-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PT7Jvey6DHZYgF7dmzeYMk6nc5OK8aI8Bacph6VGdTc6rAwa/mJj0DMvpCZjvaJv SoR+DArBMIFQJeS0VkCyEg== 0000860520-96-000008.txt : 19960314 0000860520-96-000008.hdr.sgml : 19960314 ACCESSION NUMBER: 0000860520-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960312 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: 96533931 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: 607 E ADAMS STREET CITY: SPRINGFIELD STATE: IL ZIP: 62739 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL ILLINOIS PUBLIC SERVICE CO CENTRAL INDEX KEY: 0000018654 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 370211380 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20455 FILM NUMBER: 96533932 BUSINESS ADDRESS: STREET 1: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 BUSINESS PHONE: 2175233600 MAIL ADDRESS: STREET 1: CENTRAL ILLINOIS PUBLIC SERVICE CO STREET 2: 607 E ADAMS ST CITY: SPRINGFIELD STATE: IL ZIP: 62739 10-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, 1995 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 Securities 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 Depositary Shares, each representing one-fourth of a share of 6.625% Cumulative Preferred Stock, Par Value $100 Per Share 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 registrant's 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, 1996 of the voting stock held by non-affiliates of CIPSCO Incorporated (CIPSCO) - $1,365,052,700 - Common Stock, without par value. Number of shares outstanding of each of CIPSCO's classes of common stock at February 1, 1996: 34,069,542 shares of Common Stock, without par value. Aggregate market value at February 1, 1996 of the voting stock held by non-affiliates of Central Illinois Public Service Company (CIPS) - $20,396,800 - 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, 1996: 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 1996 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. A portion of CIPS' Proxy Statement relating to its 1996 Annual Meeting of Shareholders is incorporated by reference in Part III hereof. ================================================================= CIPSCO INCORPORATED AND CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 1995 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I PAGE Item 1. Business CIPSCO Incorporated and its Subsidiaries. . . . . . . 5 General . . . . . . . . . . . . . . . . . . . . . . 5 Merger . . . . . . . . . . . . . . . . . . . . . . 5 Non-Utility Subsidiary - CIPSCO Investment Company. . 6 General . . . . . . . . . . . . . . . . . . . . . . 6 Utility Subsidiary - Central Illinois Public Service Company . . . . . . . . . . . . . . . . . 6 General . . . . . . . . . . . . . . . . . . . . . . 6 Revenues. . . . . . . . . . . . . . . . . . . . . . 7 Competition -- General. . . . . . . . . . . . . . . 9 Competition -- Electric Business. . . . . . . . . . 9 Competition -- Gas Business . . . . . . . . . . . . 12 Utility Industry. . . . . . . . . . . . . . . . . . 12 Construction Program and Financing. . . . . . . . . 12 Rate Matters. . . . . . . . . . . . . . . . . . . . 14 Electric Operations . . . . . . . . . . . . . . . . 16 Electric Power Sales/Participation Agreements . . . 17 Gas Operations. . . . . . . . . . . . . . . . . . . 18 Fuel. . . . . . . . . . . . . . . . . . . . . . . . 20 Regulation. . . . . . . . . . . . . . . . . . . . . 21 Environmental Matters . . . . . . . . . . . . . . . 21 Employees . . . . . . . . . . . . . . . . . . . . . 23 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 23 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 25 Item 4. Submission of Matters to a Vote of Security Holders. . . 25 Executive Officers of the Registrants. . . . . . . . . . 25 PART II Item 5. Market for Registrants' Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . . 28 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . 30 Item 8. Financial Statements and Supplementary Data. . . . . . . 41 CIPSCO Consolidated Financial Statements . . . . . . . . 41 Report of Independent Public Accountants . . . . . . . . 45 Notes to Consolidated Financial Statements . . . . . . . 46 CIPS Financial Statements. . . . . . . . . . . . . . . . 69 Report of Independent Public Accountants . . . . . . . . 73 Notes to Financial Statements . . . . . . . . . . . . . 74 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . . 80 PART III Item 10. Directors and Executive Officers of the Registrants. . . 80 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 81 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . 81 Item 13. Certain Relationships and Related Transactions . . . . . 82 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 82 Signatures . . . . . . . . . . . . . . . . . . . . . . . 95 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . 97 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. CIPSCO and Subsidiaries are sometimes referred to as the "Company." 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'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 (the "Holding Company Act"), but is exempt, by virtue of an order issued September 18, 1990, from all the provisions of the Holding Company 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. MERGER. On August 11, 1995, CIPSCO entered into an Agreement and Plan of Merger (the "Merger Agreement") with Union Electric Company ("UE"), of St. Louis, Missouri. As a result of the proposed business combination, a new public utility holding company - Ameren Corporation ("Ameren") - will become the parent of CIPS, UE and the other direct subsidiaries of CIPSCO. Ameren will be a registered holding company under the Holding Company Act. When the Merger is completed, each outstanding share of common stock of CIPSCO will be converted into 1.03 shares of Ameren common stock and each outstanding share of common stock of UE will be converted into one share of Ameren common stock. The transaction is expected to be tax-free to shareholders for federal income tax purposes and to be accounted for as a "pooling of interests." Shareholders of both companies approved the Merger Agreement on December 20, 1995. Under the Merger Agreement, approximately 63,900 electric and 18,200 natural gas customers of UE located in Illinois would become customers of CIPS (assuming regulatory approval is obtained). Following certain regulatory and governmental approvals, the merger is expected to be effective early in 1997. Additional information relating to the merger can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations - Ameren Corporation and in Note 2 of the Notes to Consolidated Financial Statements included under Item 8 of this report. UE serves about 1,130,000 electric customers and 121,000 gas customers in Missouri and Illinois. At December 31, 1995 it had assets of $6.8 billion. For 1995, UE had electric revenues of about $2.014 billion, gas revenues of $88 million and net income of $314.1 million. Further information concerning UE is contained in its Annual Report on Form 10-K for the year ended December 31, 1995 and other reports to be filed with the Securities and Exchange Commission. See "Unaudited Pro Forma Combined Condensed Financial Information of CIPSCO and Union Electric" contained under Item 14 of this report for selected historical and unaudited pro forma combined condensed financial information of CIPSCO and UE. 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 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 321,000 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 167,000 retail customers in 267 incorporated and unincorporated communities and adjacent suburban and rural areas and provides gas transportation service to about 330 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 1995 were $833,119,000 of which about 84% was derived from the sale of electricity and about 16% from the sale of natural gas. The retail electric revenues were derived approximately as follows (percentage of total electric operating revenue): 33% from residential customers, 26% from commercial customers, 16% from industrial customers and 3% from public authorities and other. The electric revenues from sales for resale were derived approximately as follows (percentage of total electric operating revenue): 10% from power supply agreements, 9% 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 33% of the 1995 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 1995 were derived approximately as follows: 66% from residential customers, 22% from commercial customers, 6% 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 1995 1994 1993 ________ ____ ____ ____ (in thousands) Residential . . . . . . . . . . . $230,103 $213,377 $219,510 Commercial. . . . . . . . . . . . 180,831 178,723 176,154 Industrial. . . . . . . . . . . . 116,030 118,917 112,382 Public authorities and other. . . 19,828 13,799 15,144 ________ ________ ________ Total retail revenues . . . . 546,792 524,816 523,190 ________ ________ ________ Power supply agreements . . . . . 70,333 78,613 69,668 Interchange sales (economy/ emergency). . . . . . . . . . . 64,188 71,779 74,644 Cooperatives and municipals . . . 22,196 22,250 21,347 ________ ________ ________ Total sales for resale . . . . 156,717 172,642 165,659 ________ ________ ________ Total electric revenues. . . . $703,509 $697,458 $688,849 ======== ======== ======== Natural Gas 1995 1994 1993 ___________ ____ ____ ____ (in thousands) Residential . . . . . . . . . . . $ 85,202 $ 86,919 $ 92,213 Commercial. . . . . . . . . . . . 28,234 30,577 32,023 Industrial. . . . . . . . . . . . 8,464 12,897 12,139 Transportation service. . . . . . 7,335 7,586 8,915 Miscellaneous . . . . . . . . . . 375 445 417 ________ ________ ________ Total gas revenues. . . . . . . $129,610 $138,424 $145,707 ======== ======== ======== The portions of operating income of CIPS, before income taxes, attributable to electric operations were approximately $137,379,000 (92%) in 1995, $147,070,000 (93%) in 1994 and $154,779,000 (95%) in 1993. The portions of operating income, before income taxes, attributable to gas operations were approximately $12,192,000 (8%) in 1995, $11,528,000 (7%) in 1994, and $7,621,000 (5%) in 1993. Identifiable assets relating to electric and gas operations were as follows: 1995 1994 1993 ____ ____ ____ (in thousands) Electric operations . . . . . . $1,495,433 $1,469,601 $1,459,073 Gas operations. . . . . . . . . 181,677 176,788 177,857 Other . . . . . . . . . . . . . 37,695 32,261 31,532 __________ __________ __________ Total assets. . . . . . . . . $1,714,805 $1,678,650 $1,668,462 ========== ========== ========== COMPETITION -- GENERAL. In order to assess the various opportunities emerging 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 are being directed at product and service development programs, customer retention and economic development. As a result of the marketing efforts emphasized during this past year, CIPS has introduced consumer products related to lighting and home safety, provided added customer service options and technical energy and industrial process service assistance. During 1995, CIPS continued its "business process re-engineering" program focusing on two major areas: field operations (including general office departments directly supporting field operations) and power generation (including general office departments directly supporting the power stations). In February 1995, multi-disciplined teams were formed to study each of these areas, with the objective of significantly reducing costs, improving customer satisfaction, and achieving the Company's strategic goals. Late in 1995 a pilot program in each area was initiated to confirm the effectiveness of various recommendations submitted by the teams. Further implementation of the teams' recommendations will occur in 1996. Early in 1995, CIPS instituted a voluntary separation program. Under the program, eligible employees could leave CIPS and receive a package of benefits. Of the employees eligible to participate, 151 accepted the offer which was made available through February 25, 1995. The costs related to the program were approximately $5.8 million, which had the effect of reducing the Company's 1995 earnings per share by 10 cents. (See Note 15 of the Notes to Consolidated Financial Statements included herein.) 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 for retail sales in a number of ways designed to lower its costs and increase sales to existing customers and to expand to new customers. Since instituting an economic development incentive rate in 1985 as described below, the CIPS economic development program has 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 1995. Further renegotiation is expected in 1996. This program has helped and will continue to help CIPS control its fuel costs. In January 1985, CIPS first received approval from the Illinois Commerce Commission (the "Illinois commission") for an economic development rate. The rate 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 lower incentive rates for incremental load 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 customers who receive service under the commercial time of use rate classification. In addition, the minimum incremental load necessary to qualify for the special contract provision was lowered to 500 KW from 2,000 KW. Since the rate was instituted in 1985, about 175 new or existing business expansions have led to the creation of over 10,450 new jobs in the CIPS service territory. In addition, on July 10, 1995, CIPS filed a tariff rider with the Illinois commission applicable to existing electric service customers billed on certain commercial and industrial rates. This rider allows CIPS to negotiate contractual rates with customers at rates equal to or greater than the incremental costs of serving that customer. Such contracts are intended for customers having the potential to utilize an energy source other than CIPS' electric service and/or where the total or partial loss of customer load is imminent. This will allow CIPS to maintain a positive contribution to fixed costs and avoid permanent loss of revenue. Recent court challenges threaten the confidentiality of negotiated contracts with large customers. Illinois utilities are currently seeking legislation which would allow special contracts to be kept confidential. CIPS faces competition from non-utility generators of power such as cogenerators, independent power producers and exempt wholesale generators. 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. These and other developments will enhance competition over time and will give customers and CIPS opportunities to take advantage of competitive markets. At the retail level, large 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. Additional competition may result from action by the Illinois General Assembly in naming a special legislative committee and charging it with developing a proposal to introduce competition into retail electric markets in Illinois. The legislative committee submitted a preliminary report to the General Assembly in December 1995. The committee continues to encourage participation by all interested parties in deliberations of the Technical Assistance Group, of which CIPS is a member, as a final legislative proposal is developed. The special committee must submit a proposal to the General Assembly by November 1996. CIPS has developed a proposal on competition and restructuring of the electric utility industry for Illinois. CIPS' proposal centers around a two-step process. The first step would involve a three-year initial phase in which, beginning January 1, 1999, new retail electric customers with load of 5,000 kilowatts or greater, or customers with incremental additions to retail load of 5,000 kilowatts or greater, would be allowed direct access to Illinois suppliers of electricity other than their own local utility company, on a reciprocal basis. The second step of the proposal would allow, beginning January 1, 2002, any existing retail customer with electric load of 5,000 kilowatts or greater to have direct access to any other suppliers on the same basis, regardless of the suppliers location. Two Illinois electric utilities recently filed with the Illinois commission proposed "open access" programs which would establish a pilot program under which certain customers within the authorized service area of each such utility would have the opportunity to obtain electric power from a supplier other than such utility. CIPS is monitoring the Illinois commission proceedings in which these proposals are being considered. These pilot programs differ from the regulatory reform process in that they are temporary in nature and are filed pursuant to the existing Illinois Public Utilities Act. During 1995, CIPS had generating capacity sales agreements with other utility systems which represented approximately 515 megawatts or 18% of CIPS' total generating capacity. Effective January 1, 1995, one utility system reduced its participation by 115 megawatts as a result of a scheduled contract reduction. (See Business - Utility Subsidiary - Central Illinois Public Service Company - Electric Power Sales/Participation Agreements.) Additional information relating to competition can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations (1993-1995) - Regulation and Competition. 