and/or assets have been transferred (directly or by operation of law) shall have assumed all duties and obligations of the Company under this Agreement pursuant to Section 12 hereof; (E) The Company shall relocate its principal executive offices, or require the Executive to have his principal location of work changed, to any location which is in excess of 25 miles from the location thereof immediately prior to the Change of Control or to travel away from his office in the course of discharging his responsibilities or duties hereunder significantly more (in terms of either consecutive days or aggregate days in any calendar year) than was required of him prior to the Change of Control without, in either case, his prior written consent; or (F) Without limiting the generality or effect of the foregoing, any material breach of this Agreement by the Company or any successor thereto. (c) A termination pursuant to Section 4(a) hereof or by the Executive pursuant to Section 4(b) hereof shall not affect any rights which the Executive may have pursuant to any agreement, policy, plan, program or arrangement of the Company or the applicable Subsidiary providing Employee Benefits (except as provided in Section 5(a)(ii) hereof), which rights shall be governed by the terms thereof. If this Agreement or the employment of the Executive is terminated under circumstances in 102 which the Executive is not entitled to any payments under Sections 3, 5 or 6 hereof, the Executive shall have no further obligation or liability to the Company hereunder with respect to his prior or any future employment by the Company. 5. Severance Compensation: (a) If, following the occurrence of a Change in Control, the Company and every Subsidiary shall terminate the Executive s employment during the Period of Employment other than pursuant to Section 4(a) hereof, or if the Executive shall terminate his employment pursuant to Section 4(b) hereof, the Company shall continue to provide (or cause a Subsidiary to continue to provide) the following benefits and shall further pay to the Executive the following amounts within five business days after the date (the "Termination Date") that the Executive s employment is terminated (the effective date of which shall be the date of termination, or such other date that may be specified by the Executive if the termination is pursuant to Section 4(b) hereof): (i) In lieu of any further payments to the Executive for periods subsequent to the Termination Date, but without affecting the rights of the Executive referred to in Section 5(b) hereof, a lump sum payment (the "Severance Payment") in an amount equal to the present value (using a discount rate required to be utilized for purposes of computations under Section 28OG of the Code or any successor provision thereto or, if no such rate is so required to be used, a rate equal to the then-applicable interest rate prescribed by the Pension Benefit Guaranty Corporation for benefit valuations in connection with non-multiemployer pension plan terminations assuming the immediate commencement of benefit payments (the "Discount Rate") ) of the sum of (A) the aggregate Base Pay (at the highest rate in effect for any period prior to the Termination Date) for each remaining year or partial year of the Period of Employment which the Executive would have received had such termination or breach not occurred, plus (B) the aggregate Incentive Pay (determined in accordance with the standards set forth in Section 3(a)(ii) hereof), which the Executive would have received pursuant to this Agreement or any agreement, policy, plan, program or arrangement referred to therein during the remainder of the Period of Employment had his employment continued for the remainder of the Period of Employment (in which event the Executive will no longer be entitled to Incentive Pay under any such agreement, policy, plan, program or arrangement except for Incentive Pay to which he was entitled for service prior to the Termination Date). (ii) For the remainder of the Period of Employment, the Company shall arrange (or cause a Subsidiary to arrange) to provide the Executive with Employee Benefits that are welfare 103 benefits, but not stock option, stock purchase, stock appreciation, or similar compensatory benefits, substantially similar to those which the Executive was receiving or entitled to receive immediately prior to the Termination Date (and if and to the extent that such benefits shall not or cannot be paid or provided under any policy, plan, program or arrangement of the Company or Subsidiary, then the Company shall itself pay or provide (or cause a Subsidiary to pay or provide) for the payment to the Executive, his dependents and beneficiaries, such Employee Benefits). Without otherwise limiting the purposes or effect of Section 7 hereof, Employee Benefits otherwise receivable by the Executive pursuant to the first sentence of this Section 5(a)(ii) shall be reduced to the extent comparable welfare benefits are actually received by the Executive from another employer during such period following the Executive s Termination Date, and any such benefits actually received by the Executive shall be reported by the Executive to the Company. Notwithstanding the foregoing, the remainder of the Period of Employment shall be considered service with the Company and/or Subsidiaries for the purpose of determining service credits and benefits due and payable to the Executive under the retirement income, supplemental executive retirement and other benefit plans of the Company and/or Subsidiaries applicable to the Executive or his beneficiaries immediately prior to the Termination Date. (b) Upon written notice given by the Executive to the Company prior to the occurrence of a Change in Control, the Executive, at his sole option, without reduction to reflect the present value of such amounts as aforesaid, may elect to have all or any of the Severance Payment payable pursuant to Section 5(a) (i) hereof paid to him on a quarterly or monthly basis during the remainder of the Period of Employment. (c) There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to or benefit for the Executive provided for in this Agreement, except as expressly provided in Section 5(a)(ii) hereof. (d) Without limiting the rights of the Executive at law or in equity, if the Company or Subsidiary fails to make any payment required to be made hereunder on a timely basis, the Company shall pay interest on the amount thereof at an annualized rate of interest equal to the then-applicable Discount Rate. (e) Notwithstanding any other provision hereof, the parties respective rights and obligations under this Section 5 will survive any termination or expiration of this Agreement or the termination of the Executive s employment for any reason whatsoever. 104 6. Certain Additional Payments by the Company: (a) Anything in this Agreement to the contrary notwithstanding, in the event that this Agreement shall become operative and it shall be determined (as hereafter provided) that any payment or distribution by the Company or any of its affiliates to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (individually and collectively a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company or CIPS, within the meaning of Section 28OG of the Code (or any successor provision thereto), or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment or payments (individually and collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of section 6(e) hereof, all determinations required to be made under this Section 6, including whether an Excise Tax is payable by the Executive and the amount of such Excise Tax and whether a Gross-Up Payment is required to be paid by the Company to the Executive and the amount of such Gross-Up Payment, if any, shall be made by a nationally recognized accounting firm (the "Accounting Firm")selected by the Executive in his sole discretion. The Executive shall direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Company and the Executive within 30 calendar days after the Determination Date, if applicable, and any such other time or times as may be requested by the Company or the Executive. If the Accounting Firm determines that any Excise Tax is payable by the Executive, the Company shall pay the required Gross-Up Payment to the Executive within five business days after receipt of such determination and calculations with respect to any Payment to the Executive. The federal tax returns filed by the Executive shall be prepared and filed on a consistent basis with the determination of the Accounting Firm with respect to the Excise Tax payable by the Executive. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall, at the same time as it makes such determination, furnish the company and the Executive an opinion that the Executive has substantial authority not to report 105 any Excise Tax on his federal income tax return. As a result of the uncertainty in the application of Section 4999 of the Code (or any successor provision thereto) at the time of any determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (an "Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts or fails to pursue its remedies pursuant to Section 6(e) hereof and the Executive thereafter is required to make a payment of any Excise Tax, the Executive shall direct the Accounting Firm to determine the amount of the Underpayment that has occurred and to submit its determination and detailed supporting calculations to both the Company and the Executive as promptly as possible. Any such Underpayment shall be promptly paid by the Company to, or for the benefit of, the Executive within five business days after receipt of such determination and calculations. (c) The Company and the Executive shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by Section 6(b) hereof. (d) The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by Section 6(b) hereof shall be borne by the Company. If such fees and expenses are initially paid by the Executive, the Company shall reimburse the Executive the full amount of such fees and expenses within five business days after receipt from the Executive of a statement therefor and reasonable evidence of his payment thereof. (e) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. Such notification shall be given as promptly as practicable but no later than 10 business days after the Executive actually receives notice of such claim and the Executive shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Executive). The Executive shall not pay such claim prior to the earlier of (i) the expiration of the 30- calendar-day period following the date on which he gives such notice to the Company and (ii) the date that any payment of amount with respect to such claim is due. