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 Quarterly Period Ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-2967.
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0559760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number,
including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has 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 registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
Shares outstanding of each of registrant's classes of common
stock as of October 31, 1997:
Common Stock, $5 par value - 102,123,834
(excl. 42,990 treasury shares)
UNION ELECTRIC COMPANY
INDEX
Page No.
Part I Financial Information (Unaudited)
Balance Sheet --
September 30, 1997 and December 31, 1996 2
Statement of Income --
Three Months, Nine Months and Twelve
Months Ended September 30, 1997 and 1996 3
Statement of Cash Flows --
Nine Months Ended September 30, 1997 and 1996 4
Notes to Financial Statements 5 & 6
Management's Discussion and Analysis 7 thru 13
Part II Other Information
Page 2
UNION ELECTRIC COMPANY
BALANCE SHEET
UNAUDITED
(Thousands of Dollars)
September 30, December 31,
1997 1996
------------- -------------
ASSETS:
Property and plant, at original cost
Electric $8,818,445 $8,630,628
Gas 194,454 185,867
Other 35,960 35,965
---------- ----------
9,048,859 8,852,460
Less accumulated depreciation and amortization 3,829,996 3,656,890
---------- ----------
5,218,863 5,195,570
Construction work in progress:
Nuclear fuel in process 108,882 96,147
Other 68,232 90,953
---------- ----------
Total property and plant, net 5,395,977 5,382,670
Regulatory assets:
Deferred income taxes 656,248 692,171
Other 167,896 178,760
---------- ----------
Total regulatory assets 824,144 870,931
Deferred charges:
Nuclear decommissioning trust fund 119,333 96,601
Unamortized debt expense 10,066 10,591
Other 26,937 27,377
---------- ----------
Total deferred charges 156,336 134,569
Current assets:
Cash 27,657 4,897
Accounts receivable - trade (less allowance for doubtful
accounts of $4,602 and $5,195 at respective dates) 242,756 192,868
Unbilled revenue 61,011 76,190
Other accounts and notes receivable 38,661 37,190
Materials and supplies, at average cost -
Fossil fuel 52,741 63,651
Construction and maintenance 97,346 94,517
Other 11,830 13,326
---------- ----------
Total current assets 532,002 482,639
---------- ----------
Total Assets $6,908,459 $6,870,809
========== ==========
CAPITAL AND LIABILITIES:
Capitalization:
Common stock, $5 par value, authorized 150,000,000 shares-
102,123,834 outstanding
(excl. 42,990 at par value in treasury) $ 510,619 $ 510,619
Other paid-in capital 716,879 717,669
Retained earnings 1,210,404 1,126,513
---------- ----------
Total common stockholders' equity 2,437,902 2,354,801
Preferred stock not subject to mandatory redemption 155,197 218,497
Preferred stock subject to mandatory redemption -- 624
Capital lease obligation 84,801 77,168
Long-term debt, net 1,721,951 1,721,503
---------- ----------
Total capitalization 4,399,851 4,372,593
Accumulated deferred income taxes 1,298,879 1,318,404
Accumulated deferred investment tax credits 155,715 160,342
Regulatory liability 189,862 203,822
Accumulated provision for nuclear decommissioning 124,351 98,274
Other deferred credits and liabilities 178,419 156,913
Current and accrued liabilities:
Current maturity of capital lease obligation 28,749 28,966
Current maturity of long-term debt -- 45,000
Accounts payable 74,814 170,383
Wages payable 37,386 39,996
Bank loans 7,000 11,300
Accumulated deferred income taxes 35,160 43,933
Income taxes accrued 142,373 35,505
Other taxes accrued 84,836 16,040
Interest accrued 55,296 45,173
Dividends accrued 2,204 3,004
Other 93,564 121,191
--------- ---------
Total current and accrued liabilities 561,382 560,461
--------- ---------
Total Capital and Liabilities $6,908,459 $6,870,809
========== ==========
Page 3
UNION ELECTRIC COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars Except Shares and Per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
------------------ ----------------- --------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Operating revenues:
Electric $766,027 $733,785 $1,744,488 $1,716,061 $2,189,241 $2,151,551
Gas 8,256 9,799 66,725 68,277 97,512 95,610
Steam 71 82 353 341 498 464
-------- --------- ---------- ---------- ---------- ----------
Total operating revenues 774,354 743,666 1,811,566 1,784,679 2,287,251 2,247,625
Operating expenses:
Operations
Fuel and purchased power 151,752 138,018 382,272 387,038 508,066 506,113
Other 111,841 101,395 343,246 322,169 464,731 428,748