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 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. Illinois utilities, under special rate provisions authorized by the Illinois commission, are authorized to negotiate special contractual sales arrangements with their larger natural gas customers as a means of retaining such customers. 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 1996 through 2000 are estimated at $510 million. For 1996, anticipated construction expenditures are $98 million for replacements and improvements and consist of about $23 million for electric production facilities, $7 million for electric transmission facilities, $57 million for electric distribution and general facilities, and $11 million for gas utility facilities. Included in the projected 5-year amounts is about $76 million for environmental compliance, including compliance with regulations under the Clean Air Act Amendments of 1990. In addition to construction funds, projected capital requirements for the 1996-2000 period include $133 million for scheduled debt retirements. While capital requirements for the 1996-2000 period are expected to be met primarily through internally generated funds, external financing will be required to fund scheduled debt retirements. In addition, up to $100 million of external financing is expected to be required to fund the construction program. CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. Depending on the alternative selected, construction expenditures could increase the five-year forecast by as much as $50 million over the 1996- 2000 period. In addition, adoption of certain alternatives in fuel and/or environmental strategies could result in substantial increases in other capital requirements in the 1996-2000 period from the amounts shown above. External financing to fund such additional capital requirements would 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 - Consolidated Results of Operations (1993-1995) - Clean Air Act and - Fuel Strategies.) CIPS continuously reviews its construction program, which may be affected by numerous factors, including availability and cost of capital, the rate of load growth, escalation of construction costs, fuel strategies, changes in governmental and environmental regulations, customers' patterns of consumption and conservation of energy and, the adequacy of rate relief. 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 June 30, 1995, CIPS filed its current "least cost resource" plan with the Illinois commission. The plan includes the 20-year generating unit plan of the utility. As demonstrated by the plan, CIPS is not expected to require additional generating capacity or demand-side resources during the 1996-2016 planning period. Pursuant to the plan, CIPS will engage in several demand-side management activities intended to enhance its capability to deliver demand-side management resources in the future. For a discussion of the funds requirements for the period 1996-2000 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 placed on file with the Securities and Exchange Commission in October 1994, CIPS has remaining authority to issue an aggregate of up to $29 million of first mortgage bonds, medium-term notes and/or preferred stock 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, 1995, the more restrictive of these requirements was the "net earnings" test. The "net earnings" of CIPS for the year ended December 31, 1995, so computed, were equal to 5.10 times the interest for one year on the aggregate amount of bonds outstanding under the Mortgage Indenture at December 31, 1995. Based on the "net earnings" of CIPS (so computed) for the year ended December 31, 1995, and the bonds outstanding under the Mortgage Indenture at December 31, 1995, CIPS could have issued about $461 million of additional first mortgage bonds under the foregoing interest coverage provision (assuming an annual interest rate of 6.90% 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 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, 1995, the "gross income available for interest" of CIPS equalled 2.83 times the sum of the annual interest charges and dividend requirements on all such funded debt, notes and preferred stock outstanding at December 31, 1995. 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 6.35%) 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) reflecting a return on common equity of 12.28% (electric) and 12.50% (natural gas). In April 1993 billing to customers, CIPS began recovering amounts under environmental adjustment clause riders for the cleanup and restoration of former manufactured gas plant sites (environmental remediation sites). A total of $2.9 million was collected from customers through December 31, 1993 under the riders and no amounts have been collected since January 1994. The Illinois commission has initiated reconciliation proceedings to determine whether the costs incurred by CIPS for environmental remediation activities in 1993 and 1994 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. 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. Management believes that any costs incurred in connection with the sites that are not recovered from others will be recovered through the environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. See Note 4 to Consolidated Financial Statements. 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 1994. No significant refunds or adjustments were required for those years. Fuel reconciliation proceedings for the years 1994 and 1995 have commenced. In October 1995, the Illinois commission implemented changes in the method of operation of the purchased gas adjustment clause mechanism. However, these changes do not affect the ability of CIPS to recover gas costs on a pass through basis. (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. ELECTRIC OPERATIONS. Since late 1977 CIPS has been a net off-system seller of electricity and during 1995 it generated 114% of its system requirements. The maximum gross system load to date on the CIPS electrical system, on a one-hour integrated basis, occurred on August 14, 1995, and was 2,319,000 kilowatts. Gross system load includes sales to electric cooperative and municipal customers (but excludes emergency and interchange sales). The 1995 maximum gross system load of 2,319,000 kilowatts was 5.7% greater than the historical maximum gross system load of 2,194,000 which occurred in 1994. 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%, Union Electric owns 40% (and two other utilities own the remaining 40%) of the common stock of Electric Energy, Inc. (EEI). The owners, including CIPS, are entitled to receive from EEI 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, 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 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. 1995 Peak Contract Demand Expiration Contract (Megawatts) Date ________ ___________ Norris Electric Cooperative. . . . . . 61 MW 2007 City of Newton . . . . . . . . . . . . 8 MW 1999 Village of Greenup . . . . . . . . . . 3 MW 1999 Mt. Carmel Public Utility Co. . . . . 40 MW 2001 Since 1990, CIPS has entered into three successive agreements with Central Illinois Light Company ("CILCO") to sell to CILCO, Limited Term Power. These agreements provide for contract delivery periods and amounts as shown in the following table: Contract Delivery Amount Period (MW) ________ ________ June 1994 - May 1996 70 June 1996 - May 1997 80 June 1997 - May 1998 90 June 1998 - May 2002 150 June 2002 - May 2009 50 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 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 4,572 miles of transmission and distribution mains, and its customer density is approximately 37 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 42,500 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 1995 was 269,761 mcf which was reached on December 9, 1995. This demand level is 15.4% less than the all-time peak demand of 319,033 mcf which occurred on December 24, 1983. During 1995, the CIPS throughput (total of sales and transportation) was 37.2 billion cubic feet (bcf) compared to 36.5 bcf experienced in 1972, the year of highest historical throughput prior to 1995. In 1995, CIPS transported 14.5 bcf of customer-owned gas which represented 39% of the total system throughput. Volumes of customer-owned gas transported in 1994 and 1993 were 12.0 bcf and 10.8 bcf, respectively. The average cost per mcf of natural gas purchased from all suppliers was about $3.04 in 1995, $3.41 in 1994 and $3.66 in 1993. 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. 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. 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 1995 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: 1995 1994 1993 ____ ____ ____ Per ton ($) . . . . . . . . . . . . 37.69 35.44 36.62 Per million Btu ($) . . . . . . . . 1.76 1.65 1.67 In 1995, approximately 20.9% of the coal purchased for electric generation was purchased on a spot basis at average delivered costs of $30.30 per ton and $1.39 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 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 1997 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 Financing Requirements and - Consolidated Results of Operations (1993-1995) - Clean Air Act and - Fuel Strategies. 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. 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. See Business - CIPSCO Incorporated and Its Subsidiaries - Merger. 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 to switch to lower sulfur coal at some generating units along with increased scrubbing at Newton Unit 1. In addition, CIPS is evaluating various alternatives to determine if the compliance strategy should change to place more reliance on fuel switching. (See Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations (1993-1995) - Clean Air Act and - Fuel Strategies.) 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 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, except as noted in the following paragraph. On December 1, 1995 and January 10, 1996, the Agency issued Pre-Enforcement Conference letters concerning apparent exceedances of certain effluent and groundwater standards at the Hutsonville station. The Company has extensively discussed these issues with the Agency and believes the matter can be resolved without any material expenditures or any material impact on operations. 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 4 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 1995 and 1994 was as follows: Number of Employees ___________________ Employee Group 1995 1994 ______________ ____ ____ Salaried. . . . . . . . . . . . . . . . . 1,053 1,201 IBEW - 702. . . . . . . . . . . . . . . . 922 919 IUOE - 148. . . . . . . . . . . . . . . . 453 475 _____ _____ Total . . . . . . . . . . . . . . . . . . 2,428 2,595 ===== ===== Contracts with IBEW - 702 and IUOE - 148 extend through June 30, 1996. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Consolidated Results of Operations (1993-1995) -- Labor Issues and Note 4 of the Notes to Consolidated Financial Statements under the subcaption "Labor Issues" for a discussion of matters involving those employees represented by labor unions. 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, 1996. CIPSCO has no other material properties. The electric generating facilities of CIPS consist of the following: Estimated 1996 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 560,000 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 . . . . . . . . 2,844,000 ========= All of the generating stations are located in Illinois on land owned in fee by CIPS. At December 31, 1995, CIPS owned 13,035 pole miles of overhead electric lines and 941 miles of underground electric lines. At that date, CIPS also owned 4,572 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 regard to CIPS, on December 22, 1995, a complaint was filed in the Circuit Court for the Seventh Judicial Circuit, Sangamon County, Illinois against CIPS and several other defendants. The complaint alleges 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 form of childhood cancer known as "neuroblastoma." The plaintiffs in this complaint are the plaintiffs who on October 5, 1995 voluntarily dismissed claims in a similar complaint in the Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois. CIPS will vigorously defend the action and believes it has meritorious defenses. Management believes that final disposition of this matter will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. 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 4 of Notes to Consolidated Financial Statements included under Item 8 of this report. Item 4. Submission of Matters to a Vote of Security Holders. At a Special Meeting of Shareholders of CIPSCO held December 20, 1995, the following proposal was acted upon and approved. Shares Shares Voted Voted Shares In Favor Against Abstaining __________ _________ __________ To approve an Agreement 26,049,589 369,181 568,800 and Plan of Merger with Union Electric Company. Executive Officers of CIPSCO (ages at December 31, 1995). Name Age Positions Held ____ ___ ______________ C. L. Greenwalt 62 President and Chief Executive Officer of CIPSCO* President and Chief Executive Officer of CIPS and Chairman of the Board of CIC Name Age Positions Held ____ ___ ______________ W. A. Koertner 46 Vice President, Secretary and Chief Financial Officer of CIPSCO; Vice President Finance and Secretary of CIPS; President and Chief Executive Officer of CIC L. E. Marlett 40 Controller, Chief Accounting Officer and Assistant Treasurer of CIPSCO and Controller of CIPS C. D. Nelson 42 Treasurer, Assistant Secretary and Assistant Controller of CIPSCO and Treasurer and Assistant Secretary of CIPS ______________________ * Mr. Greenwalt is a director 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 24, 1996. 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, 1995). Name Age Positions Held ____ ___ ______________ C. L. Greenwalt 62 President and Chief Executive Officer* W. A. Koertner 46 Vice President Finance and Secretary* J. G. Bachman 47 Vice President Marketing J. T. Birkett 58 Vice President Power Generation D. R. Patterson 59 Vice President Corporate Services G. W. Moorman 52 Vice President Power Supply W. R. Morgan 59 Vice President Division Operations W. R. Voisin 60 Vice President Public Relations L. E. Marlett 40 Controller (Principal Accounting Officer)* C. D. Nelson 42 Treasurer and Assistant Secretary* ______________________ * Mr. Greenwalt is a director of CIPS and is also an officer and director of CIPSCO. Mr. Koertner, Mrs. Marlett and Mr. Nelson are also officers of CIPSCO. 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 24, 1996. 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. Koertner served as Vice President Financial Services from August 1, 1989 to April 1, 1993, and as Vice President Corporate Services from April 1, 1993 to July 1, 1995 when he was named Vice President Finance and Secretary. Mr. Bachman served as Vice President Corporate Planning from August 1, 1989 to January 1, 1995, when he was named Vice President Marketing. Mr. Birkett served as Manager of Purchasing and Stores from March 1, 1985 to July 1, 1995 when he was named Vice President Power Generation. Mr. Patterson served as Western Division Manager from March 1, 1985 to July 1, 1995 when he was named Vice President Corporate Services. Mrs. Marlett served as income tax supervisor in the Treasury Department from August 28, 1989 to February 1, 1992 and as Assistant Treasurer and Assistant Secretary in the Treasury Department from February 1, 1992 to August 1, 1995 when she was named Controller. 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 _______ 1995 First Second Third Fourth ____ _____ ______ _____ ______ Price Range High $29 1/2 $30 3/4 $34 1/2 $39 Low 27 28 1/2 28 3/4 34 3/8 Close 28 5/8 29 7/8 34 3/8 39 ______ ______ ______ _______ Cash dividends declared (cents) $ .50 $ .51 $ .51 $ .51 ====== ====== ====== ====== 1994 ____ 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 ====== ====== ====== ====== The approximate number of CIPSCO common shareholders of record as of December 31, 1995, was 38,032. The market price for CIPSCO Common Stock increased in the third and fourth quarter of 1995 partially in response to the announcement of the Merger Agreement with UE. CIPSCO expects its Common Stock to continue to trade at a value reflective of the 1.03 shares of Ameren common stock to be received for each CIPSCO share pursuant to the Merger Agreement. See Item 1. Business - CIPSCO Incorporated and its Subsidiaries - Merger. Consummation of the merger is subject to the receipt of all necessary regulatory approvals. 