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) provide the Company with any written records or documents in his possession relating to such claim reasonably requested by the Company; 106 (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney competent in respect of the subject matter and reasonably selected by the Company; (iii) cooperate with the Company in good faith in order effectively to contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and shall indemnify and hold harmless the Executive, on an after-tax basis, for and against any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. Without limiting the foregoing provisions of this Section 6(e), the Company shall control all proceedings taken in connection with the contest of any claim contemplated by this Section 6(e) and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim (provided, however, that the Executive may participate therein at his own cost and expense) and may, at its option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay the tax claimed and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto imposed with respect to such advance; and provided further, however, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which the contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of any such contested claim shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (f) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, the Executive receives any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 6(e) hereof) promptly pay to the Company the amount of such refund (together with any interest paid or 107 credited thereon after any taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 6(e) hereof, a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial or refund prior to the expiration of 30 calendar days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of any such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid by the Company to the Executive pursuant to this Section 6. 7. No Mitigation Obligation: The Company hereby acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following the Termination Date and that the noncompetition covenant contained in Section 8 hereof will further limit the employment opportunities for the Executive. Accordingly, the parties hereto expressly agree that the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise, except as expressly provided in Section 5(a)(ii) hereof. 8. Competitive Activity: During a period ending one year following the Termination Date, if the Executive shall have received or shall be receiving benefits under Section 5 hereof and, if applicable, Section 6 hereof, the Executive shall not, without the prior written consent of the Company, which consent shall not be unreasonably withheld, engage in any Competitive Activity. For purposes of this Agreement, the term "Competitive Activity" shall mean the Executive s participation, without the written consent of an officer of the Company, in the management of any business enterprise if such enterprise engages in substantial and direct competition with the Company or its Subsidiaries and such enterprise s sales of any product or service competitive with any product or service of the Company or such Subsidiary amounted to 25% of such enterprise s net sales for its most recently completed fiscal year and if the Company's or such Subsidiary's net sales of said product or service amounted to 25% of the Company's or such Subsidiary's net sales for its most recently completed fiscal year. "Competitive activity" shall not include (i) the mere ownership of securities in any such enterprise and exercise of rights appurtenant thereto or (ii) participation in management of any such enterprise other than in connection with the competitive operations of such enterprise. 108 9. Legal Fees and Expenses: (a) It is the intent of the Company that the Executive not be required to incur legal fees and the related expenses associated with the enforcement or defense of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Company or Subsidiary has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of his choice, at the expense of the Company and the Subsidiaries as hereafter provided, to represent the Executive in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any Director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney- client relationship between the Company and such counsel, the Company irrevocably consents to the Executive s entering into an attorney-client relationship with such counsel, and in that connection the Company and the Executive agree that a confidential relationship shall exist between the Executive and such counsel. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company shall pay or cause to be paid and shall be solely responsible for any and all attorneys' and related fees and expenses incurred by the Executive in connection with any of the foregoing. (b) Without limiting the generality or effect of Section 9(a) hereof, in order to ensure the benefits intended to be provided to the Executive under Section 9(a) hereof, the Company will promptly use its best efforts to secure an irrevocable standby letter of credit (the "Letter of Credit"), issued by The First National Bank of Chicago or another bank having combined capital and surplus in excess of $500 million (the "Bank") for the benefit of the Executive and certain other of the officers of the Company and the Subsidiaries and providing that the fees and expenses of counsel selected from time to time by the Executive pursuant to this Section 9 shall be paid, or reimbursed to the Executive if paid by the Executive, on a regular, periodic basis upon presentation by the Executive to the Bank of a statement or statements prepared by such counsel in accordance with its customary practices. The Company shall pay all amounts and take all action necessary to maintain the Letter of Credit during the Period of Employment and for two years thereafter and if, notwithstanding the Company's complete discharge of such obligations, such Letter of Credit shall be terminated or not 109 renewed, the Company shall obtain a replacement irrevocable clean letter of credit drawn upon a commercial bank selected by the Company and reasonably acceptable to the Executive, upon substantially the same terms and conditions as contained in the Letter of Credit, or any similar arrangement which, in any case, assures the Executive the benefits of this Agreement without incurring any cost or expense in connection therewith. (c) Notwithstanding any other provision hereof, the parties' respective rights and obligations under this Section 9 will survive any termination or expiration of this Agreement or the termination of the Executive s employment for any reason whatsoever. 10. Employment Rights: Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or any Subsidiary or the Executive to have the Executive remain in the employment of the Company or any Subsidiary prior to any Change in Control; provided, however, that any termination of employment of the Executive or the removal of the Executive from his office or position in the Company or any Subsidiary following the commencement of any discussion with a third person that ultimately results in a Change in Control shall be deemed to be a termination or removal of the Executive after a Change in Control for purposes of this Agreement. 11. Withholding of Taxes: The Company or any Subsidiary may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 12. Successors and Binding Agreement: (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but shall not otherwise be assignable, transferable or delegable by the Company. The Company will cause its Subsidiaries to comply with the provisions of this Agreement. 110 (b) This Agreement shall inure to the benefit of and be enforceable by the Executive s personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 12(a) and 12(b) hereof. Without limiting the generality of the foregoing, the Executive s right to receive payments hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 12(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. (d) The Company and the Executive recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company and the Executive hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Agreement. 13. Notice: For all purposes of this Agreement, all communications including without limitation notices, consents, requests or approvals, provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Governing Law: The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois, without giving effect to the principles of conflict of laws of such State. 15. Validity: If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 111 16. Miscellaneous: No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 17. Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. 