-------- --------- --------- --------- --------- ---------
263,593 239,413 725,518 709,207 972,797 934,861
Maintenance 47,957 49,526 158,877 159,988 222,521 218,255
Depreciation and decommissioning 62,487 60,816 185,151 180,101 246,348 238,969
Income taxes 117,395 116,681 187,023 189,546 194,846 210,595
Other taxes 64,276 63,256 166,680 166,463 213,483 211,664
--------- --------- --------- --------- --------- ---------
Total operating expenses 555,708 529,692 1,423,249 1,405,305 1,849,995 1,814,344
Operating income 218,646 213,974 388,317 379,374 437,256 433,281
Other income and deductions:
Allowance for equity funds used
during construction 1,184 1,137 3,014 4,960 4,546 7,028
Miscellaneous, net (3,109) 1,225 (5,950) (361) (9,882) 2,430
-------- --------- --------- --------- --------- ---------
Total other income/
deductions, net (1,925) 2,362 (2,936) 4,599 (5,336) 9,458
Income before interest charges 216,721 216,336 385,381 383,973 431,920 442,739
Interest charges:
Interest 34,656 33,061 105,289 100,589 137,345 133,559
Allowance for borrowed funds
used during construction (1,714) (1,691) (4,959) (5,669) (6,298) (7,114)
--------- --------- --------- --------- --------- ---------
Net interest charges 32,942 31,370 100,330 94,920 131,047 126,445
Net income 183,779 184,966 285,051 289,053 300,873 316,294
Preferred stock dividends 2,204 3,311 6,613 9,936 9,925 13,249
--------- --------- --------- --------- --------- ---------
Earnings on common stock $181,575 $181,655 $278,438 $279,117 $290,948 $303,045
========= ========= ========= ========= ========= =========
Earnings per share of common stock
(based on average
shares outstanding) $1.78 $1.78 $2.73 $2.73 $2.85 $2.97
========= ========= ========= ========= ========= =========
Dividends per share of common stock $0.635 $0.625 $1.905 $1.875 $2.54 $2.50
========= ========= ========= ========= ========= =========
Average number of common shares
outstanding (in thousands) 102,124 102,124 102,124 102,124 102,124 102,124
========= ========= ========= ========== ========== =========
Page 4
UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
-----------------
1997 1996
---- ----
Cash Flows From Operating:
Net income $285,051 $289,053
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 178,315 172,869
Amortization of nuclear fuel 28,737 32,198
Allowance for funds used during construction (7,973) (10,629)
Deferred income taxes, net (6,336) 5,980
Deferred investment tax credits, net (4,627) (4,638)
Changes in assets and liabilities:
Receivables, net (36,180) (37,877)
Materials and supplies 8,081 (27,208)
Accounts and wages payable (98,149) (95,627)
Taxes accrued 175,664 148,824
Interest and dividends accrued or declared 9,323 6,910
Other, net 6,470 45,929
-------- --------
Net cash provided by operating activities 538,376 525,784
Cash Flows From Investing:
Construction expenditures (204,028) (241,899)
Allowance for funds used during construction 7,973 10,629
Nuclear fuel expenditures (12,594) (26,001)
--------- ---------
Net cash used in investing activities (208,649) (257,271)
Cash Flows From Financing:
Dividends on preferred stock (6,613) (9,936)
Dividends on common stock (194,546) (191,483)
Redemptions -
Nuclear fuel lease (21,011) (25,659)
Short-term debt (4,300) (19,600)
Long-term debt (45,000) (35,000)
Preferred stock (63,924) (26)
Issuances -
Nuclear fuel lease 28,427 31,593
--------- ---------
Net cash used in financing activities (306,967) (250,111)
Net change in cash and cash equivalents 22,760 18,402
Cash and cash equivalents at beginning of period 4,897 1,025
--------- ---------
Cash and cash equivalents at end of period $ 27,657 $ 19,427
========= =========
Supplemental disclosure of cash flow information:
Cash and cash equivalents include cash on hand and temporary
investments purchased with a maturity of three months or less.
Cash paid during the period:
Interest (net of amount capitalized) $ 79,047 $ 83,197
Income taxes 91,115 105,357
Page 5
UNION ELECTRIC COMPANY
======================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - 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 1996
Annual Report on 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 2 - 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. 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 3 - Due to the effect of weather on sales and other factors
which are characteristic of public utility operations,
financial results for the periods ended September 30,
1997 and 1996 are not necessarily indicative of trends
for any three-month, nine-month or twelve-month period.