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: 1995 1994 ____ ____ First Quarter . . . . . . $17,500,000 $17,000,000 Second Quarter . . . . . . $17,500,000 $17,200,000 Third Quarter . . . . . . $17,500,000 $17,200,000 Fourth Quarter . . . . . . $18,500,000 $17,200,000 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 8 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, 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (in thousands, except per share data) Operating Revenues $ 842,262 $ 844,615 $ 844,760 $ 739,877 $ 722,081 Operating Income 156,742 165,345 170,735 142,986 154,820 Net Income 72,015 83,954 85,498 72,499 72,065 Earnings per common share 2.11 2.46 2.51 2.13 2.11 Dividends declared per common share 2.03 1.99 1.95 1.91 1.87 As of December 31, Total Assets $1,827,911 $1,777,357 $1,757,750 $1,725,456 $1,751,574 Long-Term Debt 478,926 474,619 494,323 503,700 496,420 CIPS For the Years Ended December 31, 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ (in thousands) Operating Revenues $ 833,119 $ 835,882 $ 834,556 $ 729,402 $ 710,205 Operating Income 106,029 110,678 113,651 97,372 104,039 Net Income 70,631 81,913 84,011 72,601 75,683 Preferred Dividends 3,850 3,510 3,718 4,549 5,396 Earnings for Common Stock 66,781 78,403 80,293 68,052 70,287 As of December 31, Total Assets $1,714,805 $1,678,650 $1,668,462 $1,645,059 $1,691,843 Long-Term Debt 478,926 474,619 494,323 503,700 496,420 Preferred Stock subject to mandatory redemption - - - - 18,245 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. AMEREN CORPORATION On August 11, 1995, CIPSCO entered into an Agreement and Plan of Merger providing for a business combination with Union Electric Company (UE) of St. Louis, Missouri, subject to the approval of shareholders of both companies and various regulatory agencies. As a result of the proposed business combination, a newly formed holding company - Ameren Corporation - will become the parent of CIPS, UE, and CIC. The holding company will be registered under the Public Utility Holding Company Act. When the merger is completed, each outstanding share of CIPSCO common stock will be converted into 1.03 shares of Ameren common stock and each outstanding share of UE common stock will be converted into one share of Ameren common stock. The transaction is expected to be tax-free to shareholders for federal income tax purposes and to be accounted for as a "pooling of interests." Shareholders of both companies approved the merger agreement on December 20, 1995. Following regulatory approvals, the merger is expected to be effective early in 1997. (See Notes 2 and 3 to Consolidated Financial Statements.) CIPSCO Incorporated The fundamental financial position of CIPSCO and its subsidiaries remained strong in 1995. 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. The total number of shares of common stock authorized under CIPSCO's articles is 100 million. At year-end 1995, a total of 34,069,542 shares of common stock was outstanding which was unchanged from year-end 1994. No underwritten offerings of common stock are planned. Dividends paid to common stock shareholders for the 12 months ended December 31, 1995 resulted in payout ratios of 96 percent of consolidated earnings and 47 percent of net cash provided by operating activities. 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 no debt outstanding. At year-end 1995, CIPSCO had $3.0 million of temporary investments and no short-term borrowings. CIPSCO Investment Company At year-end 1995 there were $111 million of non-utility investments managed by CIC and its subsidiaries. One of those subsidiaries, CIPSCO Securities Company, manages marketable securities. At year end it had invested approximately $47 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 1995, it had purchased existing leases, or interests in such leases, for nine combustion turbine generating units leased to five investor-owned utilities in the United States. In 1995 CEC purchased a 24.75 percent interest in Appomattox Cogeneration Limited Partnership, which owns a power sales agreement for electricity produced at a 40-megawatt cogeneration plant at Hopewell, Virginia. At year- end 1995 CEC had a total of $25 million invested. A fourth subsidiary, CIPSCO Venture Company (CVC), was established primarily to invest within the CIPS service territory. CVC's initial investment in 1994 consisted of $.6 million for the construction of a building which is leased to a manufacturing firm. CVC made no additional investments in 1995. 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 1995, CIC had $4 million of temporary investments and no short-term borrowings. Central Illinois Public Service Company FINANCIAL CONDITION. The utility's financial position remained fundamentally strong during 1995. 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. 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, 1995, the capitalization at CIPS 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 $103 million in 1995. Of that amount, $90 million and $13 million related to improvements and replacements to the electric and natural gas systems, respectively. For the 12 months ended December 31, 1995, 73 percent of CIPS' total capital requirements was provided from internal sources. Construction expenditures are expected to be about $98 million in 1996. Of that amount, $87 million is scheduled for electric facilities, while gas system expenditures are estimated at $11 million. For the five-year period 1996-2000, construction expenditures are estimated at $510 million. This is $2 million less than was spent in the preceding five years. The projected five-year amounts include about $76 million for environmental compliance including compliance with the Clean Air Act Amendments of 1990. In addition to construction funds, projected capital requirements for the 1996-2000 period include $133 million for scheduled debt retirements. Capital requirements for the 1996-2000 period are expected to be met primarily through internally generated funds. External financing to fund scheduled debt retirements will be required. In addition, up to $100 million of external financing is expected to be required to fund the construction program. 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. CIPS currently has authority from the Illinois Commerce Commission to issue up to $29 million of first mortgage bonds, medium-term notes and/or preferred stock through December 31, 1996. In 1995 CIPS issued $20 million of First Mortgage Bonds, Medium-Term Note Series 1995-1, 6.49% due June 1, 2005. The proceeds of this issue, together with other funds, were used for general corporate purposes and to replace funds used to retire maturing debt. Capital and financing requirements may be affected by such factors as availability and cost of capital, load growth, changes in construction expenditures, fuel strategies, regulatory developments, changes in environmental regulations and other governmental activities. CIPS is evaluating alternatives for reducing fuel costs and other expenses while maintaining environmental compliance. Depending on the alternative selected, construction expenditures could increase the five-year forecast by as much as $50 million over the 1996-2000 period. In addition, adoption of certain alternatives in fuel and/or environmental strategies could result in substantial increases in other capital requirements in the 1996-2000 period from the amounts shown above. These potential additional capital requirements would also need to be financed with external sources of funds. (See Fuel Strategies 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, 1995, CIPS could have issued about $461 million of additional first mortgage bonds under the indenture, assuming an annual interest rate of 6.90 percent. CIPS' articles of incorporation limit amounts of preferred stock which may be issued. Assuming a preferred dividend rate of 6.35 percent, the utility could have issued all $185 million of authorized but unissued preferred stock remaining as of year end. At year-end 1995, CIPS had no temporary investments and $47.9 million of short-term borrowings. CONSOLIDATED RESULTS OF OPERATIONS __________________________________ (1993-1995) EARNINGS. Net income and earnings per share declined 14 percent in 1995 to $72 million and $2.11, respectively, following declines of 1.8 percent in 1994. The return on average common equity for 1995 was 11.1% compared with 13.1% in 1994 and 13.7% in 1993. The declines in net income, earnings per share and return on average common equity in 1995 resulted from costs related to a workforce reduction and merger-related expenses, which reduced earnings 34 cents per common share in 1995. The declines in net income, earnings per share and return on average common equity in 1994 were in line with expectations, since 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, leveraged leases and partnership income. Investment revenues increased in 1995 due to additional investments and increased earnings from marketable securities. Investment revenues declined $1.5 million in 1994 due principally to reduced revenue from leasing investment transactions. ELECTRIC OPERATIONS. Retail electric kilowatthour sales increased 3 percent in 1995. Cooling degree days for 1995 were 13 percent higher than in 1994 and 4 percent above average. Total electric kilowatthour sales declined 2 percent in 1995 due principally to a decline in wholesale kilowatthour sales and two industrial customers who ceased operations. The capacity participation agreement with one of CIPS' wholesale customers called for a 115-megawatt reduction for the customer starting in 1995. This scheduled contract reduction reduced wholesale power supply participation revenues for CIPS by $8.7 million in 1995. 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 electric margins for the three years ended December 31, were: ELECTRIC MARGIN (in millions) 1995 1994 1993 ____ ____ ____ Electric Revenues $704 $697 $689 Less: Revenue taxes (25) (24) (24) Fuel (189) (196) (187) Purchased power (59) (55) (60) ____ ____ ____ Electric Margin $431 $422 $418 ==== ==== ==== The 1995 electric margin improved primarily because hotter weather during July and August increased residential and commercial sales and provided opportunities for interchange sales. The 1994 electric margin was favorably impacted by sales growth to commercial and industrial customers and by higher margins on interchange sales to other utilities. Fuel costs were $1.76 per million Btu in 1995, $1.65 per million Btu in 1994 and $1.67 per million Btu in 1993. Purchased power amounts fluctuated between years according to system requirements and sales opportunities. GAS OPERATIONS. Therm sold and transported increased 4 percent in 1995 due principally to colder weather in 1995 compared with 1994. Heating degree days for 1995 were 6 percent higher than in 1994 and 2 percent above average. The gas margins for the three years ended December 31, were: GAS MARGIN (in millions) 1995 1994 1993 ____ ____ ____ Gas Revenues $130 $138 $145 Less: Revenue taxes (7) (7) (7) Gas costs (74) (85) (90) ____ ____ ____ Gas Margin $ 49 $ 46 $ 48 ==== ==== ==== The 1995 gas margin was favorably impacted by colder weather in 1995. The 1994 gas margin was negatively impacted by mild weather as heating degree days were 4 percent below average in 1994. Gas costs fluctuated according to system requirements in each year. The average price paid for gas from suppliers declined more than three and one-half cents per therm in 1995 and two and one-half cents per therm in 1994. OPERATING EXPENSES. Other operation expenses increased 11 percent in 1995 over 1994 primarily due to unusual charges related to the voluntary separation program of $5.8 million (See Note 15 to Consolidated Financial Statements) and merger-related write-offs of $5.7 million involving previously deferred system development costs. The following table shows other operation expenses for the years ended December 31, adjusted for the unusual items. OTHER OPERATION (in millions) 1995 1994 1993 ____ ____ ____ Other operation $155 $140 $143 Voluntary separation costs (6) - - Write-off of system costs (6) - - ____ ____ ____ Other operation adjusted $143 $140 $143 ==== ==== ==== Other operation expenses declined 2 percent in 1994, due principally to a reduction in post-retirement 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. Maintenance expense changes between years are due to 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 change in relation to changes in retail revenues. Interest on long-term debt decreased from 1993 levels due to retirement of debt in 1994 and refinancing of long-term debt in 1993 at lower interest rates. Miscellaneous, net, reflects $4.7 million of merger transaction costs in 1995. Such costs are not tax deductible. Income tax expense reflects the changes in pre-tax income between years. CHANGES IN CONSOLIDATED BALANCE SHEET ACCOUNTS. Significant changes in the balance sheet accounts at December 31, 1995, compared to balances at December 31, 1994 are: fuel for electric generation, at average cost, increased 41 percent during 1995 due primarily to the additional purchase of coal to cover anticipated contract shortages which did not occur; gas stored underground, at average cost, declined 26 percent in 1995 due to both lower prices and net volumes of gas injected into storage; other current assets increased due principally to higher required deposits for self-insured programs; leveraged leases and energy investments increased 18 percent in 1995 primarily due to additional energy-related investments made during the year; and, short-term borrowings increased primarily due to increases in construction expenditures and in fuel for electric generation, together with the 1995 decline in earnings. 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 estimated capital costs of compliance based on the current strategy are included in the five-year construction forecast. 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. Certain of the alternatives would require increased expenditures for capital improvements such as for modifications to precipitators, new coal-handling equipment and purchase of rail cars. In addition to increased construction expenditures, adoption of certain alternatives, and the rate making treatment of such actions, could have a significant effect on operation and maintenance expense, fuel expense and financing needs. The study of these alternatives is not complete and no decision has been made as to whether the fuel and environmental compliance strategies will change. (See Capital and Financing Requirements above and Note 4 to Consolidated Financial Statements.) REGULATION AND COMPETITION. The electric utility industry is becoming more competitive due to market forces and a changing regulatory and legislative environment. To maintain market position in this environment and to take advantage of opportunities presented through increased competition, CIPS may, from time to time, consider various business strategies including the restructuring of wholesale and retail business operations. Due to competition, certain future sales may be at lower than historical margins. The National Energy Policy Act of 1992 (NEPA) contains provisions designed to promote competition in the wholesale and generation segments of the electric utility industry. Among other provisions, NEPA gave the Federal Energy Regulatory Commission (FERC) the authority to order electric utilities to provide wholesale transmission line access (wholesale wheeling) to independent power producers and to other utilities. Although NEPA prohibits FERC from ordering retail wheeling (the use of a utility's transmission and distribution facilities by others to deliver power to retail customers), it does not prevent state public utility commissions from doing so. Public utilities not voluntarily providing access to their transmission systems at agreed upon rates may be ordered to deliver power at rates to be established by FERC. In July 1995, legislation was passed in Illinois authorizing the Illinois Commerce Commission (Illinois commission), after hearings, to approve a public utility's petition to operate under alternative forms of regulation. The Illinois commission can now consider, on a trial basis, alternatives to rate of return regulation which could reward or penalize utilities based on performance. CIPS plans to make an alternative regulation filing after completing the merger with UE, to establish a mechanism for sharing merger-related and other savings between ratepayers and shareholders. Also in 1995, as a result of legislative debate on competition and retail wheeling, the Illinois General Assembly formed the Joint Committee on Electric Utility Reform (Joint Committee). The Joint Committee is to submit a final legislative recommendation to the Illinois General Assembly by November 1996. CIPS has presented a proposal to an advisory group of the Joint Committee that would introduce greater competition in Illinois in two phases beginning January 1, 1999. Although the final design or impact of the federal and state regulatory policies relating to wholesale and retail wheeling are not known, CIPS is actively planning the transition to a competitive environment. Increased competition could also force utilities to change accounting methods. Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for Effects of Certain Types of Regulation," applies to regulated entities whose rates are designed to recover costs of providing service to customers through the ratemaking process. Changes in regulation or in the competitive environment for regulated services could cause a utility to no longer be eligible to apply SFAS No. 71 to established regulatory assets. CIPS has evaluated the possibility that SFAS No. 71 would no longer apply to it and currently believes that there would be no material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. (See Note 3 to Consolidated Financial Statements.) SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," is not expected to have a material impact on the financial position, results of operations or liquidity of the Company or CIPS. (See Note 14 to Consolidated Financial Statements.) 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 and estimated at other sites. Since 1987, the estimated incurred costs related to studies and remediation at these 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. Costs prudently incurred in connection with the sites that have not been or are not recovered from insurance carriers or other parties will be recovered through approved environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. (See Note 4 to Consolidated Financial Statements.) LABOR ISSUES. CIPS' collective bargaining agreements, covering approximately 57 percent of its workforce, will expire on June 30, 1996. Discussions to reach new labor agreements are under way. 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 the financial position, results of operations or liquidity of the Company or CIPS. (See Note 4 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 4 to Consolidated Financial Statements.) 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 commission. Non-retail electric rates are regulated by FERC. The utility's rates are designed to recover operating costs including depreciation and capital costs 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. GRAPHIC MATERIAL APPENDIX [graph] This bar graph displays the six-year (1990-1995) comparison of the rate of return on average common equity and would relate to the Financial Condition portion of the preceding Management's Discussion and Analysis. Rate of Return on Average Common Equity (in percent) 11.0% 11.9% 11.8% 13.7% 13.1% 11.1% Year '90 '91 '92 '93 '94 '95 [graph] This bar graph displays the six-year (1990-1995) 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 preceding Management's Discussion and Analysis. CIPSCO CAPITALIZATION (in billions of dollars and percent) Long-Term Debt 42% 42% 42% 41% 39% 39% Preferred Stock 7 7 6 7 7 7 Common Equity 51 51 52 52 54 54 Year '90 '91 '92 '93 '94 '95 [graph] This bar graph displays the six-year (1990-1995) comparison of market value to book value and would relate to the Capital and Financing Requirements portion of the preceding Management's Discussion and Analysis. (in dollars per common share at year end) Market Value 21.75 27.88 30.25 30.75 27.00 39.00 Book Value 17.63 17.86 18.08 18.60 19.01 19.12 Year '90 '91 '92 '93 '94 '95 [graph] This bar graph displays the six-year (1990-1995) 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 preceding Management's Discussion and Analysis. (in megawatts) System Generating Capability at Time of Peak 2,647 2,679 2,707 2,727 2,844 2,844 Gross System Peak 2,027 2,093 1,930 2,157 2,194 2,319 Year '90 '91 '92 '93 '94 '95 [graph] This bar graph displays the six-year (1990-1995) comparison of heating and cooling degree days matched against normal temperatures and would relate to the Electric Operations and Gas Operations portions of the preceding Management's Discussion and Analysis. (Degree days based on average daily temperature of 65 degrees) Heating Degree Days 4,681 5,013 5,030 5,702 5,222 5,502 Compared to Normal 5,441 5,441 5,441 5,441 5,441 5,441 Cooling Degree Days 1,178 1,543 884 1,213 1,078 1,223 Compared to Normal 1,182 1,182 1,182 1,182 1,182 1,182 Year '90 '91 '92 '93 '94 '95 Item 8. Financial Statements and Supplementary Data. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands, except per share data) Operating Revenues: Electric $ 703,483 $ 697,427 $ 688,820 Gas 129,606 138,418 145,702 Investment 9,173 8,770 10,238 __________ __________ __________ Total operating revenues 842,262 844,615 844,760 __________ __________ __________ Operating Expenses: Fuel for electric generation 188,731 196,324 186,938 Purchased power 59,495 55,543 60,181 Gas costs 74,054 85,043 90,097 Other operation 155,368 140,068 142,716 Maintenance 67,996 65,176 61,218 Depreciation and amortization 83,263 81,099 78,062 Taxes other than income taxes 56,613 56,017 54,813 __________ __________ __________ Total operating expenses 685,520 679,270 674,025 __________ __________ __________ Operating Income 156,742 165,345 170,735 __________ __________ __________ Interest and Other Charges: Interest on long-term debt of subsidiary 32,871 32,842 34,421 Other interest charges 898 378 603 Allowance for funds used during construction (962) (919) (2,259) Preferred stock dividends of subsidiary 3,850 3,510 3,718 Miscellaneous, net 2,298 (3,502) (3,107) __________ __________ __________ Total interest and other charges 38,955 32,309 33,376 __________ __________ __________ Income Before Income Taxes $ 117,787 $ 133,036 $ 137,359 __________ __________ __________ Income taxes 45,772 49,082 51,861 __________ __________ __________ Net Income $ 72,015 $ 83,954 $ 85,498 ========== ========== ========== Average Shares of Common Stock Outstanding 34,070 34,107 34,108 Earnings Per Average Share of Common Stock $2.11 $2.46 $2.51 The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ____________ 1995 1994 ____ ____ (in thousands) ASSETS Utility Plant, at original cost: Electric $2,296,402 $2,264,930 Gas 229,118 220,347 __________ __________ 2,525,520 2,485,277 Less--Accumulated depreciation 1,132,355 1,077,533 __________ __________ 1,393,165 1,407,744 Construction work in progress 72,490 31,816 __________ __________ 1,465,655 1,439,560 __________ __________ Current Assets: Cash 1,088 1,963 Temporary investments, at cost which approximates market 7,147 3,283 Accounts receivable, net 65,267 67,579 Accrued unbilled revenues 27,234 30,484 Materials and supplies, at average cost 40,246 39,817 Fuel for electric generation, at average cost 42,634 30,305 Gas stored underground, at average cost 9,774 13,167 Prepayments 10,649 10,925 Other current assets 8,197 2,592 __________ __________ 212,236 200,115 __________ __________ Investments and Other Assets: Marketable securities 45,967 43,929 Leveraged leases and energy investments 59,114 49,933 Other 44,939 43,820 __________ __________ 150,020 137,682 __________ __________ $1,827,911 $1,777,357 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common shareholders' equity: Common stock, no par value, authorized shares, 100,000,000; outstanding 34,069,542 shares $ 356,812 $ 356,812 Retained earnings 294,720 290,801 __________ __________ 651,532 647,613 Preferred stock of subsidiary 80,000 80,000 Long-term debt of subsidiary 478,926 459,619 __________ __________ 1,210,458 1,187,232 __________ __________ Current Liabilities: Long-term debt of subsidiary due within one year - 15,000 Short-term borrowings 47,921 14,985 Accounts payable 60,603 54,021 Accrued wages 9,335 9,833 Accrued taxes 11,266 12,629 Accrued interest 9,525 9,408 Other 33,265 31,488 __________ __________ 171,915 147,364 __________ __________ Deferred Credits: Accumulated deferred income taxes 325,181 313,072 Investment tax credits 52,234 55,595 Regulatory liabilities, net 68,123 74,094 __________ __________ 445,538 442,761 __________ __________ $1,827,911 $1,777,357 ========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) OPERATING ACTIVITIES: Net income $ 72,015 $ 83,954 $ 85,498 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 83,263 81,099 78,062 Allowance for equity funds used during construction (AFUDC) (889) (630) (1,459) Deferred income taxes, net 10,577 19,891 7,900 Investment tax credit amortization (3,361) (3,367) (3,366) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues 5,562 2,156 (15,603) Fuel for electric generation (12,329) (4,259) 8,336 Other inventories 2,964 2,175 (4,450) Prepayments 276 (783) 5,502 Other assets (6,724) 5,955 19,075 Accounts payable and other 8,359 (5,433) 6,009 Accrued wages, taxes and interest (1,744) (3,082) 5,867 Other (9,581) 626 4,400 __________ __________ __________ Net cash provided by operating activities 148,388 178,302 195,771 __________ __________ __________ INVESTING ACTIVITIES: Utility construction expenditures, excluding AFUDC (102,820) (95,682) (85,453) Allowance for borrowed funds used during construction (73) (289) (800) Changes in temporary investments (3,864) (489) (2,793) Long-term marketable securities (866) (2,843) (2,790) Long-term leveraged leases and energy investments (9,181) (7,717) (10,832) __________ __________ __________ Net cash used in investing activities (116,804) (107,020) (102,668) __________ __________ __________ FINANCING ACTIVITIES: Common stock dividends paid (69,161) (67,874) (66,510) Proceeds from issuance of long-term debt of subsidiary 20,000 - 195,000 Repayment of long-term debt of subsidiary (16,000) (20,000) (205,000) Retirement of common stock - (1,020) - Redemption of preferred stock of subsidiary - - (27,500) Proceeds from issuance of preferred stock of subsidiary - - 42,500 Proceeds from issuance of (repayment of) short-term borrowings 32,936 14,985 (21,393) Issuance expense, discount and premium (234) (40) (7,104) __________ __________ __________ Net cash used in financing activities (32,459) (73,949) (90,007) __________ __________ __________ Net increase (decrease) in cash (875) (2,667) 3,096 Cash at beginning of year 1,963 4,630 1,534 __________ __________ __________ Cash at end of year $ 1,088 $ 1,963 $ 4,630 ========== ========== ========== Supplemental disclosures of cash flow information: Cash payments during the year: Interest, net of amounts capitalized $ 31,490 $ 30,714 $ 31,058 Income taxes $ 40,147 $ 34,264 $ 36,718 The accompanying notes to consolidated financial statements are an integral part of these statements. CIPSCO INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) Balance, beginning of year $ 290,801 $ 277,040 $ 259,338 Add (deduct): Net income 72,015 83,954 85,498 Common stock dividends ($2.03, $1.99 and $1.95 per share, respectively) (69,161) (67,874) (66,510) Other 1,065 (2,319) (1,286) __________ __________ __________ Balance, end of year $ 294,720 $ 290,801 $ 277,040 ========== ========== ========== The accompanying notes to consolidated financial statements are an integral part of these statements. 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, 1995 and 1994, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois January 26, 1996 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) engaged in non-utility investing activities. All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. Certain items previously reported for years prior to 1995 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 is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diversified retail base of about 321,000 residential, commercial and industrial customers in 557 communities. CIPS also is engaged in the purchase, transport, distribution and sale of natural gas to a diversified retail base of approximately 167,000 residential, commercial and industrial customers in 267 communities. The combined electric and gas service territory has an area of approximately 20,000 square miles in central and southern Illinois and has an estimated population of approximately 820,000. Credit risk is spread over the diversified retail base of electric and gas customers from which approximately four-fifths of total operating revenues were derived in 1995. Furthermore, CIPS has wholesale power supply agreements and power service agreements with seven other utilities, cooperatives, municipal associations and municipalities, and engages in the purchase and sale of interchange power with about 30 other utilities and utility power brokers, from which approximately one-fifth of total operating revenues were derived in 1995. See Note 5 to Consolidated Financial Statements for a discussion of receivables related to the leveraged lease investments. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. (See Note 3 to Consolidated Financial Statements.) 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 long-term marketable securities, leveraged leases and partnership income. 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 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 FERC, on a before-tax basis, was 9% for the years 1993 through 1995. Depreciation. Depreciation expense is based on remaining life straight-line rates (composite, approximately 3.3% in 1995 and 3.4% in 1994 and 1993) 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 1994. Reconciliation proceedings for 1994 and 1995 have commenced. 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 uses the liability method of accounting for deferred income taxes. The liability method requires the establishment of deferred tax liabilities and assets for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. (See Note 12 to Consolidated Financial Statements.) Cash and Temporary Investments. Temporary investments principally consist of 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 13 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 investments in limited partnerships which pool money from multiple investors to invest in a variety of investment vehicles, principally marketable securities. 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 shareholders' equity in conformity with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The net unrealized investment losses included in shareholders' equity (Retained Earnings - Other) at December 31, 1995 and 1994 were $.4 million and $1.6 million, respectively. 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 or 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. 2. MERGER AGREEMENT On August 11, 1995, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Union Electric Company (UE), and Ameren Corporation (Ameren), a newly formed, jointly owned entity, pursuant to which among other things, the Company will be merged with Ameren (the Merger). Subsequent to the Merger, CIPS, UE and CIC will be wholly owned operating subsidiaries of Ameren. As a result of the Merger, each outstanding share of the Company's common stock will be converted into 1.03 shares of common stock of Ameren (Ameren Common Stock), or cash in lieu of fractional shares. Each outstanding share of UE's common stock will be converted into one share of Ameren Common Stock. The preferred stock of CIPS and UE will remain outstanding and unchanged. The Merger is expected to be tax-free for federal income tax purposes and will be accounted for under the "pooling of interests" method of accounting. With the execution and delivery of the Merger Agreement, the Company and UE entered into stock option agreements, pursuant to one of which the Company granted UE the right, upon the terms and subject to the conditions set forth therein, to purchase up to 6,779,838 shares of the Company's Common Stock at a price of $37.02 per share. Pursuant to the other stock option agreement, UE granted the Company the right, upon the terms and subject to the conditions set forth therein, to purchase up to 6,983,233 shares of UE's Common Stock at a price of $35.94 per share. These options will expire upon consummation of the Merger. After the Merger, Ameren will become a registered public utility holding company under the Public Utility Holding Company Act of 1935. In December 1995, the Merger was approved by the shareholders of CIPSCO and UE. The Merger is conditioned upon, among other things, receipt of certain regulatory and governmental approvals. (See Note 3 to Consolidated Financial Statements.) The following unaudited pro forma financial information reflects the effects of combining CIPSCO and UE into Ameren under the pooling of interests method of accounting. (unaudited) (in thousands, except per share data) 1995 1994 1993 ____ ____ ____ Total Revenues $3,127,316 $3,146,101 $3,138,944 Net Income 372,872 391,459 368,571 Earnings per Share $ 2.72 $ 2.85 $ 2.69 The pro forma financial information consolidates the financial results of Electric Energy, Inc. (EEI), which will be 60% owned by Ameren subsequent to the Merger as a result of the current ownership interest in EEI by CIPS and UE. 3. REGULATORY MATTERS. CIPS and UE filed a joint application for approval of the Merger with the Illinois commission and FERC. UE has filed an application for approval of the transaction with the Missouri Public Service Commission. In those applications, CIPS and UE are requesting a sharing between ratepayers and shareholders, over the 10-year period following the merger, of merger savings, net of merger costs. A merger filing will be made with the Securities and Exchange Commission at a later date. Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for Effects of Certain Types of Regulation," applies to regulated entities whose rates are designed to recover the cost of providing service to customers through the ratemaking process. SFAS No. 71 allows certain costs that would normally be reflected in net income to be deferred on the balance sheet as regulatory assets. These costs are then amortized as the related amounts are reflected in rates. Under current accounting pronouncements, if a loss becomes probable, any unamortized balance, net of tax, would reduce net income. The Company continually reviews regulatory assets and liabilities. As shown below, CIPS is in a net regulatory liability position at December 31, 1995, and currently believes that there would be no material adverse impact on results of operations, financial position or liquidity if CIPS were to discontinue application of SFAS No. 71. The components of regulatory assets and liabilities at December 31, are: 1995 1994 ____ ____ (in thousands) Regulatory Assets: Deferred environmental remediation costs $ 5,018 $ 1,028 Take-or-pay costs 1,436 2,750 Unamortized costs related to reacquired debt 13,397 14,578 ________ ________ Total Regulatory Assets - in Other Assets on Consolidated Balance Sheets $ 19,851 $ 18,356 ======== ======== Regulatory Liabilities: Clean Air Act allowances, net $ 454 $ 4,152 SFAS 109 - Income Taxes, net 67,669 69,942 ________ ________ Total Regulatory Liabilities, net $ 68,123 $ 74,094 ======== ======== Regulatory Liabilities Net of Regulatory Assets $ 48,272 $ 55,738 ======== ======== 4. COMMITMENTS AND CONTINGENCIES Environmental Remediation Costs. The utility and certain of its predecessors and other affiliates previously operated facilities that manufactured gas from coal. In connection with the manufacturing of 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 which contain potentially harmful materials. One site was added to the United States Environmental Protection Agency (USEPA) Superfund list on August 30, 1990. On September 30, 1992 the Illinois Environmental Protection Agency (IEPA), in consultation with the USEPA, decided that the long-term remedial plan for this Superfund 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 such remedial action with IEPA oversight. Over the past several years CIPS has received cash settlements from certain of its insurance carriers arising from litigation instituted by CIPS (which is now concluded) seeking indemnification for, among other things, costs incurred by CIPS in connection with the sites. Effective with April 1993 billings to customers, CIPS began recovery of cleanup costs associated with the sites through environmental adjustment clause rate riders. As required by the Illinois commission, the riders provided for (1) recovery of cleanup costs and a return to ratepayers of any reimbursement of cleanup costs received from insurance carriers or other parties and (2) a prudence review of cleanup expenditures. The Illinois Supreme Court has ruled that cleanup costs are recoverable in rates and that the use of a rider mechanism to recover such costs is appropriate. Through December 31, 1993, CIPS collected $2.9 million under the riders. No amounts have been collected since January 1994. The estimated incurred costs relating to studies and remediation at the 13 sites and associated legal expenses are being accrued and deferred rather than expensed currently, pending recovery through rates or from other parties. Through December 31, 1995, $42.5 million had been deferred representing costs incurred and estimates for costs of completing studies at various sites and an estimate of future remediation costs to be incurred at the Superfund and other sites. The total of the costs deferred, net of recoveries from insurers and through the rate riders described above, was $5.0 million at December 31, 1995. The Illinois commission has initiated reconciliation proceedings to review CIPS' environmental remediation activities in 1993 and 1994 and to determine whether the revenues collected under the riders in 1993 were consistent with the amount of remediation costs prudently incurred. Amounts found to have been incorrectly included under the riders would be subject to refund. Management believes that any costs incurred in connection with the sites that are not recovered from others will be recovered through environmental rate riders. Accordingly, management believes that costs incurred in connection with these sites will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. FERC 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 rate riders. Any future transition costs identified and billed from pipeline suppliers are expected to be recoverable from customers of CIPS. FERC Proposed Rulemaking to Create Open Access Transmission Service. In March 1995, the FERC issued a notice of proposed rulemaking (NOPR) through which the FERC intends to require all utilities subject to its jurisdiction to provide electric transmission service on a non-discriminatory basis to all interested parties. Under the NOPR as currently proposed the "open access" tariffs which are likely to be required are tariffs designed to provide transmission access to other utility systems on a basis comparable to the way a utility utilizes its own electric system. The proposed rules are designed to increase competition in bulk power markets. CIPS cannot predict when FERC will take final action on the NOPR or whether it will be adopted in its present form. In connection with the Merger, CIPS and UE have filed combined open access comparable service transmission tariffs designed to comply with the tariffs currently proposed in the NOPR. The filing of such tariffs is a condition to approval of the Merger by FERC. The filed tariffs would become effective only upon completion of the Merger. CIPS does not anticipate that operating revenues or expenses will change materially as a result of the open access, comparable service tariffs. Accordingly, management believes that such tariffs will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Clean Air Act. CIPS' current compliance strategy to meet Phases 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 estimated capital costs of compliance based on the current strategy are included in the five-year construction forecast. The forecast has an estimate of $76 million for environmental compliance including compliance with regulations under the Clean Air Act. However, capital costs and certain expenses, as well as financing needs, may increase if fuel strategy studies being undertaken by CIPS indicate that CIPS should change its compliance strategy to place more reliance on fuel switching. Labor Issues. The International Union of Operating Engineers Local 148 and the International Brotherhood of Electrical Workers Local 702 have both filed unfair labor practice charges with the National Labor Relations Board (NLRB) relating to the legality of the lockout by CIPS of both unions during 1993. The Peoria Regional Office of the NLRB has issued complaints against CIPS concerning its lockout of both unions. Both unions seek, among other things, back pay and other benefits for the period of the lockout. CIPS estimates the amount of back pay and other benefits for both unions to be less than $12 million. A hearing before an administrative law judge of the NLRB was completed on April 25, 1995. Management believes the lockout was both lawful and reasonable and that the final resolution of the disputes will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. Other Issues. CIPS is involved in other legal and administrative proceedings before various courts and agencies with respect to rates, taxes, gas and electric fuel cost reconciliations, service area disputes, environmental torts and other matters. Although unable to predict the outcome of these matters, management believes that appropriate liabilities have been established and that final disposition of these actions will not have a material adverse effect on financial position, results of operations or liquidity of the Company or CIPS. 5. LEVERAGED LEASES CIC and its subsidiaries are the lessors in several leveraged lease arrangements involving interests in a natural gas liquids plant, natural gas processing equipment, a commercial jet aircraft, 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: 1995 1994 1993 ____ ____ ____ (in thousands) Rentals receivable (net of nonrecourse debt) $ 23,282 $ 24,894 $ 25,776 Estimated residual value of leased property 64,598 64,599 53,671 Less - Unearned and deferred income (34,870) (39,560) (37,231) ________ ________ ________ Investment in leveraged leases 53,010 49,933 42,216 Less - Deferred taxes (30,771) (25,817) (19,777) ________ ________ ________ Net investment $ 22,239 $ 24,116 $ 22,439 ======== ======== ======== The following is a summary of the components of income from leveraged leases for the years ended December 31: 1995 1994 1993 ____ ____ ____ (in thousands) Income before income taxes $ 4,677 $ 4,664 $ 4,702 Income tax expense (1,868) (1,874) (2,037) ________ ________ ________ Income from leveraged leases $ 2,809 $ 2,790 $ 2,665 ======== ======== ======== 6. 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) 1995 1994 1993 ____ ____ ____ Fair value of plan assets* $221,013 $188,449 $177,824 _______ _______ _______ Accumulated benefit obligations:** Vested benefits 121,181 120,032 125,641 Nonvested benefits 20,989 3,644 559 Effect of projected future compensation levels (based on 4.5% annual increases in 1995, 4.8% in 1994 and 4.3% in 1993) 38,830 38,974 41,214 ________ ________ ________ Total projected benefit obligation 181,000 162,650 167,414 ________ ________ ________ Plan assets in excess of projected benefit obligation $ 40,013 $ 25,799 $ 10,410 ======== ======== ======== ________________________ * 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 7.50% for 1995, 7.75% for 1994 and 6.50% for 1993. Pension Plan Assets in Excess of Projected Benefit Obligation (in thousands) 1995 1994 1993 ____ ____ ____ Plan assets in excess of projected benefit obligation $ 40,013 $ 25,799 $ 10,410 Unrecognized transition asset (being amortized over 18.2 years) (3,936) (4,399) (4,862) Unrecognized net gain (33,690) (23,146) (5,188) Unrecognized prior service cost 5,167 5,679 760 ________ ________ ________ Prepaid pension costs at September 30 7,554 3,933 1,120 Expense, net of funding October to December 207 (80) 1,944 ________ ________ ________ Prepaid pension costs at December 31 $ 7,761 $ 3,853 $ 3,064 ======== ======== ======== Components of Net Pension Expense (in thousands) 1995 1994 1993 ____ ____ ____ Service cost (present value of benefits earned during the year) $ 6,873 $ 8,053 $ 6,398 Interest cost on projected benefit obligation 12,497 10,846 10,193 Actual return on plan assets (expected long-term rate of return was 8%) (34,364) (6,795) (21,101) Deferred investment gains (losses) 20,658 (6,242) 10,071 Amortization of the unrecognized prior service cost 372 61 118 Amortization of the transition amount (463) (463) (463) ________ ________ ________ Net pension expense $ 5,573 $ 5,460 $ 5,216 ======== ======== ======== 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 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 eligibility requirements. The life insurance plan continues for all retirees who have been in the plan as employees for 10 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) 1995 1994 1993 ____ ____ ____ Fair value of plan assets* $ 49,385 $ 26,874 $ 13,302 _______ _______ _______ Accumulated benefit obligations: Retirees 50,030 47,494 47,269 Fully eligible active employees 17,577 15,407 15,006 Other active employees 75,595 64,188 67,007 ________ ________ ________ Total accumulated benefit obligations 143,202 127,089 129,282 ________ ________ ________ Accumulated benefit obligations in excess of plan assets (93,817) (100,215) (115,980) Unrecognized prior service costs 191 - - Unrecognized transition obligation (being amortized over 20 years) 98,878 104,695 110,511 Unrecognized net gain (including changes in assumptions) (23,855) (21,307) (11,185) ________ ________ ________ Accrued postretirement benefit cost at September 30 (18,603) (16,827) (16,654) Expense, net of funding, October to December 14,711 14,906 14,912 ________ ________ ________ Accrued postretirement benefit cost at December 31 $ (3,892) $ (1,921) $ (1,742) ======== ======== ======== * Plan assets are invested in common and preferred stocks, bonds, money market instruments, guaranteed income contracts and real estate. Components of Postretirement Benefit Cost (in thousands) 1995 1994 1993 ____ ____ ____ Service costs on benefits earned $ 3,809 $ 4,108 $ 4,215 Interest costs on accumulated benefit obligations 10,307 8,918 9,948 Actual return on plan assets (8,390) (212) (1,038) Deferred investment gains (losses) 5,304 (1,601) 397 Amortization of transition amounts 5,816 5,816 5,816 ________ ________ ________ Postretirement benefit cost $ 16,846 $ 17,029 $ 19,338 ======== ======== ======== For purposes of calculating the postretirement benefit obligation it is assumed that health-care costs will increase by 10.6% in 1996, 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, 1995 by $23.2 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 7.5% in 1995, 8.25% in 1994 and 7% in 1993. The expected long- term rate of return on plan assets was 8% in all three years. 7. 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, 1995 and 1994 the preferred stock authorized and outstanding was: 1995 1994 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 ======= ======= ======= _________________________
(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, 1995 was 4.248%. (d) Not redeemable prior to October 1, 1998. (e) Aggregate stated value cannot exceed $65,000,000. 8. 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, 1995, 1994 and 1993, no amount of retained earnings was restricted. 9. 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 $65 million at December 31, 1995. CIPS compensates banks for these lines of credit. The bank lines of credit are for corporate purposes including the support of any commercial paper borrowings. At December 31, 1995 there were no short-term borrowings from the lines of credit by CIPSCO, CIC, or CIPS; however, CIPS did have $47.9 million in commercial paper outstanding. 10. LONG-TERM DEBT OF SUBSIDIARY Maturities and sinking fund requirements of CIPS' long-term debt through 2000 are as follows: Sinking Fund Maturities Requirements Total __________ ____________ _____ (in thousands) 1996 $ - $150 $ 150 1997 58,000 - 58,000 1998 - - - 1999 50,000 - 50,000 2000 25,000 - 25,000 In 1995 and 1994 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 1996 requirement in the same manner. Long-term debt outstanding at December 31, was: 1995 1994 Amount Amount ______ ______ (in thousands) First mortgage bonds: Series K, 4 5/8% due 6/1/1995 $ - $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 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 Series 1995-1, 6.49% due 6/1/2005 20,000 - _______ _______ 299,000 295,000 _______ _______ 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 (2,074) (2,381) _______ _______ 478,926 474,619 Maturities due within one year - (15,000) _______ _______ $478,926 $459,619 ======= ======= 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 CIPS commencing June 1, 2003 and August 15, 2003, respectively. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1995 and 1994 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: 1995 1994 _________________ _________________ Carrying Fair Carrying Fair Value Value Value Value ________ ________ ________ _______ (in thousands) Marketable Securities $ 45,950 $ 45,950 $43,131 $ 43,131 Financial Derivatives 17 17 798 798 Preferred Stock 80,000 66,108 80,000 52,684 Long-term Debt 478,926 501,826 459,619 447,323 12. INCOME TAXES The Company uses the liability method of accounting for deferred income taxes. 