18. Prior Agreement. The Employment Agreement dated February 5, 1991 between the Company and Executive is hereby terminated as of the effective date of this Agreement. (Note: this paragraph may be deleted if inapplicable.) IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. CIPSCO INCORPORATED By____________________________ Clifford L. Greenwalt, President EXECUTIVE ______________________________ 112 EX-10 3 Exhibit 10.10 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXCESS BENEFIT PLAN (As Amended And Restated Effective As Of April 1, 1995) 113 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY EXCESS BENEFIT PLAN (As Amended And Restated Effective As Of April 1, 1995) The Central Illinois Public Service Company Excess Benefit Plan (the "Excess Benefit Plan") is an equalization benefit plan established by Central Illinois Public Service Company (the "Company") effective as of January 1, 1984, for eligible participants in the Central Illinois Public Service Company Retirement Income Plan, as amended from time to time (the "Basic Plan"). The terms and conditions of the Excess Benefit Plan, as amended and restated effective as of April 1, 1995, are hereinafter set forth. The Excess Benefit Plan is separate from the Basic Plan. It is not a qualified plan for purposes of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of the Excess Benefit Plan is to restore benefit payments which would be paid under the Basic Plan except for limitations imposed by Sections 401(a)(17) and 415 of the Code. For purposes of the Excess Benefit Plan, reference to a "participant in the Basic Plan" shall include a Participant or the Eligible Spouse of a Participant, as such terms are defined in the Basic Plan, and reference to an "Eligible Spouse" shall mean an Eligible Spouse as defined in the applicable provisions of the Basic Plan. For purposes of the Excess Benefit Plan, the term "Employer" shall mean the Company and any affiliate that is an 114 Employer under the Basic Plan. ARTICLE I Restored Benefits Subject to the provisions of Article II hereof, a participant in the Basic Plan who is entitled to a reduced benefit under the Basic Plan on account of either or both of the limitations of Section 401(a)(17) or Section 415 of the Code shall be entitled to a monthly benefit under the Excess Benefit Plan in the amount of the excess, if any, of (a) over (b), where: (a) equals the amount of monthly benefit which would have been paid to such participant under the Basic Plan if benefit payments under the Basic Plan were made without regard to the limitations imposed by Sections 401(a)(17) and 415 of the Code, and (b) equals the amount of monthly benefit which is paid to such participant under the Basic Plan. ARTICLE II General Provisions A. Reference to the Basic Plan - The Basic Plan, whenever referred to in the Excess Benefit Plan, shall mean, unless otherwise specifically provided, the Basic Plan as in effect as of the date a determination of benefits is made under the Excess Benefit Plan. B. Payment of Benefits - 1. In General - Except as provided in paragraph 4 of 115 this Article II.B., benefits payable under the Excess Benefit Plan shall be paid in the same manner and form and shall be subject to the same options, conditions, privileges, limitations and restrictions (other than those contained in the Basic Plan relating to the limitations of Sections 401(a)(17) and 415 of the Code) as are applicable to the benefits payable to the participant under the Basic Plan. 2. Time of Payment - Except as provided in paragraph 4 of this Article II.B., the benefits under the Excess Benefit Plan shall become payable when a participant begins to receive payments under the Basic Plan and shall be paid at the same time as under the Basic Plan. 3. Withholding - Notwithstanding any provision of the Excess Benefit Plan to the contrary, amounts payable under the Excess Benefit Plan shall be reduced to the extent of amounts required to be withheld by the Employer under federal, state, or local law. 4. Lump Sum Payment - (a) Notwithstanding any other provision of the Excess Benefit Plan to the contrary, in the event a "Change in Control" (as defined below) occurs, (i) the benefits payable under the Excess Benefit Plan: (A) to any participant in the Basic Plan receiving benefits under the Excess Benefit Plan as of the date of the occurrence of the Change in Control, (B) to or in respect of a participant in the Basic Plan who had terminated employment with the Company and its 116 affiliates prior to the occurrence of the Change in Control under circumstances such that the participant or his Eligible Spouse is entitled to a benefit under Article I of the Excess Benefit Plan which at the time of the Change in Control has not begun to be paid, and (C) to any participant in the Basic Plan who within the two year period beginning on the date of the occurrence of the Change in Control terminates employment with the Company and its affiliates for reasons other than death, shall, in each case, be paid by the Employer in a lump sum in the amount equal to the actuarially determined present value of the benefits (or remaining benefits in the case of a participant receiving benefits under the Excess Benefit Plan as of the date of the occurrence of the Change in Control) payable to or in respect of the participant under the Excess Benefit Plan (including survivor benefits, if applicable), and (ii) the benefits payable under the Excess Benefit Plan to an Eligible Spouse upon the death of a participant in the Basic Plan who terminates employment with the Company and its affiliates within the two year period beginning on the date of the occurrence of the Change in Control by reason of death shall be paid by the Employer in a lump sum in an amount equal to the actuarially determined present value of the benefits payable to the Eligible Spouse under the Excess Benefit Plan. In addition, in the event any payment to a participant in the Basic Plan by the Employer pursuant to the terms of this paragraph 4 of the Excess Benefit Plan and the terms of any similar provision of the Central Illinois Public Service Company 117 Special Executive Retirement Plan (individually and collectively a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company or of its parent, CIPSCO Incorporated ("CIPSCO ), within the meaning of Section 28OG of the Code (or any successor provision thereto), or to any similar tax imposed by state or local law, or any interest or penalties with respect to such taxes (such taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the participant shall be entitled to receive an additional payment (a "Gross-Up Payment") under this paragraph 4 of the Excess Benefit Plan to the extent such additional payment is not otherwise made (or included in any payment otherwise made) to the participant under any employment agreement or other agreement, policy, plan, program or arrangement of the Company or any affiliate thereof. The Gross-Up Payment shall be in an amount such that, after payment by the participant of all taxes (including any interest or penalties imposed with respect to such taxes), including the Excise Tax imposed on the Gross-Up Payment, the participant retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. Upon the foregoing payments, no further benefits shall be payable under the Excess Benefit Plan to such participant (or upon his death to his Eligible Spouse) or to such Eligible Spouse. Payments under this paragraph 4 to or in respect of a participant in the Basic Plan shall be made within [30] days 118 after the date on which the Change in Control occurs or, if later, the date the participant terminates employment with the Company and its affiliates. In the event an individual entitled to payment under this paragraph 4 dies after the later of such dates but prior to payment, the payments under this paragraph 4 shall be made to the individuals surviving spouse, if any, or to the executor or administrator of the individuals estate in the event the individual does not have a surviving spouse. (b) The amount of lump sum payment and additional payment under this paragraph 4 shall be determined by the Committee, but subject to approval by the Compensation Committee of the Board of Directors of the Company, using, in the case of the lump sum payment, the applicable mortality table and the applicable interest rate provided under Section 417(e)(3)(A) of the Code, or any successor provision thereto, and the regulations, rulings and announcements issued thereunder. (c) For purposes of the Excess Benefit Plan, "Change in Control" shall mean the occurrence of any of the following events: (1) CIPSCO is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of CIPSCO immediately prior to such transaction; (2) The Company is merged, consolidated or 119 reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such transaction are held by CIPSCO or held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such transaction; (3) CIPSCO sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then- outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such sale; (4) The Company sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then- outstanding securities of such corporation or person immediately after such sale are held by CIPSCO or held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such sale; (5) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 120 securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of CIPSCO ("Voting Stock"); (6) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than CIPSCO has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the Company ("Company Voting Stock"); (7) CIPSCO files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of CIPSCO has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (8) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing 121 contract or transaction; (9) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of CIPSCO cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause 9 each Director who is first elected, or first nominated for election by CIPSCO's stockholders, by a vote of at least two- thirds of the Directors of CIPSCO (or a committee thereof) then still in office who were Directors of CIPSCO at the beginning of any such period will be deemed to have been a Director of CIPSCO at the beginning of such period; or (10) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause 10, each Director who is first elected, or first nominated for election by Company's