Note 4 - On July 21, 1995, the Missouri Public Service
Commission approved an agreement involving the
registrant's Missouri electric rates. The Agreement
included a three-year experimental alternative
regulation plan that provides that earnings in excess
of a 12.61 percent regulatory return on equity (ROE)
will be shared equally between customers and
shareholders and earnings above a 14 percent ROE will
be credited to customers. The formula for computing
the credit uses twelve-month results ending June 30,
rather than calendar year earnings. During the nine
months ended September 30, 1997, the registrant
recorded an estimated $20 million credit for the second
year of the plan compared to a $47 million credit
recorded for the first year of the plan in 1996. This
credit, which the registrant expects to pay to Missouri
customers later this year, was reflected as a reduction
in electric revenues.
Page 6
Note 5 - On September 10, 1997, the Illinois Commerce Commission
approved the merger between the registrant and CIPSCO
Incorporated ("CIPSCO") subject to certain conditions.
The conditions included the requirement for the
registrant and CIPSCO to file a rate case or
alternative regulatory plan within six months after the
merger is final to determine how net merger savings
would be shared between ratepayers and shareholders.
On October 15, 1997, the Federal Energy Regulatory
Commission ("FERC") approved the merger between the
registrant and CIPSCO. The FERC ruled that the
conditions included in the Initial Decision, issued by
the Administrative Law Judge, relating to issues
associated with certain power and transmission service
agreements with other utilities are not necessary and
that competition would not be harmed.
On October 16, 1997, the U.S. Nuclear Regulatory
Commission ("NRC") issued an order indicating that it
had reviewed and found acceptable the registrant's
request for transfer of the license for Callaway Plant
from present ownership to Ameren Corporation at the
time of the merger.
The merger is still subject to approval by the
Securities and Exchange Commission and is expected to
be consummated by the end of 1997.
Note 6 - Certain reclassifications were made to prior-year
financial statements to conform with current-period
presentation.
Page 7
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS
The registrant and CIPSCO Incorporated entered into a Merger
Agreement dated August 11, 1995, which was approved by the
shareholders of both companies in December 1995. The merged
entity is expected to realize $644 million in net savings over 10
years from combining certain operations of the two companies and
is expected to adopt Union Electric's dividend payment level.
The merger is expected to be consummated by the end of 1997.
(See Note 5 to the Financial Statements of this report.)
Results of Operations
Third quarter common stock earnings of $182 million, or
$1.78 per share, remained unchanged compared to third quarter
1996. Common stock earnings for the nine months ended September
30, 1997, totaled $278 million, or $2.73 per share, also
unchanged from year-ago levels. Common stock earnings for the
twelve months ended September 30, 1997, were $291 million, or
$2.85 per share, a $12 million, or 12 cent per-share, decrease
from the comparable prior-year period.
Earnings and earnings per share fluctuated due to many
conditions, the primary ones being: weather variations, credits
to electric customers, sales growth, fluctuating operating
expenses and merger-related expenses. The significant items
affecting revenues, expenses and earnings during the three-month,
nine-month and twelve-month periods ended September 30, 1997, and
1996 are detailed below:
Electric Operating Revenues
(Millions of Dollars) Variations for periods ended
September 30, 1997 from comparable
prior-year periods
-----------------------------------
Three Nine Twelve
Months Months Months
------ ------ ------
Credits to customers $ - $26.4 $25.0
Effect of abnormal weather 28.3 1.6 4.4
Growth and other 6.3 (8.7) (5.3)
Interchange sales (2.4) 9.1 13.6
------ ------ ------
$32.2 $28.4 $37.7
====== ====== ======
The $32.2 million increase in third quarter electric
revenues compared to the year-ago quarter is primarily the result
of increased revenues from residential and commercial customers
due to warmer weather. Residential and commercial sales
increased 7 percent and 5 percent, respectively, over the same
period last year while
Page 8
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
interchange sales decreased 27 percent. Industrial sales were up
4 percent compared to the year-ago quarter.
Electric revenues for the nine months and twelve months
ended September 30, 1997, increased $28.4 million and $37.7
million, respectively, compared to the same periods last year
primarily due to a lower customer credit (see Note 4 to the
Financial Statements of this report) as well as increased
interchange revenues, partially offset by lower revenues
attributable to one less day in the period due to leap year in
1996. For both the nine-month and twelve-month periods ended
September 30, 1997, residential sales decreased 1 percent while
commercial sales remained relatively flat compared to the same
periods in 1996. Interchange and industrial sales increased 10
percent and 2 percent, respectively, compared to the year-ago
periods.