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: 1995 1994 1993 ____ ____ ____ (in thousands) Current - - Federal $ 31,676 $ 29,048 $ 34,340 - - State 6,020 4,534 6,980 ________ ________ ________ 37,696 33,582 41,320 ________ ________ ________ Deferred - - Federal 8,500 14,738 12,315 - - State 2,937 4,129 1,592 ________ ________ ________ 11,437 18,867 13,907 ________ ________ ________ Amortization of investment tax credits (3,361) (3,367) (3,366) ________ ________ ________ Total income tax expense $ 45,772 $ 49,082 $ 51,861 ======== ======== ======== Reconciliations with statutory federal income tax rates at December 31, were: 1995 1994 1993 ____ ____ ____ Effective income tax rate 37.6% 35.9% 36.8% Amortization of investment tax credits 2.8 2.5 2.4 Tax exempt interest and dividends 1.6 1.6 1.5 State income tax rate, net of federal income tax benefits (4.8) (4.0) (3.9) Non-deductible merger expenses (1.4) - - Other, net (.8) (1.0) (1.8) ______ ______ ______ Statutory federal income tax rate 35.0% 35.0% 35.0% ====== ====== ====== The accumulated deferred income taxes as set forth below and in the Consolidated Balance Sheets arise from the following temporary differences at December 31: 1995 1994 ____________ ____________ (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $320,677 $315,364 Investment tax credits (20,831) (22,164) Regulatory liabilities, net (26,843) (27,742) Leveraged leases 30,771 25,817 Other 21,407 21,797 ________ ________ Accumulated deferred income taxes per Consolidated Balance Sheets $325,181 $313,072 ======== ======== Deferred tax assets (included in prepayments) $ 6,787 $ 7,048 ======== ======== 13. DERIVATIVE FINANCIAL INSTRUMENTS CIC has limited involvement with derivative financial instruments which include 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, 1995 and 1994 was approximately $3.1 million and $.2 million, respectively. 14. SFAS NO. 121 Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of" was issued in March 1995 and became effective on January 1, 1996. SFAS No. 121 requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. SFAS No. 121 is not expected to have an impact on the financial position, results of operations or liquidity of the Company or CIPS upon adoption. 15. VOLUNTARY SEPARATION PROGRAM Early in 1995, the Company offered a voluntary separation program to most of its salaried employees, which was accepted by and granted to 151 employees in February 1995. The Company recorded a $5.8 million charge in 1995 for the cost of separation benefits provided under the program. The detailed costs of the program consisted of separation payments of $5.4 million, educational benefits of $.1 million, and medical benefits of $.3 million. The separation payments were dependent upon ending salary and number of years employed, and ranged from 6 months to a maximum of 12 months pay per individual. The voluntary separation program reduced 1995 earnings by 10 cents per share. The cost of the program is expected to be recovered through lower payroll expenses by the end of 1996. 16. 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, leveraged leases and energy investments. The following is a summary of operations: Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 703,483 $ 697,427 $ 688,820 Operating expenses, excluding provision for income taxes 566,130 550,386 534,071 _________ _________ _________ Pretax operating income 137,353 147,041 154,749 _________ _________ _________ Gas operations: Operating revenues 129,606 138,418 145,702 Operating expenses, excluding provision for income taxes 117,418 126,896 138,086 _________ _________ _________ Pretax operating income 12,188 11,522 7,616 _________ _________ _________ Investments: Operating revenues 9,173 8,770 10,238 Operating expenses, excluding provision for income taxes 1,972 1,988 1,868 _________ ________ ________ Pretax investment income 7,201 6,782 8,370 _________ ________ ________ Total 156,742 165,345 170,735 _________ ________ ________ Less interest expense and other charges 38,955 32,309 33,376 Less income taxes 45,772 49,082 51,861 _________ _________ ________ Net income per Consolidated Statements of Income $ 72,015 $ 83,954 $ 85,498 ========= ========= ========== Depreciation and amortization expense: Electric $ 75,869 $ 74,496 $ 71,876 Gas 6,803 6,100 5,771 Corporate 591 503 415 _________ _________ _________ Total $ 83,263 $ 81,099 $ 78,062 ========= ========= ========== INVESTMENT INFORMATION Identifiable assets: Electric $1,495,433 $1,469,601 $1,459,073 Gas 181,677 176,788 177,857 Temporary investments 7,147 5,875 5,527 Marketable securities 45,967 43,929 42,703 Leveraged leases and energy investments 59,114 49,933 42,216 Corporate 38,573 31,231 30,374 _________ _________ _________ Total $1,827,911 $1,777,357 $1,757,750 ========= ========= ========= Construction expenditures: Electric $ 90,151 $ 82,673 $ 76,956 Gas 13,631 13,928 10,756 _________ _________ _________ Total $ 103,782 $ 96,601 $ 87,712 ========= ========= ========= 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The fluctuations in the quarterly results are due to the seasonal nature of the utility business of CIPS. Cash Earnings Dividends Book Total Total Per Per Value Operating Operating Net Common Common (end of Quarters Revenues Income Income Share * Share period) _________ _________ __________ ________ _________ _______ (in thousands, except per share data) 1995 First $210,462 $ 28,252 $ 12,568 (1) $0.37 (1) $0.50 $18.90 Second 183,944 29,158 12,886 0.38 0.51 18.80 Third 243,863 77,089 41,731 1.22 0.51 19.52 Fourth 203,993 22,243 4,830 (2) 0.14 (2) 0.51 19.12 1994 First $225,622 $ 30,291 $ 13,759 $0.40 $0.49 $18.51 Second 202,505 39,499 19,545 0.57 0.50 18.56 Third 216,270 64,004 34,256 1.00 0.50 19.06 Fourth 200,218 31,551 16,394 0.48 0.50 19.01
* The quarterly earnings per common share may not add to the total earnings per share for the year due to rounding. (1) Includes $5.8 million of voluntary separation program expenses which reduced net income by $3.5 million and earnings by 10 cents per share. (2) Includes $10.4 million of merger-related transaction expenses and write-off of system development expenses which reduced net income by $8.2 million and earnings by 24 cents per share. Item 8. Financial Statements and Supplementary Data. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF INCOME Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) Operating Revenues: Electric $ 703,509 $ 697,458 $ 688,849 Gas 129,610 138,424 145,707 __________ __________ __________ Total operating revenues 833,119 835,882 834,556 __________ __________ __________ Operating Expenses: Fuel for electric generation 188,731 196,324 186,938 Purchased power 59,495 55,543 60,181 Gas costs 74,054 85,043 90,097 Other operation 154,014 138,622 141,310 Maintenance 67,994 65,172 61,216 Depreciation and amortization 82,672 80,596 77,647 Taxes other than income taxes 56,588 55,984 54,767 Income taxes 43,542 47,920 48,749 __________ __________ __________ Total operating expenses 727,090 725,204 720,905 __________ __________ __________ Operating Income 106,029 110,678 113,651 __________ __________ __________ Other Income and Deductions: Allowance for equity funds used during construction 889 630 1,459 Nonoperating income taxes (941) (603) (631) Miscellaneous, net (1,695) 4,119 3,632 __________ __________ __________ Total other income and deductions (1,747) 4,146 4,460 __________ __________ __________ Income Before Interest Charges 104,282 114,824 118,111 __________ __________ __________ Interest Charges: Interest on long-term debt 32,871 32,842 34,421 Other interest charges 853 358 479 Allowance for borrowed funds used during construction (73) (289) (800) __________ __________ __________ Total interest charges 33,651 32,911 34,100 __________ __________ __________ Net Income 70,631 81,913 84,011 Preferred stock dividends 3,850 3,510 3,718 __________ __________ __________ Earnings for Common Stock $ 66,781 $ 78,403 $ 80,293 ========== ========== ========== The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY BALANCE SHEETS December 31, ____________ 1995 1994 ____ ____ (in thousands) ASSETS Utility Plant, at original cost: Electric $2,296,402 $2,264,930 Gas 229,118 220,347 __________ __________ 2,525,520 2,485,277 Less--Accumulated depreciation 1,132,355 1,077,533 __________ __________ 1,393,165 1,407,744 Construction work in progress 72,490 31,816 __________ __________ 1,465,655 1,439,560 __________ __________ Current Assets: Cash 1,006 1,320 Accounts receivable, net 65,574 67,686 Accrued unbilled revenues 27,234 30,484 Materials and supplies, at average cost 40,246 39,817 Fuel for electric generation, at average cost 42,634 30,305 Gas stored underground, at average cost 9,774 13,167 Prepayments 10,268 10,839 Other current assets 8,226 2,593 __________ __________ 204,962 196,211 __________ __________ Other Assets 44,188 42,879 __________ __________ $1,714,805 $1,678,650 ========== ========== 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 449,137 453,463 __________ __________ 570,419 574,745 Preferred stock 80,000 80,000 Long-term debt 478,926 459,619 __________ __________ 1,129,345 1,114,364 __________ __________ Current Liabilities: Long-term debt due within one year - 15,000 Short-term borrowings 47,921 14,985 Accounts payable 60,791 53,900 Accrued wages 9,320 9,833 Accrued taxes 11,155 12,963 Accrued interest 9,525 9,408 Other 33,264 31,488 __________ __________ 171,976 147,577 __________ __________ Deferred Credits: Accumulated deferred income taxes 293,127 287,020 Investment tax credits 52,234 55,595 Regulatory liabilities, net 68,123 74,094 __________ __________ 413,484 416,709 __________ __________ $1,714,805 $1,678,650 ========== ========== The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF CASH FLOW Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) OPERATING ACTIVITIES: Net income $ 70,631 $ 81,913 $ 84,011 Adjustments to reconcile net income to net cash provided: Depreciation and amortization 82,672 80,596 77,647 Allowance for equity funds used during construction (AFUDC) (889) (630) (1,459) Deferred income taxes, net 4,575 14,146 7 Investment tax credit amortization (3,361) (3,367) (3,366) Cash flows impacted by changes in assets and liabilities: Accounts receivable, net and accrued unbilled revenues 5,362 2,195 (15,270) Fuel for electric generation (12,329) (4,259) 8,336 Other inventories 2,964 2,175 (4,450) Prepayments 571 (992) 3,305 Other assets (6,942) 6,061 13,877 Accounts payable and other liabilities 8,667 (5,438) 6,106 Accrued wages, taxes and interest (2,204) (3,111) 6,217 Other (8,884) 1,129 4,815 __________ __________ __________ Net cash provided by operating activities 140,833 170,418 179,776 __________ __________ __________ INVESTING ACTIVITIES: Construction expenditures, excluding AFUDC (102,820) (95,682) (85,453) Allowance for borrowed funds used during construction (73) (289) (800) __________ __________ __________ Net cash used in investing activities (102,893) (95,971) (86,253) __________ __________ __________ FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 20,000 - 195,000 Repayment of long-term debt (16,000) (20,000) (205,000) Proceeds from issuance of preferred stock - - 42,500 Redemption of preferred stock - - (27,500) Retirement of common stock - - (33,250) Proceeds from issuance of (repayment of) short-term borrowings 32,936 14,985 (17,393) Dividends paid: Preferred stock (3,956) (3,510) (3,718) Common stock (71,000) (68,600) (33,500) Issuance expense, discount and premium (234) (40) (7,104) __________ __________ __________ Net cash used in financing activities (38,254) (77,165) (89,965) __________ __________ __________ Net increase (decrease) in cash (314) (2,718) 3,558 Cash at beginning of year 1,320 4,038 480 __________ __________ __________ Cash at end of year $ 1,006 $ 1,320 $ 4,038 ========== ========== ========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 31,490 $ 30,693 $ 30,909 Income taxes $ 45,550 $ 39,829 $ 48,367 The accompanying notes to financial statements are an integral part of these statements. CENTRAL ILLINOIS PUBLIC SERVICE COMPANY STATEMENTS OF RETAINED EARNINGS Years Ended December 31, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) Balance, beginning of year $ 453,463 $ 443,741 $ 398,235 Add (deduct); Net income 70,631 81,913 84,011 Dividends: Preferred stock (3,850) (3,510) (3,718) Common stock (71,000) (68,600) (33,500) Other (107) (81) (1,287) __________ __________ _________ Balance, end of year $ 449,137 $ 453,463 $ 443,741 ========== ========== ========== The accompanying notes to financial statements are an integral part of these statements. 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, 1995 and 1994, and the related statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois January 26, 1996 Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The information contained in Note 1 of Notes to Consolidated Financial Statements beginning on page 46 is incorporated herein by reference (except for the caption "Principles of Consolidation", the second paragraph under the caption "Concentration of Credit Risk", the second paragraph under the caption "Operating Revenues" and the caption "Marketable Securities" which are not included herein). 2. MERGER AGREEMENT The information contained in Note 2 of Notes to Consolidated Financial Statements beginning on page 49 is incorporated herein by reference. 3. REGULATORY MATTERS The information contained in Note 3 of Notes to Consolidated Financial Statements beginning on page 50 is incorporated herein by reference. 4. COMMITMENTS AND CONTINGENCIES The information contained in Note 4 of Notes to Consolidated Financial Statements beginning on page 52 is incorporated herein by reference. 5. LEVERAGED LEASES Not applicable. 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS The information contained in Note 6 of Notes to Consolidated Financial Statements beginning on page 56 is incorporated herein by reference. 7. PREFERRED STOCK The information contained in Note 7 of Notes to Consolidated Financial Statements beginning on page 60 is incorporated herein by reference. 8. COMMON SHAREHOLDERS' EQUITY Common Stock. The authorized common stock, no par value, for CIPS was 45,000,000 shares as of December 31, 1995, 1994 and 1993. All outstanding shares were exchanged with CIPS shareholders for CIPSCO Incorporated stock on October 1, 1990. During the three year period ended December 31, 1995, CIPSCO Incorporated which holds all CIPS common shares, retired CIPS shares as detailed in the table below: Number of Shares Outstanding Amounts (in thousands) ____________________________ ________________________ 1995 1994 1993 1995 1994 1993 ____ ____ ____ ____ ____ ____ Balance, beginning of year 25,452,373 25,452,373 26,336,718 $121,282 $121,282 $154,532 Common stock retired - - (884,345) - - (33,250) Other - - - - - - __________ __________ __________ ________ ________ ________ Balance, end of year 25,452,373 25,452,373 25,452,373 $121,282 $121,282 $121,282 ========== ========== ========== ======= ======= ========
