UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
___________ ___________________________________ __________________
1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject
to such filing requirements for the past 90 days.
Yes X No
_____ _____
Indicate the number of shares outstanding of each of the issuers' classes
of common stock, as of the latest practicable date:
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Common stock, no par value, 25,452,373
shares outstanding and held by
Ameren Corporation at April 30, 1998
Central Illinois Public Service Company
Index
Page No.
Part I Financial Information (Unaudited)
Management's Discussion and Analysis
Balance Sheet
- March 31, 1998 and December 31, 1997
Statement of Income
- Three months and 12 months ended
March 31, 1998 and 1997
Statement of Cash Flows
- Three months ended March 31, 1998 and 1997
Notes to Financial Statements
Part II Other Information
PART I. FINANCIAL INFORMATION (UNAUDITED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Central Illinois Public Service Company (AmerenCIPS or the Registrant) is a
subsidiary of Ameren Corporation (Ameren), a newly created holding company,
which is registered under the Public Utility Holding Company Act of 1935
(PUHCA). In December 1997, Union Electric Company (AmerenUE) and CIPSCO
Incorporated (CIPSCO) combined to form Ameren, with AmerenUE and CIPSCO's
subsidiaries, the Registrant and CIPSCO Investment Company (CIC), becoming
wholly-owned subsidiaries of Ameren (the Merger).
The following discussion and analysis should be read in conjunction with
the Notes to Financial Statements beginning on page 9, and the Management's
Discussion and Analysis of Financial Condition and Results of Operations
(MD&A), the Audited Financial Statements and the Notes to Financial
Statements appearing in the Registrant's 1997 Annual Report included in its
1997 Form 10-K.
RESULTS OF OPERATIONS
Earnings
First quarter 1998 earnings of $12 million declined $2 million from 1997's
first quarter earnings. Earnings for the 12 months ended March 31, 1998
were $33 million, a $35 million decrease from the preceding 12-month
period. Excluding the extraordinary charge recorded in the fourth quarter
of 1997 to write off the generation-related regulatory assets and
liabilities of the Registrant's Illinois retail electric business, earnings
for the 12-month period ended March 31, 1998, were $61 million.
Earnings fluctuated due to many conditions, the primary ones being: weather
variations, sales growth, fluctuating operating costs, the write-off of
generation-related regulatory assets and liabilities, and merger-related
costs. The significant items affecting revenues, costs and earnings during
the three-month and 12-month periods ended March 31, 1998, and 1997 are
detailed below.
Electric Operations
Electric Operating Revenues Variations for periods ended March 31, 1998
from comparable prior-year periods
-------------------------------------------
(Millions of Dollars) Three Months Twelve Months
------------ -------------
Effect of abnormal weather $ (4) $ (3)
Growth and other 5 13
Interchange sales (11) (35)
------------ -------------
$ (10) $ (25)
------------ -------------
The $10 million decrease in first-quarter electric revenues compared to the
year-ago quarter was primarily due to milder weather and interchange sales
decreasing 38 percent due to market conditions. Weather-sensitive
residential and commercial sales decreased 3 percent and 1 percent,
respectively, due to milder weather in the current period. Industrial
sales increased 3 percent over the same period due to the stronger regional
economy.
The change in revenues for the 12 months ended March 31, 1998 compared to
the prior 12-month period was also due to decreased interchange sales.
Interchange sales decreased 17 percent due to market conditions.
Residential, commercial and industrial sales remained flat over the same
period.
Fuel and Purchased Power Variations for periods ended March 31, 1998
from comparable prior-year periods
-------------------------------------------
(Millions of Dollars) Three Months Twelve Months
------------ -------------
Fuel:
Variation in generation $ (19) $ (14)
Price - (3)
Generation efficiencies and other 3 -
Purchased power variation 9 (10)
------------ -------------
$ (7) $ (27)
------------ -------------
The decline in fuel and purchased power costs for the three months ended
March 31, 1998 versus the comparable prior year quarter was driven by a
decrease in native load and interchange sales.
The decrease in fuel and purchased power costs for the 12 months ended
March 31, 1998 versus the year-ago period was driven mainly by a decrease
in interchange sales and lower fuel prices due to the use of lower cost
coal.
