UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
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.
1-8946 CILCORP Inc. 37-1169387
(An Illinois Corporation)
300 Hamilton Blvd, Suite 300
Peoria, Illinois 61602
(309) 675-8810
1-2732 CENTRAL ILLINOIS LIGHT COMPANY 37-0211050
(An Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 675-8810
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 issuer's
classes of common stock, as of the latest practicable date:
CILCORP Inc. Common stock, no par value,
shares outstanding at April 30, 1996 13,428,562
CENTRAL ILLINOIS LIGHT COMPANY
Common stock, no par value,
shares outstanding and privately
held by CILCORP Inc. at April 30, 1996 13,563,871
CILCORP INC.
AND
CENTRAL ILLINOIS LIGHT COMPANY
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1: Financial Statements
CILCORP INC.
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flows 6-7
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets 8-9
Consolidated Statements of Income 10
Consolidated Statements of Cash Flows 11-12
Notes to Consolidated Financial Statements
CILCORP Inc. and Central Illinois Light Company 13-14
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
CILCORP Inc. and Central Illinois Light Company 15-26
PART II. OTHER INFORMATION
Item 1: Legal Proceedings 27
Item 4: Submission of Matters to a Vote of Security Holders 27
Item 5: Other Information 27-30
Item 6: Exhibits and Reports on Form 8-K 30
Signatures 31-32
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1996 1995
ASSETS (Unaudited)
Current assets:
Cash and temporary cash investments $ 6,974 $ 17,100
Receivables, less reserves of $2,351 and $2,223 73,349 68,479
Accrued unbilled revenue 30,578 42,842
Fuel, at average cost 6,712 11,596
Materials and supplies, at average cost 16,274 16,963
Gas in underground storage, at average cost 5,322 13,592
Prepayments and other 8,804 14,921
---------- ----------
Total current assets 148,013 185,493
---------- ----------
Investments and other property:
Investment in leveraged leases 128,634 127,141
Cash surrender value of company-owned life
insurance, net of related policy loans of
$33,211 2,432 1,924
Other investments 5,347 5,392
---------- ----------
Total investments and other property 136,413 134,457
---------- ----------
Property, plant and equipment:
Utility plant, at original cost
Electric 1,145,424 1,142,945
Gas 381,561 379,985
---------- ----------
1,526,985 1,522,930
Less - accumulated provision for depreciation 692,863 682,574
---------- ----------
834,122 840,356
Construction work in progress 43,942 44,749
Plant acquisition adjustments, being amortized
to 1999 2,464 2,642
Other, net of depreciation 21,669 22,774
---------- ----------
Total property, plant and equipment 902,197 910,521
---------- ----------
Other assets:
Prepaid pension expense 536 536
Cost in excess of net assets of acquired
businesses, net of accumulated amortization of
$4,469 and $4,293 23,669 23,845
Other 17,591 21,219
---------- ----------
Total other assets 41,796 45,600
---------- ----------
Total assets $1,228,419 $1,276,071
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
CILCORP INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
1996 1995
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 23,048 $ 19,052
Notes payable 19,070 47,100
Accounts payable 33,016 44,550
Accrued taxes 12,062 5,035
Accrued interest 5,733 10,059
Purchased gas adjustment over-recoveries 3,904 1,987
Other 12,445 15,259
---------- ----------
Total current liabilities 109,278 143,042
---------- ----------
Long-term debt 323,910 344,113
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes 242,062 241,603
Net regulatory liability of regulated subsidiary 59,558 59,482
Deferred investment tax credit 24,064 24,485
Other 35,625 35,248
---------- ----------
Total deferred credits 361,309 360,818
---------- ----------
Preferred stock of subsidiary 66,120 66,120
Stockholders' equity: ---------- ----------
Common stock, no par value; authorized
50,000,000 shares - outstanding 13,419,895 and
13,335,606 shares 182,967 179,330
Retained earnings 184,835 182,648
---------- ----------
Total stockholders' equity 367,802 361,978
---------- ----------
Total liabilities and stockholders' equity $1,228,419 $1,276,071
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral
part of these Balance Sheets.