Operating Expenses
Fuel and Purchased Power
(Millions of Dollars)
Variations for periods ended
September 30, 1997 from comparable
prior-year periods
----------------------------------
Three Nine Twelve
Months Months Months
------ ------ ------
Fuel:
Variation in generation $ 1.0 $ 17.8 $ 22.5
Price (2.7) (9.1) (4.7)
Generation efficiencies
and other 1.6 .2 -
Purchased power variation 13.8 (13.7) (15.9)
------- ------- -------
$ 13.7 $ (4.8) $ 1.9
======= ======= =======
The increase in fuel and purchased power costs for the three
months ended September 30, 1997, compared to the same prior-year
period was primarily due to increased purchased power costs,
resulting from increased native load sales, partially offset by
lower fuel prices.
The decline in fuel and purchased power costs for the nine
months ended September 30, 1997, versus the comparable prior-year
period was primarily due to decreased purchased power costs,
resulting from relatively flat native load sales coupled with
greater generation, as well as lower fuel prices.
The increase in fuel and purchased power costs for the
twelve months ended September 30, 1997, compared to the
comparable period in 1996 was primarily due to increased
generation and relatively flat native load sales, resulting in
Page 9
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
reduced purchased power costs, partially offset by lower fuel
prices.
Other Operating Expenses
Other operating expense variations reflect recurring
conditions such as growth, inflation and wage increases.
Third quarter 1997 operations expenses other than fuel and
purchased power increased $10 million over last year's third
quarter primarily due to increased information system related
expenses and consulting expenses. Maintenance expenses for the
third quarter 1997 decreased $2 million compared to the same
period in 1996 due to decreased expenses at the Callaway nuclear
plant.
For the nine months and twelve months ended September 30,
1997, operations expenses other than fuel and purchased power
increased $21 million and $36 million, respectively, versus the
comparable prior-year period primarily due to increased
consultant expenses, information system related expenses and gas
purchased for resale (due to higher gas prices).
Depreciation expense for the three-month, nine-month and
twelve-month periods ended September 30, 1997, increased
$2 million, $5 million and $7 million, respectively, versus
comparable 1996 periods, primarily due to increased depreciable
property.
Income taxes charged to operating expenses for the nine
months and twelve months ended September 30, 1997, decreased $3
million and $16 million, respectively, primarily due to lower
pretax income.
Other Income and Deductions
Miscellaneous other income and deductions for the three
months and nine months ended September 30, 1997, decreased $4
million and $6 million, respectively, compared to the year-ago
periods due to an increase in merger-related expenses.
Miscellaneous other income and deductions for the twelve months
ended September 30, 1997, decreased $12 million compared to the
same period last year due to an increase in merger-related
expenses and higher charitable contributions.
Interest
Interest charges for the three months, nine months and
twelve months ended September 30, 1997, increased $2 million, $5
million and $4 million, respectively, versus the prior-year
periods primarily due to increased debt outstanding.
Page 10
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
Allowance for Funds Used During Construction (AFC)
Variations in AFC track construction work in progress and
changes were not significant for the reporting periods. During
the twelve month periods ended September 30, 1997 and 1996, AFC
rates averaged 8.7 percent and 9.1 percent, respectively.
Balance Sheet
The $35 million increase in accounts receivable and unbilled
revenues is due primarily to higher revenues in August and
September 1997 compared to November and December 1996.
Changes in accounts payable, income taxes accrued and other
tax accruals result from the timing of various payments to taxing
authorities and suppliers.
The $28 million decrease in other current and accrued
liabilities at September 30, 1997, compared to December 31, 1996,
is primarily due to the payment in 1997 of the credit to
customers, recorded in 1996, partially offset by the credit to
customers recorded in 1997 which are expected to be paid later
this year.
Liquidity and Capital Resources
Cash provided by the registrant's operations totaled $538
million for the nine months ended September 30, 1997, compared to
$526 million during the same 1996 period.
Cash flows used in investing activities totaled $209 million
and $257 million for the nine months ended September 30, 1997 and
1996, respectively. Construction expenditures for the nine
months ended September 30, 1997, were for constructing new or
improving existing facilities, purchasing railroad coal cars and
complying with the Clean Air Act. In addition, the registrant
expended $13 million for the acquisition of nuclear fuel.
Capital requirements for the remainder of 1997 are expected to be
principally for construction expenditures and the acquisition of
nuclear fuel.