Gas Operations
Gas revenues for the three months ended March 31, 1998 compared to the
comparable prior-year period decreased $11 million primarily due to the
effect of milder weather on dekatherm sales to ultimate customers and lower
gas costs reflected in the purchased gas adjustment clause. Gas revenues
for the 12-month period ended March 31, 1998 decreased $11 million compared
to the same year-ago period due to a decline in dekatherm sales to ultimate
customers and lower gas costs reflected in the purchased gas adjustment
clause.
Gas costs for the three months and 12 months ended March 31, 1998 decreased
$8 million and $6 million, respectively, compared to the year-ago period.
The decreases in gas costs for these periods were primarily due to lower
dekatherm sales and lower gas prices.
Other Operating Expenses
Other operating expense variations reflected recurring factors such as
growth, inflation, labor and benefit increases.
Other operations expenses increased $2 million for the first quarter of
1998 compared to the same year-ago period due to an increase in injuries
and damages expense. The $11 million increase in other operations expenses
for the 12 months ended March 31, 1998 compared to the prior 12-month
period was primarily due to increases in labor, various equipment rentals
and information system-related costs.
Maintenance expenses for the first quarter of 1998 decreased $1 million
compared to the year-ago quarter due to less scheduled fossil plant
maintenance. The $10 million increase in maintenance expenses for the 12-
month period ended March 31, 1998 compared to the prior 12-month period was
due to scheduled outages at three generating plants during 1997.
Depreciation and amortization expense for the three-month and 12-month
periods ended March 31, 1998, decreased $2 million and $3 million,
respectively, versus the comparable 1997 periods, primarily due to the
fourth quarter 1997 write-off of generation related regulatory assets and
liabilities of the Registrant's retail electric business.
In March 1998, Ameren announced plans to reduce its other operating
expenses, including plans to eliminate approximately 400 employee positions
by mid-1999 through a hiring freeze and a targeted voluntary separation
plan. The Registrant expects that the voluntary separation plan will
result in a charge to earnings in the third quarter of 1998 once it is
known the number of employees that will accept the terms of the plan. At
this time, the Registrant is unable to estimate the expected charge to
earnings resulting from the voluntary separation plan.
Taxes
Income taxes charged to operating expenses for the three months and 12
months ended March 31, 1998, decreased $4 million and $14 million,
respectively, versus the comparable 1997 periods, due primarily to lower
pre-tax income in 1998.
Interest
Interest charges for the three months ended March 31, 1998 increased $2
million versus the prior-year period primarily due to increased long-term
debt outstanding.
Balance Sheet
The $24 million decrease in accounts receivable and unbilled revenue at
March 31, 1998, compared to December 31, 1997 was due to primarily to lower
revenues in February and March 1998 compared to November and December 1997.
Changes in accounts and wages payable, taxes accrued and other accruals
result from the timing of various payments to taxing authorities and
suppliers.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $53 million for the three
months ended March 31, 1998, compared to cash used in operating activities
of $15 million during the same 1997 period.
Cash flows used in investing activities totaled $15 million and $19 million
for the three months ended March 31, 1998 and 1997, respectively.
Construction expenditures for the three months ended March 31, 1998 for
constructing new or improving existing facilities and complying with the
Clean Air Act were $15 million. Capital requirements for the remainder of
1998 are expected to be principally for construction expenditures.
Cash flows used in financing activities were $34 million for the three
months ended March 31, 1998, compared to cash provided by financing
activities of $37 million during the same 1997 period. The Registrant's
principal financing activities for the three months ended March 31, 1998
included a debt issuance of $10 million, the redemption of debt of $25
million and the payment of dividends.
The Registrant plans to continue utilizing short-term debt to support
normal operations and other temporary requirements. The Registrant is
authorized by the Securities and Exchange Commission under PUHCA to have up
to $250 million of short-term unsecured debt instruments outstanding at any
one time. Short-term borrowings consist of bank loans (maturities
generally on an overnight basis) and commercial paper (maturities generally
within 10 to 45 days). At March 31, 1998, the Registrant had committed
bank lines of credit aggregating $80 million (of which $80 million were
unused and $31 million were available at such date) which make available
interim financing at various rates of interest based on LIBOR, the bank
certificate of deposit rate or other options. The lines of credit are
renewable annually at various dates throughout the year. At March 31,
1998, the Registrant had $50 million of short-term borrowings.