stockholders, by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of Company at the beginning of any such period will be deemed to have been a Director of Company at the beginning of such period. Notwithstanding the foregoing provisions of subparagraph 4(c)(5), 4(c)(6), 4(c)(7) or 4(c)(8) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of CIPSCO, a "Change in Control" shall not be deemed to have occurred for purposes of this Excess Benefit Plan solely because (i) CIPSCO, (ii) an entity in which CIPSCO directly or 122 indirectly beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (iii) any CIPSCO or Subsidiary-sponsored employee stock ownership plan or any other employee benefit plan of CIPSCO or a Subsidiary, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or Company Voting Stock, whether in excess of 20% or otherwise, or because CIPSCO or a Subsidiary reports that a Change in Control of the Company or CIPSCO has or may have occurred or will or may occur in the future by reason of such beneficial ownership. C. Amendment and Discontinuance - The Excess Benefit Plan is expected to continue indefinitely. However, it may be amended or discontinued at any time by the Board of Directors of the Company in its sole discretion; provided, however, no such amendment nor termination of the Excess Benefit Plan shall adversely affect the rights of any person without his prior written consent if such person (i) is receiving benefits under the Excess Benefit Plan, (ii) would be entitled to a benefit under the Excess Benefit Plan if such person terminated employment immediately prior to the date of adoption of such amendment or termination, or (iii) is entitled to receive benefits under the Excess Benefit Plan on account of a prior termination of employment. D. Financing of Benefits - Benefits payable under the 123 Excess Benefit Plan to a participant in the Basic Plan or, in the event of his death, to his Eligible Spouse, shall be paid by the participant's Employer from its general assets. The payment of benefits under the Excess Benefit Plan represents an unfunded, unsecured obligation of the Employer. Notwithstanding the foregoing, nothing in the Excess Benefit Plan shall preclude an Employer from segregating assets which are intended to be a source for payment of benefits under the Excess Benefit Plan, including by deposit in trust pursuant to one or more trust agreements to which the Employer shall be a party. E. Governing Law - Except as provided by any federal law, the provisions of the Excess Benefit Plan shall be construed in accordance with and governed by the laws of the State of Illinois. F. Administration - The Excess Benefit Plan shall be administered by the Committee created under the Basic Plan (the "Committee"). Unless otherwise expressly provided herein, the Committee shall have such duties and powers as may be necessary to discharge its duties, including, but not by way of limitation, to construe and interpret the Excess Benefit Plan and determine the amount and time of payment of any benefits hereunder. The Committee shall have no power to add to, subtract from or modify any of the terms of the Excess Benefit Plan, or to change or add to any benefits provided under the Excess Benefit Plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Excess Benefit Plan. Unless otherwise expressly provided herein or unless and to the extent expressly provided otherwise in any trust agreement established to secure amounts 124 payable under the Excess Benefit Plan as provided in Article II.D., the Committee s decision in any matter involving the Excess Benefit Plan shall be final and binding on all persons. G. Facility of Payment - Whenever and as often as any person is entitled to payments under the Excess Benefit Plan shall be under a legal disability or, in the sole judgment of the Committee, shall otherwise be unable to apply such payments to his own best interest and advantage, the Committee, in the exercise of its discretion may direct all or any portion of such payments to be made in any one or more of the following ways: (i) directly to him; (ii) to his legal guardian or conservator; or (iii) to his spouse or to any other person, to be expended for his benefit; and the decision of the Committee shall in each case be final and binding upon all persons in interest. H. No Guarantee of Employment - Nothing contained in the Excess Benefit Plan shall be construed as a contract of employment between the Company or its affiliates and any employee, or as a right of any employee, to be continued in the employment of the Company or its affiliates, or as a limitation of the right of the Company or its affiliates to discharge any of their employees, with or without cause. I. Participants' Interests Not Transferable - Prior to payment, the interests of participants under the Excess Benefit Plan are not in any way subject to their debts or other obligations and may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered. 125 J. Plan Administrator - The Company shall be the "Administrator" under the Excess Benefit Plan for purposes of the Employee Retirement Income Security Act of 1974, as amended from time to time. K. Claims - The Committee will provide any participant whose claim for benefits under the Excess Benefit Plan has been fully or partially denied a written notice setting forth the specific reasons for such denial. Such notice shall state that the participant is entitled to request a review, by the Committee, of the decision denying the claim. L. Successors - An Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and to agree to perform this Excess Benefit Plan in the same manner and to the same extent the Employer would be required to perform if no such succession had taken place. This Excess Benefit Plan shall be binding upon and inure to the benefit of the Employer and any successor of or to the Employer, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Employer whether by sale, merger, consolidation, reorganization or otherwise (and any such successor to the Company shall thereafter be deemed the "Company" for the purposes of this Excess Benefit Plan) and the heirs, executors and administrators of each participant. M. Vested Benefit - Each participant in the Basic Plan who is an employee of the Company on December 31, 1993 shall be fully 126 vested in his Accrued Benefit under the Excess Benefit Plan as of December 31, 1993 subject to the terms and conditions of the Excess Benefit Plan. For this purpose, "Accrued Benefit" means the amount of monthly benefit to which a participant in the Basic Plan would be entitled under Article I of the Excess Benefit Plan if he terminated his employment with the Company and its affiliates as of December 31, 1993. A participant's Accrued Benefit shall also include the amount of monthly benefit to which the participant's Eligible Spouse would be entitled following his death. IN WITNESS WHEREOF, Central Illinois Public Service Company has caused this instrument to be executed in its name by its President and its Corporate Seal to be hereunto affixed, attested by its Secretary, on this day of , 1995. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY By_____________________________________ President ATTEST: ____________________ Assistant Secretary 127 EX-10 4 Exhibit 10.11 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY SPECIAL EXECUTIVE RETIREMENT PLAN (As Amended And Restated Effective As Of April 1, 1995) 128 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY SPECIAL EXECUTIVE RETIREMENT PLAN (As Amended And Restated Effective As Of April 1, 1995) The Central Illinois Public Service Company Special Executive Retirement Plan (the "Plan") was established by Central Illinois Public Service Company (the "Company") effective as of February 3, 1987, for eligible participants. The terms and conditions of the Plan, as amended and restated effective as of April 1, 1995, are hereinafter set forth. The Plan is not a qualified plan for purposes of Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of the Plan is to provide retirement benefit payments to eligible participants, as defined in Article I, in addition to the payments provided under the Central Illinois Public Service Company Retirement Income Plan ("Retirement Income Plan"). For purposes of the Plan, the term "Employer" shall mean the Company and any affiliated employer to which the Plan is extended by the Board of Directors of the Company (the "Board of Directors") and which adopts the Plan. ARTICLE I. Eligible Participants 129 An "eligible participant" shall mean an employee of an Employer who was hired from outside the Employer, including from outside any affiliate of the Employer, as a senior officer of the Employer and who is a participant in and qualifies for a benefit under the Retirement Income Plan at his Termination Date. For this purpose, a senior officer shall include the President, a Vice-President and such other officer of an Employer as shall be designated from time to time by the Board of Directors of the Employer, and Termination Date shall mean the date an employee terminates his employment with the Employers and affiliates of the Employers due to death, disability, retirement at or after his Normal Retirement Date as defined in the Retirement Income Plan, retirement prior to his Normal Retirement Date with the consent of the Board of Directors of the Employer, or termination for any reason within the two year period beginning on the date of the occurrence of a Change in Control (as defined in paragraph 4(c) of Article III.B). ARTICLE II. Supplemental Benefits Subject to the provisions of Article III hereof, an eligible participant shall be entitled to receive a monthly benefit under the Plan in the amount of the excess of (a) over (b), where (a) equals the amount of monthly benefit which would have been paid or payable to such eligible participant under the Retirement Income Plan if retirement benefit payments under the Retirement Income Plan were computed (i) without regard to the 130 limitations imposed by Sections 401(a)(17) and 415 of the Code