Cash flows used in financing activities were $307 million
for the nine months ended September 30, 1997, compared to $250
million of cash flows used for financing activities during the
same 1996 period. The registrant's principal financing
activities for the nine months ended September 30, 1997, were the
redemption of $45 million of First Mortgage Bonds and $64 million
Page 11
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
of preferred stock and the payment of dividends. On July 18,
1997, the registrant's Board of Directors declared a quarterly
dividend of 63.5 cents per common share which was paid to
shareholders September 30, 1997. Common stock dividends paid for
the twelve months ended September 30, 1997, resulted in a payout
rate of 89 percent of the registrant's earnings to common
shareholders. Dividends paid to registrant's common shareholders
relative to net cash provided by operating activities for the
same period were 42 percent.
The registrant plans to utilize short-term debt as support
for normal operations and other temporary requirements. The
registrant is authorized by the FERC to have outstanding at any
one time up to $600 million of short-term unsecured debt
instruments. Short-term borrowings of the registrant consist of
bank loans (maturities generally on an overnight basis) and
commercial paper (maturities generally within 10-45 days). At
September 30, 1997, $7 million of bank loans were outstanding.
At September 30, 1997, the registrant had committed bank lines
of credit aggregating $179 million (of which $172 million was
unused 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. These lines of credit are
renewable annually at various dates throughout the year. The
registrant also has bank credit agreements due 1999 which permit
the registrant to borrow up to $300 million and $200 million,
respectively, on a long-term basis. At September 30, 1997,
there were no such borrowings outstanding.
Additionally, the registrant has a lease agreement which
provides for the financing of nuclear fuel. At September 30,
1997, the maximum amount which could be financed under the
agreement was $120 million. Cash provided from financing for the
nine months ended September 30, 1997, included issuances for
nuclear fuel of $28 million offset by $21 million of redemptions.
At September 30, 1997, $114 million was financed under the lease.
Rate Matters
See Notes 4 and 5 under Notes to Financial Statements of
this report.
Industry Restructuring
In the state of Illinois, various groups have made proposals
for utility restructuring. Recently, a legislative bill was
proposed and passed in the Illinois Senate. The bill includes a
5 percent residential rate
Page 12
Union Electric Company
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
decrease effective August 1, 1998 for the registrant (as well as
CIPSCO) with potential additional rate decreases in 2000 and 2002
(capped at 5 percent) to the extent that rates exceed the Midwest
utility average at that time. In addition, retail choice will be
offered to customers (non-residential customers will have this
option in 1999 and 2000; residential customers will have this
option in 2002). The bill also provides for the opportunity to
recover transition cost. The proposed bill must still be passed by
the Illinois House of Representatives and signed by the Governor
before it becomes law.
In the state of Missouri, where approximately 92 percent of the
registrant's retail electric revenues are derived, there has been no
significant legislative action regarding industry restructuring
to date.
The registrant is unable to predict the timing or ultimate
outcome of the various industry restructuring initiatives being
considered. The potential negative consequences of industry
restructuring include the impairment and writedown of certain
assets, including regulatory assets, lower revenues, reduced
profit margins and increased costs of capital. At this time, the
registrant is unable to predict the impact of potential industry
restructuring matters on the registrant's future financial
condition, results of operations or liquidity.
National Ambient Air Quality Standards
The U.S. Environmental Protection Agency ("EPA") issued final
regulations on July 18, 1997 revising the National Ambient Air
Quality Standards for ozone and particulate matter. Although
specific emission control requirements are still in process, it
is believed that the revised standards will require significant
reductions in nitrogen oxide and sulfur dioxide emissions from
coal-fired boilers. In October 1997, the EPA announced that
Missouri and Illinois are included in the area targeted for
nitrogen oxide emissions reductions as part of their regional
control program. Reduction requirements in nitrogen oxide
emissions from the registrant's coal-fired boilers could exceed
80 percent from 1990 levels by 2002. Reduction requirements in
sulfur dioxide emissions may be up to 50 percent beyond that
already required by Phase II acid rain control provisions of the
1990 Clean Air Act Amendments (which become effective January 1,
2000) and are anticipated to be required by 2007. Because of the
magnitude of these additional reductions, the registrant could be
required to incur significantly higher capital cost to meet
future compliance obligations for its coal-fired boilers or
purchase power from other sources, either of which could have
significantly higher operating and maintenance expenditures
associated with compliance. At this time, the registrant is
unable to determine the impact of the revised air quality
standards on the registrant's future financial condition, results
of operations or liquidity.
Safe Harbor Statement
Statements made in this report 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,
Page 13
UNION ELECTRIC COMPANY
======================
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
strategies, objectives, events, conditions and financial
performance. In connection with the "Safe Harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company
is providing the following 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; business and
economic conditions; weather conditions; fuel prices and
availability; generation plant performance; monetary and fiscal
policies; and legal and administrative proceedings.