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, 1995, 1994 and 1993, no amount of retained earnings was restricted. 9. LINES OF CREDIT AND SHORT-TERM BORROWINGS CIPS has arrangements for bank lines of credit which totaled $65 million at December 31, 1995. CIPS compensates banks for these lines of credit. The bank lines of credit are for corporate purposes including the support of any commercial paper borrowings. At December 31, 1995 there were no short-term borrowings from the lines of credit at CIPS, however, CIPS did have $47.9 million in commercial paper outstanding. 10. LONG-TERM DEBT The information contained in Note 10 of Notes to Consolidated Financial Statements beginning on page 61 is incorporated herein by reference. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value at December 31, 1995 and 1994 of each class of financial instruments for which it is practicable to make such estimates. 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: 1995 1994 ____ ____ Carrying Fair Carrying Fair Value Value Value Value ________ ________ ________ ________ (in thousands) Preferred Stock $ 80,000 $ 66,108 $ 80,000 $ 52,684 Long-Term Debt 478,926 501,826 459,619 447,323 12. INCOME TAXES CIPS uses the liability method of accounting for deferred income taxes. 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: 1995 1994 1993 ____ ____ ____ (in thousands) Current - - Federal $ 34,384 $ 32,826 $ 42,422 - - State 6,892 5,271 8,019 _______ _______ _______ 41,276 38,097 50,441 _______ _______ _______ Deferred - - Federal 3,813 10,084 1,483 - - State 1,814 3,106 191 _______ _______ _______ 5,627 13,190 1,674 _______ _______ _______ Amortization of invest- ment tax credits (3,361) (3,367) (3,366) _______ _______ _______ Total 43,542 47,920 48,749 _______ _______ _______ Nonoperating income taxes: Current 1,420 687 1,119 Deferred (479) (84) (488) _______ _______ _______ 941 603 631 _______ _______ _______ Total income taxes $ 44,483 $ 48,523 $ 49,380 ======= ======= ======== Reconciliations with statutory federal income tax rates at December 31, were: 1995 1994 1993 ____ ____ ____ Effective income tax rate 38.6% 37.2% 37.0% Amortization of investment tax credits 2.9 2.6 2.5 Tax exempt interest and dividends .7 .7 .7 State income tax rate, net of federal income tax benefits (4.9) (4.2) (4.0) UE/CIPS merger expense (1.5) - - Other, net (.8) (1.3) (1.2) ____ ____ ____ Statutory federal income tax rate 35.0% 35.0% 35.0% ==== ==== ==== The accumulated deferred income taxes as set forth below and in the Balance Sheets arise from the following temporary differences at December 31: 1995 1994 ____ ____ (in thousands) Accumulated deferred income tax liabilities related to: Depreciable property $320,677 $315,364 Investment tax credits (20,831) (22,164) Regulatory liabilities, net (26,843) (27,742) Other 20,124 21,562 _______ _______ Accumulated deferred income taxes per Balance Sheets $293,127 $287,020 ======= ======= Deferred tax assets (included in prepayments) $ 6,444 $ 7,016 ======= ======= 13. DERIVATIVE FINANCIAL INSTRUMENTS Not applicable. 14. SFAS NO. 121 The information contained in Note 14 of Notes to Consolidated Financial Statements beginning on page 65 is incorporated herein by reference. 15. VOLUNTARY SEPARATION PROGRAM The information contained in Note 15 of Notes to Consolidated Financial Statements beginning on page 65 is incorporated herein by reference. 16. 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, ________________________ 1995 1994 1993 ____ ____ ____ (in thousands) OPERATING INFORMATION Electric operations: Operating revenues $ 703,509 $ 697,458 $ 688,849 Operating expenses, excluding provision for income taxes 566,130 550,388 534,070 _________ _________ _________ Pretax operating income 137,379 147,070 154,779 _________ _________ _________ Gas operations: Operating revenues 129,610 138,424 145,707 Operating expenses, excluding provision for income taxes 117,418 126,896 138,086 _________ _________ _________ Pretax operating income 12,192 11,528 7,621 _________ _________ _________ Total 149,571 158,598 162,400 _________ _________ __________ Plus other income and deductions (1,747) 4,146 4,460 Less interest charges 33,651 32,911 34,100 Less income taxes 43,542 47,920 48,749 Less preferred dividends 3,850 3,510 3,718 _________ _________ ________ Earnings for common stock $ 66,781 $ 78,403 $ 80,293 ========= ========= ========= Depreciation expense: Electric $ 75,869 $ 74,496 $ 71,876 Gas 6,803 6,100 5,771 _________ _________ _________ Total $ 82,672 $ 80,596 $ 77,647 ========= ========= ========= INVESTMENT INFORMATION Identifiable assets: Electric $1,495,433 $1,469,601 $1,459,073 Gas 181,677 176,788 177,857 Corporate 37,695 32,261 31,532 _________ _________ _________ Total $1,714,805 $1,678,650 $1,668,462 ========= ========= ========= Construction expenditures: Electric $ 90,151 $ 82,673 $ 76,956 Gas 13,631 13,928 10,756 _________ _________ _________ Total $ 103,782 $ 96,601 $ 87,712 ========= ========= ========= 17. 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 Quarters Revenues Income Common Stock ________ _________ _________ ____________ (in thousands) 1995 First $208,883 $ 20,869 $ 11,803 (1) Second 182,110 19,873 11,653 Third 241,449 49,227 40,368 Fourth 200,677 16,060 2,957 (2) 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 (1) Includes $5.8 million of voluntary separation program expenses which reduced earnings for common stock by $3.5 million. (2) Includes $10.4 million of merger-related transaction expenses and write-off of system development expenses which reduced earnings for common stock by $8.2 million. 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 1996 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 1996 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' 1996 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' 1996 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. 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. Item 13. Certain Relationships and Related Transactions. CIPSCO AND CIPS CIPSCO is the parent company of CIPS. At December 31, 1995, 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 ___________________ Pro CIPSCO CIPS Forma ______ ____ _____ (a) 1. Financial statements Statements of Income for the years ended December 31, 1995, 1994 and 1993. . . . . . . . 41 69 - Balance Sheets - December 31, 1995 and 1994 . . 42 70 - Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993. . . . . . . . 43 71 - Statements of Retained Earnings for the years ended December 31, 1995, 1994 and 1993. . . . . 44 72 - Report of Independent Public Accountants. . . . 45 73 - Notes to Financial Statements . . . . . . . . . 46 74 - (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. (a) 3. Unaudited Pro Forma Combined Condensed Financial Information of CIPSCO And Union Electric Balance Sheet - December 31, 1995 . . . . . . - - 89 Statements of Income for the years ended December 31, 1995, 1994 and 1993. . . . . . - - 90 Notes to Unaudited Pro Forma Combined Condensed Financial Statements. . . . . . . - - 93 Applicable to Form 10-K of _____________ CIPSCO CIPS ______ ____ (a) 4. Exhibits 2.01 Agreement and Plan of Merger, dated as of August 11, 1995, by and among CIPSCO Incorporated, Union Electric Company, Ameren Corporation and Arch Merger Inc. (Exhibit 2(a) filed with CIPSCO's and CIPS' Form 10-Q/A (Amendment No. 1) for the quarter ended June 30, 1995.) Incorporated by Reference. . . . . . . X X 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 31, 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 31, 1994.) Incorporated by Reference. . . . . . . . . . . . . X Applicable to Form 10-K of ______________ Exhibits (Continued) 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, April 1, 1993, and June 1, 1995 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; Exhibit 4.03 to Form 8-K dated June 5, 1995.) Incorporated by Reference. . . . . . . . . . . . . . . X X 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 Management Continuity Agreement (Exhibit 10.05 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.04 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 - 10.05 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 - 10.06 Form of Excess Benefit Plan (Exhibit 10.10 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.07 Amendment to Form of Excess Benefit Plan. . . . X X 97 10.08 Form of Special Executive Retirement Plan (Exhibit 10.11 filed with CIPSCO's and CIPS' 1994 Annual Report on Form 10-K.) Incorporated by Reference . . . . . . . . . . . X X - 10.09 Amendment to Form of Special Executive Retirement Plan . . . . . . . . . . . . . . . . X X 98 10.10 Stock Option Agreement, dated as of August 11, 1995, by and between CIPSCO Incorporated and Union Electric Company. (Exhibit 10(a) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference . . . . . . . . . . . X X - 10.11 Stock Option Agreement, dated as of August 11, 1995, by and between Union Electric Company and CIPSCO Incorporated. (Exhibit 10(b) filed with CIPSCO's and CIPS' Form 10-Q for the quarter ended June 30, 1995.) Incorporated by Reference . . . . . . . . . . . X X - Applicable to Form 10-K of _____________ CIPSCO CIPS Page(s) ______ ____ _______ Exhibits (Continued) 12.01 Computation of Ratio of Earnings to Fixed Charges - CIPSCO. . . . . . . . . . . . . . . . X 99 12.02 Computation of Ratio of Earnings to Fixed Charges - CIPS. . . . . . . . . . . . . . . . . X 100 21 Subsidiaries of CIPSCO and CIPS . . . . . . . . X X 101 23.01 Consent of Independent Public Accountants - CIPSCO. . . . . . . . . . . . . . . . . . . . . X 102 23.02 Consent of Independent Public Accountants - CIPS. . . . . . . . . . . . . . . . . . . . . . X 103 24.01 Powers of Attorney - CIPSCO . . . . . . . . . . X 104-111 24.02 Powers of Attorney - CIPS . . . . . . . . . . . X 112-119 27.1 Financial Data Schedule of CIPSCO*. . . . . . . X - 27.2 Financial Data Schedule of CIPS*. . . . . . . . X - 99.01 Description of Capital Stock - CIPSCO . . . . . X 120-122 99.02 Description of Capital Stock - CIPS . . . . . . X 123-124 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. 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 Agreements with various banks providing unsecured lines of credit. As of December 31, 1995, the lines of credit totaled $65,000,000. (b) Reports on Form 8-K CIPSCO None. CIPS None. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF CIPSCO AND UNION ELECTRIC The following unaudited pro forma financial information combines the historical balance sheets and statements of income of CIPSCO and Union Electric, including their respective subsidiaries, after giving effect to the Merger. The unaudited pro forma combined condensed balance sheet at December 31, 1995 gives effect to the Merger as if it had occurred at December 31, 1995. The unaudited pro forma combined condensed statements of income for each of the three years ended December 31, 1995, 1994 and 1993 give effect to the Merger as if it had occurred at the beginning of the periods presented. These statements are prepared on the basis of accounting for the Merger as a pooling of interests and are based on the assumptions set forth in the notes thereto. In addition, the pro forma financial information does not give effect to the expected synergies of the transaction. The following pro forma financial information has been prepared from, and should be read in conjunction with, the historical financial statements and related notes thereto of CIPSCO and Union Electric. The following information is not necessarily indicative of the financial position or operating results that would have occurred had the Merger been consummated on the date, or at the beginning of the periods, for which the Merger is being given effect nor is it necessarily indicative of future operating results or financial position. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT DECEMBER 31, 1995 (Thousands of Dollars) As Reported (Note 1) Pro Forma _______________________ Adjustments Pro Forma UE CIPSCO (Notes 2, 9) Combined ASSETS ___________ __________ ____________ ___________ Property and plant Electric $8,473,501 $2,296,402 $ 375,024 $11,144,927 Gas 174,231 229,118 - 403,349 Other 35,033 - - 35,033 __________ __________ __________ ___________ 8,682,765 2,525,520 375,024 11,583,309 Less accumulated depreciation and amortization 3,494,722 1,132,355 250,686 4,877,763 __________ __________ __________ ___________ 5,188,043 1,393,165 124,338 6,705,546 Construction work in progress: Nuclear fuel in process 121,460 - - 121,460 Other 125,934 72,490 1,176 199,600 __________ __________ __________ ___________ Total property and plant, net 5,435,437 1,465,655 125,514 7,026,606 Regulatory asset - deferred income taxes (Note 6) 732,580 45,083 - 777,663 Other assets: Unamortized debt expense 44,496 16,474 657 61,627 Nuclear decommissioning trust fund 73,838 - - 73,838 Investments in nonregulated activities - 105,081 - 105,081 Other 20,101 28,465 (1,156) 47,410 __________ __________ __________ ___________ Total other assets 138,435 150,020 (499) 287,956 Current assets: Cash and temporary investments 1,025 8,235 265 9,525 Accounts receivable, net 191,520 65,267 17,222 274,009 Unbilled revenue 82,098 27,234 - 109,332 Materials and supplies, at average cost - Fossil fuel 46,381 52,408 8,577 107,366 Other 92,921 40,246 5,949 139,116 Other 34,072 18,846 3,560 56,478 __________ __________ __________ ___________ Total current assets 448,017 212,236 35,573 695,826 __________ __________ __________ ___________ Total Assets $6,754,469 $1,872,994 $ 160,588 $ 8,788,051 ========== ========== ========== =========== CAPITAL AND LIABILITIES Capitalization: Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372 Other stockholders' equity (Note 2) 1,808,578 294,720 866,059 2,969,357 __________ __________ __________ ___________ Total common stockholders' equity 2,319,197 651,532 - 2,970,729 Preferred stock of subsidiary 219,147 80,000 - 299,147 Long-term debt 1,763,613 478,926 130,000 2,372,539 __________ __________ __________ ___________ Total capitalization 4,301,957 1,210,458 130,000 5,642,415 Minority interest in consolidated subsidiary - - 3,534 3,534 Accumulated deferred income taxes 1,357,689 325,181 (5,724) 1,677,146 Accumulated deferred investment tax credits 166,524 52,234 - 218,758 Regulatory liability 216,502 113,206 - 329,708 Accumulated provision for nuclear decommissioning 75,511 - - 75,511 Other deferred credits and liabilities 150,600 - 5,511 156,111 Current liabilities: Current maturity of long-term debt 69,462 - - 69,462 Short-term debt 19,600 47,921 10,000 77,521 Accounts payable 169,012 60,603 14,160 243,775 Wages payable 36,605 9,335 - 45,940 Taxes accrued 75,142 11,266 9 86,417 Interest accrued 46,244 9,525 527 56,296 Other 69,621 33,265 2,571 105,457 __________ __________ __________ ___________ Total current liabilities 485,686 171,915 27,267 684,868 __________ __________ __________ ___________ Total Capital and Liabilities $6,754,469 $1,872,994 $ 160,588 $ 8,788,051 ========== ========== ========== ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1995 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Notes 1,4,10) (Notes 1,3,4) (Notes 2,9) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 2,014,452 $ 703,483 $ 181,985 $ 2,899,920 Gas 87,814 129,606 - 217,420 Other 441 9,173 362 9,976 ___________ ___________ ___________ ___________ Total operating revenues 2,102,707 842,262 182,347 3,127,316 OPERATING EXPENSES: Operations Fuel and purchased power 365,158 248,226 97,664 711,048 Gas Costs 51,251 74,054 - 125,305 Other 367,870 155,368 19,148 542,386 ___________ ___________ ___________ ___________ 784,279 477,648 116,812 1,378,739 Maintenance 221,609 67,996 17,941 307,546 Depreciation and amortization 233,237 83,263 15,747 332,247 Income taxes (Note 7) 209,541 45,772 8,090 263,403 Other taxes 212,145 56,613 1,911 270,669 ___________ ___________ ___________ ___________ Total operating expenses 1,660,811 731,292 160,501 2,552,604 OPERATING INCOME 441,896 110,970 21,846 574,712 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6,827 889 - 7,716 Minority interest in consolidated subsidiary - - (4,558) (4,558) Miscellaneous, net (5,981) (2,298) (6,972) (15,251) ___________ ___________ ___________ ___________ Total other income and deductions, net 846 (1,409) (11,530) (12,093) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 442,742 109,561 10,316 562,619 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 134,741 33,769 10,316 178,826 Allowance for borrowed funds used during construction (6,106) (73) - (6,179) Preferred dividends of subsidiaries (Note 8) 13,250 3,850 - 17,100 ___________ ___________ ___________ ___________ Net interest charges and preferred dividends 141,885 37,546 10,316 189,747 NET INCOME $ 300,857 $ 72,015 $ - $ 372,872 =========== =========== =========== =========== EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.95 $2.11 $2.72 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,069,542 1,022,086 137,215,462 =========== =========== =========== =========== See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 31, 1994 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Note 1) (Note 1) (Notes 2,9) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 1,969,533 $ 697,427 $ 245,189 $ 2,912,149 Gas 86,109 138,418 - 224,527 Other 474 8,770 181 9,425 ____________ ___________ __________ ____________ Total operating revenues 2,056,116 844,615 245,370 3,146,101 OPERATING EXPENSES: Operations Fuel and purchased power 329,562 251,867 157,618 739,047 Gas Costs 60,096 85,043 - 145,139 Other 375,570 140,068 19,952 535,590 ____________ ___________ __________ ____________ 765,228 476,978 177,570 1,419,776 Maintenance 197,760 65,176 19,076 282,012 Depreciation and amortization 226,045 81,099 13,776 320,920 Income taxes (Note 7) 206,421 49,082 9,739 265,242 Other taxes 210,476 56,017 1,929 268,422 ____________ ___________ __________ ____________ Total operating expenses 1,605,930 728,352 222,090 2,556,372 OPERATING INCOME 450,186 116,263 23,280 589,729 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 5,767 630 - 6,397 Minority interest in consolidated subsidiary - - (5,554) (5,554) Miscellaneous, net 403 3,502 (8,297) (4,392) ____________ ___________ __________ ____________ Total other income and deductions, net 6,170 4,132 (13,851) (3,549) INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 456,356 120,395 9,429 586,180 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 141,112 33,220 9,429 183,761 Allowance for borrowed funds used during construction (5,513) (289) - (5,802) Preferred dividends of subsidiaries (Note 8) 13,252 3,510 - 16,762 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 148,851 36,441 9,429 194,721 NET INCOME $ 307,505 $ 83,954 $ - $ 391,459 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $3.01 $2.46 $2.85 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,106,585 1,023,198 137,253,617 ============ =========== ========== ============