and (ii) as though Credited Service, as defined in the Retirement Income Plan, has been accrued as hereinafter provided, and (b) equals the sum of (i) the amount of monthly benefit that is paid or payable to such eligible participant under the Retirement Income Plan, (ii) the amount of monthly benefit paid or payable from any other defined benefit pension plan as a result of the eligible participant's prior employment with any employer which is not an Employer as defined in the Retirement Income Plan, (iii) the amount of monthly benefit paid or payable under the Central Illinois Public Service Company Excess Benefit Plan, and (iv) the amount of monthly benefit paid or payable after his Termination Date under any employment contract between the eligible participant and an Employer (specifically, excluding, however, any amount paid or payable under any Management Continuity Agreement" that becomes operative only on a change in control). The amount of monthly benefit under (b)(ii), (iii) or (iv) shall be an amount determined by the Committee, applying uniform standards, which shall be equal to the amount of monthly benefit which would be yielded by the present value of the expected payments to be made and/or which have been made under such other plans or contracts over the projected period of payment of benefit, and in the projected form of benefit, under the Retirement Income Plan. For purposes of this paragraph, any benefit referred to in (a) or (b) shall be determined without regard to the provisions of any applicable "qualified domestic relations order" as defined in 131 Section 414(p) of the Code. For purposes of the preceding paragraph, Credited Service means 35 years of Credited Service, provided, however, that if the eligible participant terminates his employment with the Company and its affiliates for any reason, including retirement or death, prior to his Normal Retirement Date as defined in the Retirement Income Plan, such Credited Service shall be the number of years of Credited Service obtained by multiplying 35 by a fraction, the numerator of which is the eligible participant's number of years of Credited Service computed under the Retirement Income Plan without regard to the provisions of this Plan and the denominator of which is the number of years of Credited Service the eligible participant would have had under the Retirement Income Plan had he continued in full-time employment with the Company and its affiliates until his Normal Retirement Date. Upon the death of the eligible participant, a monthly benefit shall be paid under the Plan to his Eligible Spouse, as defined under the applicable provisions of the Retirement Income Plan; provided, however, that such Eligible Spouse is married to the eligible participant on his date of death. The monthly benefit payable under the Plan to the Eligible Spouse shall be a percentage of the benefit provided under the Plan for the eligible participant. The percentage shall be determined in accordance with the provisions of the Retirement Income Plan for computing the benefit of an Eligible Spouse. 132 ARTICLE III. General Provisions A. Reference to the Retirement Income Plan - The Retirement Income Plan, whenever referred to in the Plan, shall mean the Retirement Income Plan as in effect on the eligible participant's Termination Date or other date of determination. B. Payment of Benefits - 1. In General - Except as provided in paragraph 4 of this Article III.B., benefits payable under the Plan shall be paid in the same manner and form and shall be subject to the same options, conditions, privileges, reductions, limitations and restrictions (other than those contained in the Retirement Income Plan relating to the limitations of Sections 401(a)(17) and 415 of the Code) as are applicable to the benefits payable under the Retirement Income Plan. 2. Time of Payment - Except as provided in paragraph 4 of this Article III.B., the benefits under the Plan shall become payable when an eligible participant or his Eligible Spouse, as the case may be, begins to receive payments under the Retirement Income Plan and shall be paid at the same time as under the Retirement Income Plan. 3. Withholding - Notwithstanding any provision of the Plan to the contrary, amounts payable under the Plan shall be reduced to the extent of amounts required to be withheld by the Employer under federal, state or local law. 133 4. Lump Sum Payment - (a) Notwithstanding any other provision of the Plan to the contrary, in the event a "Change in Control" (as defined below) occurs, (i) the benefits payable under the Plan: (A) to any eligible participants receiving benefits under the Plan as of the date of the occurrence of the Change in Control, (B) to or in respect of an eligible participant who had terminated employment with the Company and its affiliates prior to the occurrence of the Change in Control under circumstances such that the participant or his Eligible Spouse is entitled to a benefit under Article II of the Plan which at the time of the Change in Control has not begun to be paid, and (C) to any eligible participant who within the two year period beginning on the date of the occurrence of the Change in Control terminates employment with the Company and its affiliates for reasons other than death, shall, in each case, be paid by the Employer in a lump sum in the amount equal to the actuarially determined present value of the benefits (or remaining benefits in the case of an eligible participant or Eligible Spouse receiving benefits under the Plan as of the date of the occurrence of the Change in Control) payable to or in respect of the eligible participant under the Plan (including survivor benefits, if applicable), and (ii) the benefits payable under the Plan to an Eligible Spouse upon the death of an eligible participant who terminates employment with 134 the Company and its affiliates within the two year period beginning on the date of the occurrence of the Change in Control by reason of death shall be paid by the Employer in a lump sum in an amount equal to the actuarially determined present value of the benefits payable to the Eligible Spouse under the Plan. In addition, in the event any payment to an eligible participant or Eligible Spouse by the Employer pursuant to the terms of this paragraph 4 of the Plan and the terms of any similar provision of the Central Illinois Public Service Company Excess Benefit Plan (individually and collectively a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) by reason of being considered "contingent on a change in ownership or control" of the Company or of its parent, CIPSCO Incorporated ("CIPSCO ), within the meaning of Section 28OG of the Code (or any successor provision thereto), or to any similar tax imposed by state or local law, or any interest or penalties with respect to such taxes (such taxes, together with any such interest and penalties, being hereafter collectively referred to as the "Excise Tax"), then the eligible participant or Eligible Spouse shall be entitled to receive an additional payment (a "Gross-Up Payment") under this paragraph 4 of the Plan to the extent such additional payment is not otherwise made (or included in any payment otherwise made) to the eligible participant or Eligible Spouse under any employment agreement or other agreement, policy, plan, program or arrangement of the Company or any affiliate thereof. The Gross-Up Payment shall be 135 in an amount such that, after payment by the eligible participant or Eligible Spouse of all taxes (including any interest or penalties imposed with respect to such taxes), including the Excise Tax imposed on the Gross-Up Payment, the eligible participant or Eligible Spouse retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. Upon the foregoing payments, no further benefits shall be payable under the Plan to such eligible participant (or upon his death to his Eligible Spouse) or to such Eligible Spouse. Payments under this paragraph 4 to or in respect of an eligible participant or Eligible Spouse shall be made within [30] days after the date on which the Change in Control occurs or, if later, the date the eligible participant terminates employment with the Company and its affiliates. In the event an individual entitled to payment under this paragraph 4 dies after the later of such dates but prior to payment, the payments under this paragraph 4 shall be made to the individuals surviving spouse, if any, or to the executor or administrator of the individuals estate in the event the individual does not have a surviving spouse. (b) The amount of lump sum payment and additional payment under this paragraph 4 shall be determined by the Committee using, in the case of the lump sum payment, the applicable mortality table and the applicable interest rate provided under Section 417(e)(3)(A) of the Code, or any successor provision thereto, and the regulations, rulings and announcements issued thereunder. (c) For purposes of the Plan, "Change in Control" shall 136 mean the occurrence of any of the following events: (1) CIPSCO is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such transaction are held in the aggregate by the holders of Voting Stock (as that term is hereafter defined) of CIPSCO immediately prior to such transaction; (2) The Company is merged, consolidated or reorganized into or with another corporation or other legal person, and immediately after such merger, consolidation or reorganization less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such transaction are held by CIPSCO or held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such transaction; (3) CIPSCO sells all or substantially all of its assets to any other corporation or other legal person and less than a majority of the combined voting power of the then-outstanding securities of such corporation or person immediately after such sale are held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such sale; (4) The Company sells all or substantially all of its assets to any other corporation or other legal person and 137 less