Page 14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
AMEREN CORPORATION
On August 11, 1995, the registrant and CIPSCO Incorporated
("CIPSCO") entered into an Agreement and Plan of Merger, which
was subsequently approved by the shareholders of both parties.
The merger is further conditioned on, among other
things, receipt of regulatory and governmental approvals, and
will result in a newly formed holding company, Ameren
Corporation. The following unaudited pro forma financial
information combines the historical balance sheets and statements
of income of the registrant and CIPSCO, including their
respective subsidiaries, after giving effect to the Merger. The
unaudited pro forma combined condensed balance sheet at
September 30, 1997, gives effect to the Merger as if it had
occurred at September 30, 1997. The unaudited pro forma combined
condensed statements of income for the nine-month periods ended
September 30, 1997 and 1996, and the twelve-month period ended
September 30, 1997, 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 the
registrant and CIPSCO. 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. In addition, due
to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results
for the nine-month periods ended September 30, 1997 and 1996, are
not necessarily indicative of trends for any twelve-month period.
Also see Part I, Note 5, Notes to Financial Statements.
Page 15
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
AT SEPTEMBER 30, 1997
(Thousands of Dollars)
Pro Forma
ASSETS: As Reported (Note 1) Adjustments Pro Forma
Property and plant: UE CIPSCO (NOTES 2,8) COMBINED
---------- ---------- --------- -----------
Electric $8,818,445 $2,290,092 $379,353 $11,487,890
Gas 194,454 248,083 - 442,537
Other 35,960 - - 35,960
---------- ---------- ---------- -----------
9,048,859 2,538,175 379,353 11,966,387
Less accumulated depreciation and amortization 3,829,996 1,116,899 281,375 5,228,270
---------- ---------- ---------- -----------
5,218,863 1,421,276 97,978 6,738,117
Construction work in progress:
Nuclear fuel in process 108,882 - - 108,882
Other 68,232 58,921 1,708 128,861
---------- ---------- ---------- -----------
Total property and plant, net 5,395,977 1,480,197 99,686 6,975,860
Regulatory assets:
Deferred income taxes (Note 5) 656,248 39,534 - 695,782
Other 167,896 127,874 - 295,770
---------- ---------- ---------- -----------
Total regulatory assets 824,144 167,408 - 991,552
Other assets:
Nuclear decommissioning trust fund 119,333 - - 119,333
Unamortized debt expense 10,066 3,637 542 14,245
Investments in nonregulated activities - 116,008 - 116,008
Other 26,937 24,658 (4,533) 47,062
---------- ---------- ---------- ----------
Total other assets 156,336 144,303 (3,991) 296,648
Current assets:
Cash and temporary investments 27,657 3,766 27,602 59,025
Accounts receivable, net 242,756 49,731 19,741 312,228
Unbilled revenue 61,011 23,131 - 84,142
Materials and supplies, at average cost -
Fossil fuel 52,741 33,419 6,214 92,374
Other 97,346 35,785 4,477 137,608
Other 50,491 42,611 3,303 96,405
---------- ---------- ---------- ----------
Total current assets 532,002 188,443 61,337 781,782
---------- ---------- ---------- ----------
Total Assets $6,908,459 $1,980,351 $ 157,032 $9,045,842
========== ========== ========== ==========
CAPITAL AND LIABILITIES:
Capitalization:
Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372
Other stockholders' equity (Note 2) 1,927,283 313,025 866,059 3,106,367
---------- ---------- ---------- ----------
Total common stockholders' equity 2,437,902 669,837 - 3,107,739
Preferred stock of subsidiary 155,197 80,000 - 235,197
Long-term debt, net 1,806,752 570,433 115,556 2,492,741
---------- ---------- ---------- ----------
Total capitalization 4,399,851 1,320,270 115,556 5,835,677
Minority interest in consolidated subsidiary - - 3,534 3,534
Accumulated deferred income taxes 1,298,879 342,837 (6,427) 1,635,289
Accumulated deferred investment tax credits 155,715 46,384 - 202,099
Regulatory liability 189,862 95,750 - 285,612
Accumulated provision for nuclear decommissioning 124,351 - - 124,351
Other deferred credits and liabilities 178,419 41,026 3,681 223,126
Current liabilities:
Current maturity of long-term debt 28,749 - 14,444 43,193