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME YEAR ENDED DECEMBER 30, 1993 (Thousands of Dollars Except Shares and Per Share Amounts) UE CIPSCO Pro Forma (As Reported) (As Reported) Adjustments Pro Forma (Note 1) (Note 1) (Notes 2,9) Combined _____________ _____________ ____________ ____________ OPERATING REVENUES: Electric $ 1,965,980 $ 688,820 $ 228,178 $ 2,882,978 Gas 99,552 145,702 - 245,254 Other 472 10,238 2 10,712 ____________ ___________ __________ ____________ Total operating revenues 2,066,004 844,760 228,180 3,138,944 OPERATING EXPENSES: Operations Fuel and purchased power 413,054 247,119 136,332 796,505 Gas Costs 66,718 90,097 - 156,815 Other 378,817 142,716 37,981 559,514 ____________ ___________ __________ ____________ 858,589 479,932 174,313 1,512,834 Maintenance 190,097 61,218 18,378 269,693 Depreciation and amortization 219,633 78,062 7,094 304,789 Income taxes (Note 7) 179,475 51,861 8,315 239,651 Other taxes 206,913 54,813 1,770 263,496 ____________ ___________ __________ ____________ Total operating expenses 1,654,707 725,886 209,870 2,590,463 OPERATING INCOME 411,297 118,874 18,310 548,481 OTHER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction 6,418 1,459 - 7,877 Minority interest in consolidated subsidiary - - (5,204) (5,204) Miscellaneous, net 3,919 3,107 (7,089) (63) ____________ ___________ __________ ____________ Total other income and deductions, net 10,337 4,566 (12,293) 2,610 INCOME BEFORE INTEREST CHARGES AND PREFERRED DIVIDENDS 421,634 123,440 6,017 551,091 INTEREST CHARGES AND PREFERRED DIVIDENDS: Interest 129,600 35,024 6,017 170,641 Allowance for borrowed funds used during construction (5,126) (800) - (5,926) Preferred dividends of subsidiaries (Note 8) 14,087 3,718 - 17,805 ____________ ___________ __________ ____________ Net interest charges and preferred dividends 138,561 37,942 6,017 182,520 NET INCOME $ 283,073 $ 85,498 $ - $ 368,571 ============ =========== ========== ============ EARNINGS PER SHARE OF COMMON STOCK (BASED ON AVERAGE SHARES OUTSTANDING) $2.77 $2.51 $2.69 ===== ===== ===== AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,107,706 1,023,231 137,254,771 ============ =========== ========== ============
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. AMEREN CORPORATION NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS 1. Reclassifications have been made to certain "as reported" account balances reflected in CIPSCO's and Union Electric's financial statements to conform to this reporting presentation (See Notes 6, 7 and 8). All other financial statement presentation and accounting policy differences are immaterial and have not been adjusted in the pro forma combined condensed financial statements. 2. The pro forma combined condensed financial statements reflect the conversion of each share of Union Electric Common Stock ($5 par value) outstanding into one share of Ameren Common Stock ($.01 par value) and the conversion of each share of CIPSCO Common Stock (no par value) outstanding into 1.03 shares of Ameren Common Stock, as provided in the Merger Agreement. The pro forma combined condensed financial statements are presented as if the companies were combined during all periods included therein. 3. CIPSCO's net income for the year ended December 31, 1995 includes pre-tax charges of $5.8 million for the voluntary separation program, and a pretax charge of $5.7 million for merger-related write-offs involving previously deferred system development costs. 4. The allocation between Union Electric and CIPSCO and their customers of the estimated cost savings resulting from the Mergers, net of the costs incurred to achieve such savings, will be subject to regulatory review and approval. Transaction costs are currently estimated to be approximately $22 million (including fees for financial advisors, attorneys, accountants, consultants, filings and printing). None of these estimated cost savings or the costs to achieve such savings have been reflected in the pro forma combined condensed financial statements. However, net income for the year ended December 31, 1995 includes $9 million of merger transaction costs for Union Electric, and $4.7 million of merger transaction costs for CIPSCO which are not tax deductible by either company. 5. Intercompany transactions (including purchased and exchanged power transactions) between Union Electric and CIPSCO during the periods presented were not material and, accordingly, no pro forma adjustments were made to eliminate such transactions. 6. CIPSCO's regulatory asset related to deferred income taxes was reclassified from the regulatory liability account balance to conform to this reporting presentation. 7. CIPSCO's income taxes are reflected as operating expenses to conform to this reporting presentation. 8. Currently, the Union Electric Preferred Stock is not issued by a subsidiary; subsequent to the Merger, the Union Electric Preferred Stock will be issued by a subsidiary of Ameren. As a result, Union Electric's preferred dividend requirements have been reclassified to conform to this reporting presentation. 9. Pro forma adjustments have been made to consolidate the financial results of Electric Energy, Inc. (EEI), which will, in substance, be a 60% owned subsidiary of Ameren subsequent to the Merger. Union Electric and CIPSCO hold 40% and 20% ownership interests, respectively, in EEI and account for these investments under the equity method of accounting. All intercompany transactions between Union Electric, CIPSCO and EEI have been eliminated. 10. Net income for the year ended December 31, 1995 includes a one-time credit to Missouri electric customers which reduced revenues and pre-tax income of Union Electric by $30 million. 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 4, 1996 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/ W. A. KOERTNER ___________________ W. A. KOERTNER Vice President, Chief Financial Officer, Secretary, and as Attorney-in-Fact* Principal Accounting Officer: /s/ L. E. MARLETT __________________ L. E. MARLETT Controller, Chief Accounting Officer and Assistant Treasurer WILLIAM J. ALLEY* Director JOHN L. HEATH* Director ROBERT W. JACKSON* Director GORDON R. LOHMAN* Director RICHARD A. LUMPKIN* Director HANNE M. MERRIMAN* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 4, 1996 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 4, 1996 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/ W. A. KOERTNER ___________________ W. A. KOERTNER Vice President and Secretary, and as Attorney-in-Fact* Principal Accounting Officer: /s/ L. E. MARLETT __________________ L. E. MARLETT Controller WILLIAM J. ALLEY* Director JOHN L. HEATH* Director ROBERT W. JACKSON* Director GORDON R. LOHMAN* Director RICHARD A. LUMPKIN* Director HANNE M. MERRIMAN* Director THOMAS L. SHADE* Director JAMES W. WOGSLAND* Director Date: March 4, 1996 EX-10.07 2 Amendment No. 1 to 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 (As Amended And Restated Effective As of April 1, 1995), (the "Plan"), is hereby further amended, effective August 8, 1995, in the following respect: 1. By adding a new sentence at the end of paragraph 4(c) of Article II.B. of the Plan as follows: "Notwithstanding anything to the contrary contained in the Plan or the foregoing provisions of this paragraph 4(c), a "Change in Control" shall not result from and shall not be deemed to have occurred by reason of any business combination transaction or agreement to enter into any business combination transaction between Union Electric Company ( UE ) and CIPSCO or the Company which is approved by at least two-thirds of the Directors of CIPSCO in office on August 8, 1995 (for this purpose, any Director 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) after August 8, 1995 shall be deemed a Director on August 8, 1995)," IN WITNESS WHEREOF, Central Illinois Public Service Company has executed this instrument this 8th day of August, 1995. Central Illinois Public Service Company By_____________________________________ President Corporate Seal Attest: _________________________ Assistant Secretary EX-10.08 3 Amendment No. 1 to 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 (As Amended And Restated Effective As Of April 1, 1995), (the Plan") , is hereby further amended, effective August 8, 1995, in the following respect: 1. By adding a new sentence at the end of paragraph 4(c) of Article III.B. of the Plan as follows: "Notwithstanding anything to the contrary contained in the Plan or the foregoing provisions of this paragraph 4(c), a "Change in Control" shall not result from and shall not be deemed to have occurred by reason of any business combination transaction or agreement to enter into any business combination transaction between union Electric Company ( UE ) and CIPSCO or the Company which is approved by at least two-thirds of the Directors of CIPSCO in office on August 8, 1995 (for this purpose, any Director 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) after August 8, 1995 shall be deemed a Director on August 8, 1995)." IN WITNESS WHEREOF, Central Illinois Public Service Company has executed this instrument this 8th day of August, 1995. Central Illinois Public Service Company By_____________________________________ President Corporate Seal Attest: _________________________ Assistant Secretary EX-12.01 4 Exhibit 12.01 CIPSCO INCORPORATED AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ Net income. . . . . . . . . . . . . . . . . . . $ 72,015 $ 83,954 $ 85,498 $ 72,499(c) $ 72,065(c) Add--Federal and state income taxes: Current (a) . . . . . . . . . . . . . . . . . 37,696 33,582 41,320 5,380 34,717 Deferred (net). . . . . . . . . . . . . . . . 11,437 18,867 13,907 38,707 12,078 Deferred investment tax credits, net. . . . . (3,361) (3,367) (3,366) (3,336) (3,464) ________ ________ ________ ________ ________ 45,772 49,082 51,861 40,751 43,331 ________ ________ ________ ________ ________ Net income before income taxes. . . . . . . . . 117,787 133,036 137,359 113,250 115,396 ________ ________ ________ ________ ________ Add--Fixed charges Interest on long-term debt (b). . . . . . . . 31,168 31,164 32,823 35,534 36,652 Interest on provision for revenue refunds . . - - - (803) 4,261 Other interest. . . . . . . . . . . . . . . . 898 378 603 398 1,231 Amortization of net debt premium, discount, expense and loss (b). . . . . . . . . . . . 1,703 1,678 1,598 863 338 Preferred stock dividend of subsidiary. . . . 3,850 3,510 3,718 4,549 5,396 ________ ________ ________ ________ ________ 37,619 36,730 38,742 40,541 47,878 ________ ________ ________ ________ ________ Earnings as defined . . . . . . . . . . . . . . $155,406 $169,766 $176,101 $153,791 $163,274 ======== ======== ======== ======== ======== Fixed charges . . . . . . . . . . . . . . . . . $ 37,619 $ 36,730 $ 38,742 $ 40,541 $ 47,878 Adjustment to pre-tax basis . . . . . . . . . . 2,447 2,052 2,255 2,557 3,244 ________ ________ ________ ________ ________ $ 40,066 $ 38,782 $ 40,997 $ 43,098 $ 51,122 Ratio of earnings to fixed charges adjusted to pre-tax basis . . . . . . . . . . 3.88 4.38 4.30 3.57 3.19 ======== ======== ======== ======== ======== _________________________
(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. EX-12.02 5 Exhibit 12.02 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES FOR THE FIVE YEARS ENDED DECEMBER 31, 1995 (in thousands) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1995 1994 1993 1992 1991 ____ ____ ____ ____ ____ Net income. . . . . . . . . . . . . . . . . . . $ 70,631 $ 81,913 $ 84,011 $ 72,601(c) $ 75,683(c) Add--Federal and state income taxes: Current (a) . . . . . . . . . . . . . . . . . 41,276 38,097 50,441 6,110 36,316 Deferred (net). . . . . . . . . . . . . . . . 5,627 13,190 1,674 33,998 7,573 Investment tax credit amortization. . . . . . (3,361) (3,367) (3,366) (3,336) (3,464) Income tax applicable to nonoperating activities. . . . . . . . . . . . . . . . . 941 603 631 2,989 2,413 ________ ________ ________ ________ ________ 44,483 48,523 49,380 39,761 42,838 ________ ________ ________ ________ ________ Net income before income taxes. . . . . . . . . 115,114 130,436 133,391 112,362 118,521 ________ ________ ________ ________ ________ Add--Fixed charges Interest on long-term debt (b). . . . . . . . 31,168 31,164 32,823 35,534 36,652 Interest on provision for revenue refunds . . - - - (803) 4,261 Other interest. . . . . . . . . . . . . . . . 853 358 479 392 1,231 Amortization of net debt premium, discount, expense and loss (b). . . . . . . . . . . . 1,703 1,678 1,598 863 338 ________ ________ ________ ________ ________ 33,724 33,200 34,900 35,986 42,482 ________ ________ ________ ________ ________ Earnings as defined . . . . . . . . . . . . . . $148,838 $163,636 $168,291 $148,348 $161,003 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges. . . . . . . 4.41 4.93 4.82 4.12 3.79 Earnings required for preferred dividends: Preferred stock dividends . . . . . . . . . . $ 3,850 $ 3,510 $ 3,718 $ 4,549 $ 5,396 Adjustment to pre-tax basis . . . . . . . . . 2,425 2,079 2,185 2,491 3,054 ________ ________ ________ ________ ________ $ 6,275 $ 5,589 $ 5,903 $ 7,040 $ 8,450 Fixed charges plus preferred stock dividend requirements . . . . . . . . . . . . $ 39,999 $ 38,789 $ 40,803 $ 43,026 $ 50,932 ======== ======== ======== ======== ======== Ratio of Earnings to fixed charges plus preferred stock dividend requirements . . . . 3.72 4.22 4.12 3.45 3.16 _________________________
(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. EX-21 6 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 CEC-ACLP Co. Illinois CIPSCO Venture Company Illinois * Central Illinois Public Service Company owns 20% of the common stock of EEI. EX-23.01 7 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, March 4, 1996 EX-23.02 8 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, 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, March 4, 1996 EX-24.01 9 Exhibit 24 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ William J. Alley _______________________________ (SEAL) William J. Alley Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Robert W. Jackson _______________________________ (SEAL) Robert W. Jackson Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Richard A. Lumpkin _______________________________ (SEAL) Richard A. Lumpkin Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of CIPSCO Incorporated, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 EX-24.02 10 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 W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ William J. Alley _______________________________ (SEAL) William J. Alley Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ John L. Heath _______________________________ (SEAL) John L. Heath Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Robert W. Jackson _______________________________ (SEAL) Robert W. Jackson Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Gordon R. Lohman _______________________________ (SEAL) Gordon R. Lohman Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Richard A. Lumpkin _______________________________ (SEAL) Richard A. Lumpkin Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Hanne M. Merriman _______________________________ (SEAL) Hanne M. Merriman Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ Thomas L. Shade _______________________________ (SEAL) Thomas L. Shade Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 POWER OF ATTORNEY _________________ The undersigned, as a director of Central Illinois Public Service Company, does hereby constitute and appoint C. L. Greenwalt and W. A. Koertner, 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 1995, 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 20th day of December, 1995. /s/ James W. Wogsland _______________________________ (SEAL) James W. Wogsland Subscribed and sworn to before me this 20th day of December, 1995. /s/ Janet K. Cooper _________________________ Notary Public My commission expires: March 27, 1999 EX-99.01 11 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, 1995. 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. 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, 1995, 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. 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. EX-99.02 12 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, 1995. 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% 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, 1995, 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. EX-27.1 13
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-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 1,465,655 105,081 212,236 0 44,939 1,827,911 356,812 0 294,720 651,532 0 80,000 478,926 0 0 47,921 0 0 0 0 569,532 1,827,911 842,262 45,772 685,520 731,292 110,970 (2,298) 108,672 32,807 75,865 3,850 72,015 69,161 32,871 148,388 2.11 2.11 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
EX-27.2 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. 0000018654 CIPS 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 PER-BOOK 1,465,655 0 204,962 0 44,188 1,714,805 121,282 0 449,137 570,419 0 80,000 478,926 0 0 47,921 0 0 0 0 537,539 1,714,805 833,119 44,483 683,548 727,090 106,029 (806) 104,282 33,651 70,631 3,850 66,781 71,000 32,871 140,833 0 0 INFORMATION NOT NORMALLY DISCLOSED IN FINANCIAL STATEMENTS AND NOTES. INCLUDES INCOME TAX EXPENSE. NET INCOME BEFORE PREFERRED STOCK DIVIDEND OF SUBSIDIARY
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