than a majority of the combined voting power of the then outstanding securities of such corporation or person immediately after such sale are held by CIPSCO or held in the aggregate by the holders of Voting Stock of CIPSCO immediately prior to such sale; (5) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of CIPSCO ("Voting Stock"); (6) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report), each as promulgated pursuant to the Exchange Act, disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) other than CIPSCO has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then-outstanding securities entitled to 138 vote generally in the election of directors of the Company ("Company Voting Stock"); (7) CIPSCO files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of CIPSCO has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (8) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a Change in Control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction; (9) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of CIPSCO cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause 9 each Director who is first elected, or first nominated for election by CIPSCO's stockholders, by a vote of at least two-thirds of the Directors of CIPSCO (or a committee thereof) then still in office who were Directors of CIPSCO at the beginning of any such period will be deemed to have been a Director of CIPSCO at the beginning of such period; or 139 (10) If during any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors of the Company cease for any reason to constitute at least a majority thereof, provided, however, that for purposes of this clause 10, each Director who is first elected, or first nominated for election by Company s stockholders, by a vote of at least two-thirds of the Directors of the Company (or a committee thereof) then still in office who were Directors of Company at the beginning of any such period will be deemed to have been a Director of Company at the beginning of such period. Notwithstanding the foregoing provisions of subparagraph 4(c)(5), 4(c)(6), 4(c)(7) or 4(c)(8) hereof, unless otherwise determined in a specific case by majority vote of the Board of Directors of CIPSCO, a "Change in Control" shall not be deemed to have occurred for purposes of this Plan solely because (i) CIPSCO, (ii) an entity in which CIPSCO directly or indirectly beneficially owns 50% or more of the voting securities (a "Subsidiary"), or (iii) any CIPSCO or Subsidiary-sponsored employee stock ownership plan or any other employee benefit plan of CIPSCO or a Subsidiary, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D- 1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or 140 Company Voting Stock, whether in excess of 20% or otherwise, or because CIPSCO or a Subsidiary reports that a Change in Control of the Company or CIPSCO has or may have occurred or will or may occur in the future by reason of such beneficial ownership. C. Amendment and Discontinuance - The Plan is expected to continue indefinitely. However, it may be amended or discontinued at any time by the Board of Directors in its sole discretion; provided, however, no such amendment or the termination of the Plan shall adversely affect the rights of any person without his prior written consent if such person (i) is receiving benefits under the Plan, (ii) would be entitled to a benefit under the Plan if such person terminated employment immediately prior to the date of adoption of such amendment or termination, or (iii) is entitled to receive benefits under the Plan on account of a prior termination of employment. D. Financing of Benefits - Benefits payable under the Plan to an eligible participant or, in the event of his death, to his Eligible Spouse, shall be paid by the eligible participant's Employer from its general assets. The payment of benefits under the Plan represents an unfunded, unsecured obligation of the Employer. Notwithstanding the foregoing, nothing in the Plan shall preclude an Employer from segregating assets which are intended to be a source for payment of benefits under the Plan, including by deposit in trust pursuant to one 141 or more trust agreements to which the Employer shall be a party. E. Governing Law - Except as provided by any federal law, the provisions of the Plan shall be construed in accordance with and governed by the laws of the State of Illinois. F. Administration - The Plan shall be administered by the Compensation Committee of the Board of Directors (the "Committee"). Unless otherwise specifically provided herein, the Committee shall have such duties and powers as may be necessary to discharge its duties, including, but not by way of limitation, to construe and interpret the Plan and determine the amount and time of payment of any benefits hereunder. The Committee shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided under the Plan, or to waive or fail to apply any requirements or eligibility for a benefit under the Plan. Unless and to the extent expressly provided otherwise in any trust agreement established to secure amounts payable under the Plan as provided in Article III.D., the Committee's decision in any matter involving the Plan shall be final and binding on all persons. G. Facility of Payment - Whenever and as often as any person entitled to payments under the Plan shall be under a legal disability or, in the sole judgment of the Committee, shall otherwise be unable to apply such payments to his own best interest and advantage, the Committee, in the exercise of its discretion, may direct all or any portion of such payments to 142 be made in any one or more of the following ways: (i) directly to him; (ii) to his legal guardian or conservator; or (iii) to his spouse or to any other person, to be expended for his benefit; and the decision of the Committee shall in each case be final and binding upon all persons in interest. H. No Guarantee of Employment - Nothing contained in the Plan shall be construed as a contract of employment between the Company or its affiliates and any employee, or as a right of any employee, to be continued in the employment of the Company or its affiliates, or as a limitation of the right of the Company or its affiliates to discharge any of its employees, with or without cause. I. Participants' Interests Not Transferable - Prior to payment, the interests of eligible participants and their Eligible Spouses under the Plan are not in any way subject to their debts or other obligations and may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered. J. Plan Administrator - The Company shall be the "Administrator" under the Plan for purposes of the Employee Retirement Income Security Act of 1974, as amended from time to time. K. Claims - The Committee will provide any eligible participant or his Eligible Spouse whose claim for benefits under the Plan has been fully or partially denied a written notice setting forth the specific reasons for such denial. Such notice shall state that the eligible participant or Eligible Spouse, as the case may be, is entitled to request a review, 143 by the Committee, of the decision denying the claim. L. Successor - An Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and to agree to perform this Plan in the same manner and to the same extent the Employer would be required to perform if no such succession had taken place. This Plan shall be binding upon and inure to the benefit of the Employer and any successor of or to the Employer, including without limitation any persons acquiring directly or indirectly all or substantially all of the business and/or assets of the Employer whether by sale, merger, consolidation, reorganization or otherwise (and any such successor to the Company shall thereafter be deemed the "Company" for the purposes of this Plan) and the heirs, executors and administrators of each participant. M. Vested Benefit - Each employee of an Employer on December 31, 1993 who is eligible to take normal or early retirement under the Retirement Income Plan and who on such retirement would be an eligible participant as defined in Article I shall be fully vested in his Accrued Benefit under the Plan as of December 31, 1993 subject to the terms and conditions of the Plan. For this purpose, "Accrued Benefit" means the amount of monthly benefit to which such employee would be entitled under Article II of the Plan if he terminated his employment 144 with the Company and its affiliates as of December 31, 1993. Such employee's Accrued Benefit shall also include the amount of monthly benefit to which the employee's Eligible Spouse would be entitled following his death. IN WITNESS WHEREOF, Central Illinois Public Service Company has caused this instrument to be executed in its name by its President and its Corporate Seal to be hereunto affixed, attested by its Secretary, on this day of , 1995. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY By_____________________________________ Attest: ____________________ 145 EX-12 5