CONTINGENCIES
On March 27, 1998, a jury awarded a total of $3 million to the families
of four children who contracted neuroblastoma (a rare form of cancer)
following the Registrant's 1987 clean-up of a former manufactured gas plant
site in Taylorville, Illinois. The Registrant continues to believe it has
meritorious defenses and has appealed the verdict. The Registrant believes
that the final disposition of this matter will not have a material adverse
effect on its financial position, results of operations or liquidity.
RATE MATTERS
As a result of the Electric Service Customer Choice and Rate Relief Law of
1997 providing for electric utility restructuring in Illinois, the
Registrant filed proposals with the Illinois Commerce Commission (ICC) to
eliminate the electric fuel adjustment clause for Illinois retail
customers, thereby including a historical level of fuel costs in base
rates. The ICC approved the Registrant's filing on March 25, 1998.
ACCOUNTING MATTERS
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises
employers' disclosures about pension and other postretirement benefit
plans. SFAS 132 is effective for fiscal years beginning after December 31,
1998, although earlier application is encouraged. SFAS 132 is not expected
to have a material impact on the Registrant's financial position or results
of operations upon adoption.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 provides guidance on accounting for
the costs of computer software developed or obtained for internal use.
Under SOP 98-1, certain costs which are currently expensed by the
Registrant may be capitalized and amortized over some future period. SOP
98-1 is effective for fiscal years beginning after December 15, 1998,
although earlier application is encouraged. At this time, the Registrant
is unable to determine the impact of SOP 98-1 on its financial position or
results of operations upon adoption.
SAFE HARBOR STATEMENT
Statements made in this Form 10-Q which are not based on historical facts,
are forward-looking and, accordingly, involve risks and uncertainties that
could cause actual results to differ materially from those discussed.
Although such forward-looking statements have been made in good faith and
are based on reasonable assumptions, there is no assurance that the
expected results will be achieved. These statements include (without
limitation) statements as to future expectations, beliefs, plans,
strategies, objectives, events, conditions and financial performance. In
connection with the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Registrant is providing this cautionary
statement to identify important factors that could cause actual results to
differ materially from those anticipated. Factors include, but are not
limited to, the effects of regulatory actions; changes in laws and other
governmental actions; competition; future market prices for electricity;
average rates for electricity in the Midwest; business and economic
conditions; weather conditions; fuel prices and availability; generation
plant performance; monetary and fiscal policies; and legal and
administrative proceedings.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars, Except Shares)
March 31, December 31,
1998 1997
----------- ------------
ASSETS
Property and plant, at original cost:
Electric $2,338,953 $2,311,364
Gas 252,922 249,499
----------- ------------
2,591,875 2,560,863
Less accumulated depreciation
and amortization 1,145,939 1,132,591
----------- ------------
1,445,936 1,428,272
Construction work in progress 35,424 59,531
----------- ------------
Total property and plant, net 1,481,360 1,487,803
----------- ------------
Other assets 31,798 30,476
Current assets:
Cash and cash equivalents 10,202 6,040
Accounts receivable - trade
(less allowance for doubtful
accounts of $1,198 and $1,200,
respectively) 57,692 67,495
Unbilled revenue 17,176 31,708
Other accounts and notes receivable 10,911 7,760
Materials and supplies, at average cost -
Fossil fuel 37,648 24,919
Gas stored underground 7,983 14,275
Other 33,013 32,334
Other 9,537 32,637
----------- -----------
Total current assets 184,162 217,168
----------- -----------
Regulatory assets:
Deferred income taxes 28,052 28,052
Other 23,897 25,208
----------- -----------
Total regulatory assets 51,949 53,260
----------- -----------
Total Assets $1,749,269 $1,788,707
=========== ===========
CAPITAL AND LIABILITIES
Capitalization:
Common stock, no par value,
authorized 45,000,000 shares -
outstanding 25,452,373 shares $120,033 $121,282