Short-term debt 7,000 36,358 - 43,358
Accounts payable 74,814 40,240 20,698 135,752
Wages payable 37,386 11,110 - 48,496
Taxes accrued 262,369 22,613 - 284,982
Interest accrued 55,296 10,954 2,830 69,080
Other 95,768 12,809 2,716 111,293
---------- --------- ---------- ----------
Total current liabilities 561,382 134,084 40,688 736,154
---------- --------- ---------- ----------
Total Capital and Liabilities $6,908,459 $1,980,351 $ 157,032 $9,045,842
========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
Page 16
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined
------------- ------------- ----------- ------------
OPERATING REVENUES:
Electric $ 1,744,488 $ 539,415 $ 137,789 $ 2,421,692
Gas 66,725 101,174 - 167,899
Other 353 8,846 572 9,771
----------- ----------- ----------- -----------
Total operating revenues 1,811,566 649,435 138,361 2,599,362
OPERATING EXPENSES:
Operations
Fuel and purchased power 382,272 178,636 77,389 638,297
Gas costs 43,968 62,941 - 106,909
Other 299,278 121,215 13,574 434,067
---------- ---------- --------- ---------
725,518 362,792 90,963 1,179,273
Maintenance 158,877 48,058 12,860 219,795
Depreciation and amortization 185,151 67,341 11,116 263,608
Income taxes (Note 6) 187,023 34,898 5,814 227,735
Other taxes 166,680 43,832 1,393 211,905
---------- ---------- ---------- ---------
Total operating expenses 1,423,249 556,921 122,146 2,102,316
OPERATING INCOME 388,317 92,514 16,215 497,046
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 3,014 381 - 3,395
Minority interest in consolidated subsidiary - - (3,772) (3,772)
Miscellaneous, net (5,950) (488) (4,931) (11,369)
---------- ---------- --------- ---------
Total other income and deductions, net (2,936) (107) (8,703) (11,746)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 385,381 92,407 7,512 485,300
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 105,289 28,461 7,512 141,262
Allowance for borrowed funds used during
construction (4,959) (484) - (5,443)
Preferred dividends of subsidiaries (Note 7) 6,613 2,782 - 9,395
--------- --------- --------- ---------
Net interest charges and preferred dividends 106,943 30,759 7,512 145,214
NET INCOME $ 278,438 $ 61,648 $ - $ 340,086
=========== ========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.73 $1.81 $2.48
=========== ========== ===========
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.
Page 17
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined
------------- ------------- ----------- ----------
OPERATING REVENUES:
Electric $1,716,061 $ 560,188 $ 130,034 $2,406,283
Gas 68,277 101,280 - 169,557
Other 341 7,464 971 8,776
---------- ---------- ---------- -----------
Total operating revenues 1,784,679 668,932 131,005 2,584,616
OPERATING EXPENSES:
Operations
Fuel and purchased power 387,038 205,023 68,671 660,732
Gas costs 42,455 60,227 - 102,682
Other 279,714 107,486 13,322 400,522
--------- --------- --------- ---------
709,207 372,736 81,993 1,163,936
Maintenance 159,988 43,005 13,157 216,150
Depreciation and amortization 180,101 64,810 11,341 256,252
Income taxes (Note 6) 189,546 43,260 6,128 238,934
Other taxes 166,463 43,505 1,503 211,471
--------- --------- --------- ---------
Total operating expenses 1,405,305 567,316 114,122 2,086,743
OPERATING INCOME 379,374 101,616 16,883 497,873
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 4,960 196 - 5,156
Minority interest in consolidated subsidiary - - (3,760) (3,760)
Miscellaneous, net (361) (2,874) (5,528) (8,763)
--------- -------- -------- --------
Total other income and deductions, net 4,599 (2,678) (9,288) (7,367)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 383,973 98,938 7,595 490,506
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 100,589 27,876 7,595 136,060
Allowance for borrowed funds used during
construction (5,669) (250) - (5,919)
Preferred dividends of subsidiaries (Note 7) 9,936 2,794 - 12,730
-------- -------- -------- --------
Net interest charges and preferred dividends 104,856 30,420 7,595 142,871
NET INCOME $ 279,117 $ 68,518 $ - $ 347,635
========== ========== ========== ==========
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.73 $2.01 $2.53
========== ========== ==========
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.