Exhibit 12.01 CIPSCO INCORPORATED AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1994 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1994 1993 1992 1991 1990 ____ ____ ____ ____ ____ Net income. . . . . . . . . . . . . . . . . $ 83,954 $ 85,498 $ 72,499(c) $ 72,065(c) $ 65,756(c) Add--Federal and state income taxes: Current (a) . . . . . . . . . . . . . . . 33,582 41,320 5,380 34,717 43,107 Deferred (net). . . . . . . . . . . . . . 18,867 13,907 38,707 12,078 (3,911) Deferred investment tax credits, net. . . (3,367) (3,366) (3,336) (3,464) (3,306) _______ _______ _______ _______ _______ 49,082 51,861 40,751 43,331 35,890 _______ _______ _______ _______ _______ Net income before income taxes. . . . . . . 133,036 137,359 113,250 115,396 101,646 _______ _______ _______ _______ _______ Add--Fixed charges Interest on long-term debt (b). . . . . . 31,164 32,823 35,534 36,652 36,589 Interest on provision for revenue refunds . . . . . . . . . . . . . . . . - - (803) 4,261 3,396 Other interest. . . . . . . . . . . . . . 378 603 398 1,231 1,070 Amortization of net debt premium, discount, expense and loss (b). . . . . 1,678 1,598 863 338 326 Preferred stock dividend of subsidiary. . 3,510 3,718 4,549 5,396 5,617 _______ _______ _______ _______ _______ 36,730 38,742 40,541 47,878 46,998 _______ _______ _______ _______ _______ -146- Earnings as defined . . . . . . . . . . . . $169,766 $176,101 $153,791 $163,274 $148,644 ======= ======= ======= ======= ======= Fixed charges . . . . . . . . . . . . . . . 36,730 38,742 40,541 47,878 46,998 Adjustment to pre-tax basis . . . . . . . . 2,052 2,255 2,557 3,244 3,065 _______ _______ _______ _______ _______ 38,782 40,997 43,098 51,122 50,063 Ratio of earnings to fixed charges adjusted to pre-tax basis . . . . . . . . 4.38 4.30 3.57 3.19 2.97 ======= ======= ======= ======= ======= _________________________ (a) Federal portion and state portion are shown separately in Notes to Consolidated Financial Statements. (b) Combined as interest charges on long-term debt on Consolidated Statements of Income. (c) Includes revenues collected subject to refund as discussed in Note 12 of Notes to Consolidated Financial Statements.
-147- EX-12.02 6
Exhibit 12.02 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1994 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1994 1993 1992 1991 1990 ____ ____ ____ ____ ____ Net income. . . . . . . . . . . . . . . . . $ 81,913 $ 84,011 $ 72,601(c) $ 75,683(c) $ 71,562(c) Add--Federal and state income taxes: Current (a) . . . . . . . . . . . . . . . 38,097 50,441 6,110 36,316 39,380 Deferred (net). . . . . . . . . . . . . . 13,190 1,674 33,998 7,573 (2,964) Investment tax credit amortization. . . . (3,367) (3,366) (3,336) (3,464) (3,306) Income tax applicable to nonoperating activities. . . . . . . . . . . . . . . 603 631 2,989 2,413 2,986 _______ _______ _______ _______ _______ 48,523 49,380 39,761 42,838 36,096 _______ _______ _______ _______ _______ Net income before income taxes. . . . . . . 130,436 133,391 112,362 118,521 107,658 _______ _______ _______ _______ _______ -148- Add--Fixed charges Interest on long-term debt (b). . . . . . 31,164 32,823 35,534 36,652 36,589 Interest on provision for revenue refunds . . . . . . . . . . . . . . . . - - (803) 4,261 3,396 Other interest. . . . . . . . . . . . . . 358 479 392 1,231 1,070 Amortization of net debt premium, discount, expense and loss (b). . . . . 1,678 1,598 863 338 326 _______ _______ _______ _______ _______ 33,200 34,900 35,986 42,482 41,381 _______ _______ _______ _______ _______ Earnings as defined . . . . . . . . . . . . $163,636 $168,291 $148,348 $161,003 $149,039 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges. . . . . 4.93 4.82 4.12 3.79 3.60 Earnings required for preferred dividends: Preferred stock dividends . . . . . . . . $ 3,510 $ 3,718 $ 4,549 $ 5,396 $ 5,617 Adjustment to pre-tax basis . . . . . . . 2,079 2,185 2,491 3,054 2,833 _______ _______ _______ _______ _______ $ 5,589 $ 5,903 $ 7,040 $ 8,450 $ 8,450 _______ _______ _______ _______ _______ Fixed charges plus preferred stock dividend requirements . . . . . . . . . . $ 38,789 $ 40,803 $ 43,026 $ 50,932 $ 49,831 ======= ======= ======= ======= ======= Ratio of Earnings to fixed charges plus preferred stock dividend requirements . . 4.22 4.12 3.45 3.16 2.99 _________________________ (a) Federal portion and state portion are shown separately in Notes to Financial Statements. (b) Combined as interest charges on long-term debt on Statements of Income. (c) Includes revenues collected subject to refund as discussed in Note 12 of Notes to Financial Statements. -149-
EX-21 7 Exhibit 21 SUBSIDIARIES OF CIPSCO AND CIPS State or Jurisdiction Name of Incorporation ____ _____________________ CIPSCO Incorporated Illinois Central Illinois Public Service Company Illinois Illinois Steam Inc. Illinois CIPS Energy Inc. Illinois Electric Energy, Inc.* Illinois CIPSCO Investment Company Illinois CIPSCO Securities Company Illinois CIPSCO Leasing Company Illinois CLC Aircraft Leasing Company Illinois CLC Leasing Company A Illinois CLC Leasing Company B Illinois CLC Leasing Company C Illinois CIPSCO Energy Company Illinois CEC-PGE-G Co. Illinois CEC-PGE-L Co. Illinois CEC-APL-G Co. Illinois CEC-APL-L Co. Illinois CEC-PSPL-G Co. Illinois CEC-PSPL-L Co. Illinois CEC-MPS-G Co. Illinois CEC-MPS-L Co. Illinois CEC-ACE-G Co. Illinois CEC-ACE-L Co. Illinois CIPSCO Venture Company Illinois * Central Illinois Public Service Company owns 20% of the common stock of EEI. -150- EX-23.01 8 Exhibit 23.01 CIPSCO CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS _________________________________________ As independent public accountants, we hereby consent to the incorporation of our report included in and incorporated by reference in this Form 10-K, into Central Illinois Public Service Company's previously filed Registration Statements File Nos. 33-29384 and 33-31475 and CIPSCO Incorporated's previously filed Registration Statement File No. 33-32936. ARTHUR ANDERSEN LLP Chicago, Illinois, February 27, 1995 -151- EX-23.02 9 Exhibit 23.02 CIPS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS _________________________________________ As independent public accountants, we hereby consent to the incorporation of our report included in and incorporated by reference in this Form 10-K, into Central Illinois Public Service Company's previously filed Registration Statements File Nos. 33-29384 and 33-31475, 33-59674, 33-45506 and 33-56063 and CIPSCO Incorporated's previously filed Registration Statement File No. 33-32936. ARTHUR ANDERSEN LLP Chicago, Illinois, February 27, 1995 -152- EX-24 10 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ William J. Alley _______________________________ (SEAL) William J. Alley Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 153 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 154 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 155 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 156 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Donald G. Raymer _______________________________ (SEAL) Donald G. Raymer Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 157 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 158 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the CIPSCO Incorporated Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 159 EX-24 11 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ William J. Alley _______________________________ (SEAL) William J. Alley Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 160 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 161 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 162 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 163 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Donald G. Raymer _______________________________ (SEAL) Donald G. Raymer Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 164 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 165 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and R. W. Jackson, and each of them, his or her true and lawful attorneys and agents, each with full power and authority (acting alone and without the other) to execute in the name and on behalf of the undersigned, in his or her capacity, the Central Illinois Public Service Company Annual Report on Form 10-K for 1994, and any amendments thereto, to be filed under the Securities Exchange Act of 1934, as amended; hereby granting to such attorneys and agents, and each of them, full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or either of them, may do or cause to be done by virtue of this Power of Attorney. IN WITNESS WHEREOF, I have hereunto set my hand and seal this 6th day of December, 1994. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 6th day of December, 1994. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1995 166 EX-99 12 Exhibit 99.01 DESCRIPTION OF CAPITAL STOCK - CIPSCO General. The authorized capital stock of CIPSCO consists of 4,600,000 shares of Preferred Stock, without par value, issuable in series, of which none are outstanding and 100,000,000 shares of Common Stock without par value of which 34,069,542 shares were outstanding at December 31, 1994. The following statements, unless the context otherwise indicates, are brief summaries of the substance or general effect of certain provisions of CIPSCO's Amended and Restated Articles of Incorporation ("CIPSCO Articles") and the CIPS Restated Articles of Incorporation and the resolutions establishing series of Preferred Stock (collectively, the "CIPS Articles"), and of the CIPS Mortgage Indenture securing outstanding First Mortgage Bonds of CIPS. Such statements make use of defined terms and are not complete; they are subject to all the provisions of the CIPSCO Articles, the CIPS Articles or the CIPS Mortgage Indenture, as the case may be. Preferred Stock. The CIPSCO Articles grant the Board of Directors of CIPSCO the authority to determine how shares of Preferred Stock may be divided into and issued in series, and on what terms and for what consideration such shares shall be issued. In addition, the CIPSCO Articles grant the Board the authority to fix and determine the following relative rights and preferences of shares of each such series of Preferred Stock: (1) the distinctive designation of, and the number of shares that constitute, such series and the "stated value" or "nominal value," if any, thereof; (2) the rate or rates of dividend (or method of determining the rate or rates) applicable to shares of such series; (3) the price at which, and the terms and conditions on which, shares of such series may be redeemed by CIPSCO; (4) the amount payable upon shares of such series in the event of the involuntary liquidation of CIPSCO; (5) the amount payable upon shares of such series in the event of the involuntary liquidation of CIPSCO; (6) sinking fund provisions for the redemption or purchase of shares of such series; (7) the terms and conditions on which shares of such series may be converted, if such shares are issued with the privilege of conversion; (8) the voting rights (including, but not limited