Retained earnings 445,315 451,477
----------- -----------
Total common stockholder's
equity 565,348 572,759
Preferred stock not subject to
mandatory redemption 80,000 80,000
Long-term debt 562,528 558,474
----------- -----------
Total capitalization 1,207,876 1,211,233
----------- -----------
Current liabilities:
Current maturity of long-term debt 5,000 9,000
Short-term debt 49,500 64,966
Accounts and wages payable 55,171 89,362
Taxes accrued 25,378 15,869
Other 29,948 21,937
----------- -----------
Total current liabilities 164,997 201,134
----------- -----------
Accumulated deferred income taxes 253,417 257,914
Accumulated deferred investment
tax credits 39,535 40,369
Regulatory liability 48,587 48,587
Other deferred credits and liabilities 34,857 29,470
----------- -----------
Total Capital and Liabilities $1,749,269 $1,788,707
=========== ===========
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
UNAUDITED
(Thousands of Dollars)
Three Months Ended Twelve Months Ended
March 31, March 31,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
OPERATING REVENUES:
Electric $149,271 $159,553 $690,235 $715,203
Gas 50,244 61,139 140,663 152,072
-------- -------- -------- --------
Total operating revenues 199,515 220,692 830,898 867,275
OPERATING EXPENSES:
Operations:
Fuel and purchased power 51,082 57,613 235,725 262,559
Gas 32,225 40,330 89,121 95,361
Other 41,294 39,551 161,944 150,592
-------- -------- -------- --------
124,601 137,494 486,790 508,512
Maintenance 13,835 14,870 74,617 64,893
Depreciation and amortization 18,822 21,176 80,335 83,439
Income taxes 4,348 8,563 29,446 43,285
Other taxes 16,177 16,061 58,011 57,845
-------- -------- -------- --------
Total operating expenses 177,783 198,164 729,199 757,974
OPERATING INCOME 21,732 22,528 101,699 109,301
OTHER INCOME AND DEDUCTIONS
Allowance for equity funds
used during construction 46 217 612 584
Miscellaneous, net 354 (225) (3,221) (2,000)
-------- -------- -------- --------
Total other income and
deductions 400 (8) (2,609) (1,416)
INCOME BEFORE INTEREST CHARGES 22,132 22,520 99,090 107,885
INTEREST CHARGES:
Interest 10,432 8,429 38,794 37,461
Allowance for borrowed funds
used during construction (418) (275) (929) (744)
-------- -------- -------- --------
Net interest charges 10,014 8,154 37,865 36,717
INCOME BEFORE EXTRAORDINARY CHARGE 12,118 14,366 61,225 71,168
-------- -------- -------- --------
EXTRAORDINARY CHARGE, NET OF
INCOME TAXES - - (24,853) -
-------- -------- -------- --------
NET INCOME 12,118 14,366 36,372 71,168
PREFERRED STOCK DIVIDENDS 984 913 3,786 3,696
-------- -------- -------- --------
NET INCOME AFTER PREFERRED
STOCK DIVIDENDS $11,134 $13,453 $32,586 $67,472
======== ======== ======== ========
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Cash Flows From Operating:
Net income $12,118 $14,366
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 18,822 21,176
Allowance for funds used during
construction (464) (492)
Deferred income taxes, net (4,497) (2,900)
Deferred investment tax credits, net (834) (833)
Changes in assets and liabilities:
Receivables, net 21,184 13,554
Materials and supplies (7,116) (398)
Regulatory assets - other 1,311 (69,626)
Accounts and wages payable (34,191) (12,535)
Taxes accrued 9,509 13,439
Other, net 36,875 8,945
------- -------
Net cash provided by (used in) operating
activities 52,717 (15,304)
Cash Flows From Investing:
Construction expenditures (15,273) (19,551)
Allowance for funds used during
construction 464 492
------- -------
Net cash used in investing activities (14,809) (19,059)
Cash Flows From Financing:
Dividends on common stock (17,155) (17,500)
Dividends on preferred stock (1,125) (937)
Redemptions -
Short-term debt (15,466) (16,743)
Long-term debt (10,000) -
Issuances -
Long-term debt 10,000 72,000
------- -------
Net cash provided by (used in) financing
activities (33,746) 36,820
Net increase in cash and cash equivalents 4,162 2,457
Cash and cash equivalents at
beginning of year 6,040 2,261
------- -------
Cash and cash equivalents at end of period $10,202 $4,718
======= =======
Cash paid during the periods:
Interest (net of amount capitalized) $10,086 $7,692
Income taxes, net $ 867 $1,183
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
Note 1 - Effective December 31, 1997, following the receipt of all
required state and federal regulatory approvals, Union Electric Company
(AmerenUE) and CIPSCO Incorporated (CIPSCO) combined to form Ameren
Corporation (Ameren) (the Merger).