Page 18
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,3,9) (Notes 1,3) (Notes 2,8) Combined
------------- ------------- ----------- ----------
OPERATING REVENUES:
Electric $ 2,189,241 $ 710,040 $ 183,193 $ 3,082,474
Gas 97,512 155,242 - 252,754
Other 498 11,935 707 13,140
----------- ---------- ---------- -----------
Total operating revenues 2,287,251 877,217 183,900 3,348,368
OPERATING EXPENSES:
Operations
Fuel and purchased power 508,066 247,829 101,876 857,771
Gas costs 66,061 98,942 - 165,003
Other 398,670 160,314 18,557 577,541
---------- ---------- --------- ---------
972,797 507,085 120,433 1,600,315
Maintenance 222,521 66,514 16,813 305,848
Depreciation and amortization 246,348 89,928 15,440 351,716
Income taxes (Note 6) 194,846 41,195 7,919 243,960
Other taxes 213,483 58,145 1,668 273,296
--------- --------- --------- ---------
Total operating expenses 1,849,995 762,867 162,273 2,775,135
OPERATING INCOME 437,256 114,350 21,627 573,233
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 4,546 563 - 5,109
Minority interest in consolidated subsidiary - - (4,887) (4,887)
Miscellaneous, net (9,882) (399) (6,815) (17,096)
-------- -------- -------- --------
Total other income and deductions, net (5,336) 164 (11,702) (16,874)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 431,920 114,514 9,925 556,359
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 137,345 38,336 9,925 185,606
Allowance for borrowed funds used during
construction (6,298) (717) - (7,015)
Preferred dividends of subsidiaries (Note 7) 9,925 3,708 - 13,633
-------- -------- -------- --------
Net interest charges and preferred dividends 140,972 41,327 9,925 192,224
NET INCOME $ 290,948 $ 73,187 $ - $ 364,135
=========== ========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.85 $2.15 $2.65
=========== ========== ===========
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.
Page 19
AMEREN CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
1. Reclassifications were made to certain "as reported" account
balances reflected in the registrant's and CIPSCO's financial
statements to conform to this reporting presentation (see
Notes 5, 6 and 7). All other financial statement
presentation and accounting policy differences were
immaterial and were not adjusted in the pro forma combined
condensed financial statements.
2. The pro forma combined condensed financial statements reflect
the conversion of each share of the registrant's 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. The allocation between the registrant and CIPSCO and their
customers of the estimated cost savings resulting from the
merger, net of the costs incurred to achieve such savings,
will be subject to regulatory review and approval. Merger-
related costs (which include transaction costs and costs to
achieve such savings) are currently estimated to be
approximately $73 million (including costs for financial
advisors, attorneys, accountants, consultants, filings,
printing, system integration, relocation, etc.). None of
these estimated cost savings have been reflected in the pro
forma combined condensed financial statements. However, net
income for the nine months and twelve months ended
September 30, 1997, included merger-related costs of $9
million and $12 million, net of income taxes, for the
registrant, and $1 million, net of income taxes, for each of
the periods for CIPSCO, respectively. Net income for the
nine months ended September 30, 1996, included merger-related
costs of $5 million, net of income taxes, each, for the
registrant and CIPSCO.
4. Intercompany transactions (including purchased and exchanged
power transactions) between the registrant and CIPSCO during
the periods presented were not material and, accordingly, no
pro forma adjustments were made to eliminate such
transactions.
5. CIPSCO's regulatory asset related to deferred income taxes
was reclassified from the regulatory liability account
balance to conform to this reporting presentation.
6. CIPSCO's income taxes were reflected as operating expenses to
conform to this reporting presentation.
Page 20
7. Currently, the registrant's Preferred Stock is not issued by
a subsidiary; subsequent to the merger, the registrant's
Preferred Stock will be issued by a subsidiary of Ameren. As
a result, the registrant's preferred dividend requirements
were reclassified to conform to this reporting presentation.
8. Pro forma adjustments were made to consolidate the financial
results of Electric Energy, Inc. ("EEI"), which will, in
substance, be a 60 percent owned subsidiary of Ameren
subsequent to the merger. The registrant and CIPSCO hold 40
percent and 20 percent ownership interests, respectively, in
EEI and account for these investments under the equity method
of accounting. All intercompany transactions between the
registrant, CIPSCO and EEI were eliminated.
9. Net income for the nine and twelve months ended September 30,
1997, included credits for Missouri electric customers which
reduced revenues and pretax income of the registrant by $20
million and $21 million, respectively. Net income for the
nine months ended September 30, 1996, included a credit to
Missouri electric customers which reduced revenues and pretax
income of the registrant by $46 million.
Page 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 12(a) - Computation of Ratio of Earnings to
Fixed Charges, 12 Months Ended
September 30, 1997.
Exhibit 12(b) - Computation of Ratio of Earnings to
Fixed Charges and Preferred Stock
Dividend Requirements, 12 Months
Ended September 30, 1997.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements 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.
UNION ELECTRIC COMPANY
(Registrant)
November 14, 1997 By /s/ Donald E. Brandt
----------------------------------
Donald E. Brandt
Senior Vice President
Finance and Corporate Services