to, any special voting rights), if any, of the holders of shares of such series, provided that in no event shall any share of Preferred Stock be entitled to more than a number of votes equal to the amount determined by dividing the amount payable on such share (exclusive of accrued dividends) in the event of the involuntary liquidation of CIPSCO by $100. -167- Dividend Rights. Dividends are payable on CIPSCO's Common Stock if and when declared by the Board of Directors of CIPSCO and no restrictions are placed on the declaration of dividends by the CIPSCO Articles. The ability of CIPSCO to pay dividends is dependent upon distributions made to it by CIPS and amounts earned by CIPSCO on its other investments. Whenever dividends on all outstanding shares of the CIPS Preferred Stock of all series for all previous quarter-yearly dividend periods and the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, and whenever all amounts required to be set aside for any sinking fund for the redemption or purchase of shares of the CIPS Preferred Stock for all previous periods or dates shall have been paid or set aside, and subject to the limitations summarized below, the Board of Directors of CIPS may declare dividends on the CIPS Common Stock out of any surplus or net profits of the Company legally available for the purpose. The CIPS Mortgage Indenture provides, in effect, that CIPS will not declare or pay any dividends (other than in stock) on its Common Stock, or make any other distribution on or purchase any CIPS Common Stock, unless the total amount charged or provided for maintenance, repairs and depreciation of the mortgaged properties subsequent to December 31, 1940, plus the surplus earned during the period and remaining after any such dividend, distribution or purchase, shall equal at least 15% of the total utility operating revenues of CIPS for the period, after deducting from such revenues the cost of electricity and gas purchased for resale. The CIPS Articles provide in effect that, so long as any Preferred Stock is outstanding, the total amount of all dividends or other distributions on CIPS Common Stock (other than in stock) that may be paid, and purchases of CIPS Common Stock that may be made, during any 12-month period shall not exceed (a) 75% of the net income of CIPS (as defined) for the 12- month period next preceding each such dividend, distribution or purchase, if the ratio of "common stock equity" to "total capital" (as defined) is 20% to 25%, or (b) 50% of such net income if such ratio is less than 20%. If such ratio is in excess of 25%, no such dividends may be paid or distributions or purchases made that would reduce such ratio to less than 25% except to the extent permitted by clauses (a) and (b). At December 31, 1994, no amount of retained earnings was restricted as to the payment of dividends on CIPS Common Stock under the foregoing provisions of the CIPS Mortgage Indenture or the CIPS Articles. Voting Rights. Under Illinois law and the CIPSCO Articles, each share of Common Stock of CIPSCO is entitled to one vote on each matter voted on at all meetings of shareholders, with the right of cumulative voting in the election of directors and, in accordance with Illinois law, the right to vote as a class on certain questions. Preferred Stock may have such voting rights as are established by the Board of Directors subject to the provisions of the CIPSCO Articles described under "Preferred Stock" above. -168- Preemptive Rights. Holders of CIPSCO's capital stock have no preemptive subscription rights. Liquidation Rights. In the event of any liquidation or dissolution of CIPSCO, holders of CIPSCO Common Stock are entitled to share ratably in the net assets and profits of CIPSCO remaining after the payment in full to the holders of the CIPSCO Preferred Stock of the aggregate preferential amount payable in respect of such Preferred Stock in any such event. Miscellaneous. The Transfer Agents for the CIPSCO Common Stock are Illinois Stock Transfer Company, Chicago, Illinois, and Harris Trust and Savings Bank, Chicago, Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago, Illinois. CIPSCO reserves the right to increase, decrease or reclassify its authorized capital stock or any class or series thereof, and to amend or repeal any provisions in the CIPSCO Articles, in the manner prescribed by law; and all rights conferred on shareholders in the CIPSCO Articles are subject to this reservation. -169- EX-99 13 Exhibit 99.02 DESCRIPTION OF CAPITAL STOCK - CIPS General. The authorized capital stock of Central Illinois Public Service Company (CIPS) consists of 2,000,000 shares of Cumulative Preferred Stock, par value $100 per share, issuable in series, of which 800,000 shares are outstanding; 2,600,000 shares of Cumulative Preferred Stock without par value, issuable in series, of which no shares are outstanding (both such classes of preferred stock being hereinafter collectively referred to as the "Preferred Stock"); and 45,000,000 shares of Common Stock without par value of which 25,452,373 shares were outstanding (all of which were held by CIPSCO) at December 31, 1994. The following statements, unless the context otherwise indicates, are brief summaries of the substance or general effect of certain provisions of CIPS' Restated Articles of Incorporation and the resolutions establishing series of Preferred Stock (collectively, the "Articles"), and of its Mortgage Indenture securing its outstanding First Mortgage Bonds. Such statements make use of defined terms and are not complete; they are subject to all the provisions of the Articles or the Mortgage Indenture, as the case may be. Dividend Rights. Whenever dividends on all outstanding shares of the Preferred Stock of all series for all previous quarter-yearly dividend periods and the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, and whenever all amounts required to be set aside for any sinking fund for the redemption or purchase of shares of the Preferred Stock for all previous periods or dates shall have been paid or set aside, and subject to the limitations summarized below, the Board of Directors of CIPS may declare dividends on the CIPS Common Stock out of any surplus or net profits of CIPS legally available for the purpose. Currently, none of the series of the Preferred Stock have a sinking fund for the redemption or purchase of shares of such series. The Mortgage Indenture provides, in effect, that CIPS will not declare or pay any dividends (other than in stock) on CIPS Common Stock, or make any other distribution on or purchase any Common Stock, unless the total amount charged or provided for maintenance, repairs and depreciation of the mortgaged properties subsequent to December 31, 1940, plus the surplus earned during the period and remaining after any such dividend, distribution or purchase, shall equal at least 15% of CIPS' total utility operating revenues for the period, after deducting from such revenues the cost of electricity and gas purchased for resale. The Articles provide in effect that, so long as any Preferred Stock is outstanding, the total amount of all dividends or other distributions on CIPS Common Stock (other than in stock) that may be paid, and purchases of Common Stock that may be made, during any 12-month period shall not exceed (a) 75% of CIPS' net income (as defined) for the 12-month period next preceding each such dividend, distribution or purchase, if the ratio of "common stock equity" to "total capital" (as defined) is 20% to 25%, or (b) 50% -170- of such net income if such ratio is less than 20%. If such ratio is in excess of 25%, no such dividends may be paid or distributions or purchases made that would reduce such ratio to less than 25% except to the extent permitted by clauses (a) and (b). At December 31, 1994, no amount of retained earnings was restricted as to the payment of dividends on CIPS Common Stock under the foregoing provisions of the Mortgage Indenture or the Articles. Voting Rights. Under Illinois law, each share of stock of CIPS, common and preferred, is entitled to one vote on each matter voted on at all meetings of shareholders, with the right of cumulative voting in the election of directors and the right to vote as a class on certain questions. The Articles give to holders of Preferred Stock certain special voting rights designed to protect their interests with respect to specified corporate action, including certain amendments to the Articles, the issuance of Preferred Stock or parity stock, the issuance or assumption of certain unsecured indebtedness, and mergers, consolidations or sales or leases of substantially all of CIPS' assets. Preemptive Rights. Holders of CIPS Common Stock have no preemptive subscription rights. Liquidation Rights. In the event of any liquidation or dissolution of CIPS, holders of Common Stock are entitled to share ratably in the net assets and profits of CIPS remaining after the payment in full to the holders of the CIPS Preferred Stock of the aggregate preferential amount payable in respect of the Preferred Stock in any such event. Miscellaneous. The Transfer Agents for the CIPS Common Stock are Illinois Stock Transfer Company, Chicago, Illinois, and Harris Trust and Savings Bank, Chicago, Illinois; and the Registrar is Harris Trust and Savings Bank, Chicago, Illinois. CIPS reserves the right to increase, decrease or reclassify its authorized capital stock or any class or series thereof, and to amend or repeal any provisions in the Articles; and all rights conferred on shareholders in the Articles are subject to this reservation. -171- EX-27 14
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 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 PER-BOOK 1,439,560 93,862 200,115 0 43,820 1,777,357 356,812 0 292,418 647,613 0 80,000 459,619 0 0 14,985 15,000 0 0 0 560,140 1,777,357 844,615 49,082 679,270 728,352 116,263 3,502 119,765 32,301 87,464 3,510 83,954 67,874 32,842 178,161 2.46 2.46 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
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