Note 2 - Financial statement note disclosures, normally included in
financial statements prepared in conformity with generally accepted
accounting principles, have been omitted in this Form 10-Q pursuant to the
Rules and Regulations of the Securities and Exchange Commission. However,
in the opinion of the registrant, the disclosures contained in this Form 10-
Q are adequate to make the information presented not misleading. See Notes
to Financial Statements included in the 1997 Form 10-K for information
relevant to the financial statements contained in this Form 10-Q, including
information as to the significant accounting policies of the Registrant.
Note 3 - In the opinion of the Registrant the interim financial statements
filed as part of this Form 10-Q reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the periods presented. The Registrant's financial statements were
prepared to permit the information required in the Financial Data Schedule
(FDS), Exhibit 27, to be directly extracted from the filed statements. The
FDS amounts correspond to or are calculable from the amounts reported in
the financial statements or notes thereto.
Note 4 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the
periods ended March 31, 1998 and 1997 are not necessarily indicative of
trends for any three-month or 12-month period.
Note 5 - On March 27, 1998, a jury awarded a total of $3 million to the
families of four children who contracted neuroblastoma (a rare form of
cancer) following the Registrant's 1987 clean-up of a former manufactured
gas plant site in Taylorville, Illinois. The Registrant continues to
believe it has meritorious defenses and has appealed the verdict. The
Registrant believes that the final disposition of this matter will not have
a material adverse effect on its financial position, results of operations
or liquidity.
Note 6 - Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income" became effective on January 1, 1998. SFAS
130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
the financial statements with the same prominence as other financial
statement components. Adoption of SFAS 130 did not have a material effect
on the financial position, results of operations, liquidity or presentation
of financial information of the Registrant.
Note 7 - Certain reclassifications were made to prior-year financial
statements to conform with current-period presentation.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of CIPS was held on April
28, 1998.
(b) All nominees who were proposed as directors by the Board of
Directors were elected and there were no other nominees
proposed. The results of the votes cast for directors of CIPS
is as follows:
Withhold Non-Voted
Directors With Authority Authority* Brokers
--------- -------------- --------- ---------
Paul A. Agathen 25,886,398 3,293 0
Donald E. Brandt 25,886,412 3,279 0
John L. Heath 25,886,393 3,298 0
Robert W. Jackson 25,886,407 3,284 0
Charles W. Mueller 25,886,498 3,193 0
Gary L. Rainwater 25,886,412 3,279 0
Charles J. Schukai 25,886,498 3,193 0
Thomas L. Shade 25,886,401 3,290 0
* Calculated on the basis of cumulative voting.
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits:
Exhibit 12 Computation of Ratio of Earnings to
Fixed Charges and Computation of Ratio
of Earnings to Fixed Charges plus
Preferred Stock Dividend Requirements
Before Income Taxes.
Exhibit 27 Financial Data Schedule (required for
electronic filing only in accordance
with Item 601(c)(1) of Regulation S-K).
(B) Reports on Form 8-K:
January 20, 1998 Item 5. Other Events:
Write-off of generation-related
regulatory assets and regulatory
liabilities.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, Central Illinois Public Service Company, has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
Central Illinois Public Service Company
(Registrant)
Date: May 13, 1998 /s/ W. A. Koertner
_________________________________________
W. A. Koertner
Vice President - Finance, Administration
and Marketing (Principal Financial Officer)
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
Exhibit No. Description
___________ ___________
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and
Computation of Ratio of Earnings to Fixed Charges
plus Preferred Stock Dividend Requirements Before
Income Taxes
Exhibit 27 Financial Data Schedule