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands)*
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenue:
Electric $76,691 $74,345
Gas 78,040 58,882
Environmental and engineering
services 20,475 34,674
Other businesses 2,780 2,686
------- -------
Total 177,986 170,587
Operating expenses:
Fuel for generation and
purchased power 28,194 27,543
Gas purchased for resale 45,589 29,107
Other operations and maintenance 50,469 59,918
Depreciation and amortization 16,616 15,816
Taxes, other than income taxes 11,638 11,119
------- -------
Total 152,506 143,503
------- -------
Fixed charges and other:
Interest expense 6,771 7,456
Preferred stock dividends
of subsidiary 815 835
Allowance for funds used during
construction (35) (231)
Other 945 191
------- -------
Total 8,496 8,251
------- -------
Income before income taxes 16,984 18,833
Income taxes 6,590 7,360
------- -------
Net income available for
common stockholders $10,394 $11,473
======= =======
Average common shares outstanding 13,366 13,045
Net income per common share $ .78 $ .88
Dividends per common share $ .615 $ .615
*Except per share amounts
<FN>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
CILCORP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income before preferred dividends $11,209 $ 12,308
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Non-cash lease & investment income (1,493) (1,550)
Depreciation and amortization 16,616 15,816
Deferred income taxes, investment tax credit and
regulatory liability of subsidiary, net 114 (1,517)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable and
accrued unbilled revenue 7,394 (4,057)
Decrease in inventories 13,843 10,978
Decrease in accounts payable (11,534) (15,951)
Increase in accrued taxes 7,027 7,257
Decrease in other assets 9,921 2,703
(Decrease) increase in other liabilities (4,846) 1,152
-------- --------
Total adjustments 37,042 14,831
-------- --------
Net cash provided by operating activities 48,251 27,139
-------- --------
Cash flows from investing activities:
Additions to plant (7,938) (16,790)
Proceeds from sale of long-term investments -- 500
Other (817) (1,740)
-------- --------
Net cash used in investing activities (8,755) (18,030)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in short-term debt (28,030) 16,200
Repayment of long-term debt (16,207) (18,000)
Common dividends paid (8,207) (8,017)
Preferred dividends paid (815) (835)
Proceeds from issuance of stock 3,637 1,266
-------- --------
Net cash used in financing activities (49,622) (9,386)
-------- -------
Net decrease in cash and temporary cash
investments (10,126) (277)
Cash and temporary cash investments at beginning
of year 17,100 1,604
-------- -------
Cash and temporary cash investments at end of
quarter $ 6,974 $ 1,327
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $11,702 $11,082
Income Taxes $ 500 $ 1,179
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
ASSETS 1996 1995
(Unaudited)
Utility plant, at original cost:
Electric $1,145,424 $1,142,945
Gas 381,561 379,985
---------- ----------
1,526,985 1,522,930
Less - accumulated provision for depreciation 692,863 682,574
---------- ----------
834,122 840,356
Construction work in progress 43,942 44,749
Plant acquisition adjustments, net of
amortization 2,464 2,642
---------- ----------
Total utility plant 880,528 887,747
---------- ----------
Other property and investments:
Cash surrender value of company-owned life
insurance (net of related policy loans of
$33,211) 2,432 1,924
Other 1,619 1,623
---------- ----------
Total other property and investments 4,051 3,547
---------- ----------
Current assets:
Cash and temporary cash investments 5,433 16,556
Receivables, less reserves of $761 and $650 52,782 42,312
Accrued unbilled revenue 19,478 28,891
Fuel, at average cost 6,712 11,596
Materials and supplies, at average cost 16,274 16,541
Gas in underground storage, at average cost 5,320 13,592
Prepaid taxes -- 7,978
Other 4,254 10,300
---------- ----------
Total current assets 110,253 147,766
---------- ----------
Deferred debits:
Unamortized loss on reacquired debt 5,915 6,029
Unamortized debt expense 2,335 2,374
Prepaid pension cost 536 536
Other 8,061 11,992
---------- ----------
Total deferred debits 16,847 20,931
---------- ----------
Total assets $1,011,679 $1,059,991
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
CAPITALIZATION AND LIABILITIES 1996 1995
(Unaudited)
Capitalization:
Common shareholder's equity:
Common stock, no par value; authorized
20,000,000 shares; outstanding 13,563,871
shares $ 185,661 $ 185,661
Retained earnings 145,710 140,814
---------- ----------
Total common shareholder's equity 331,371 326,475
Preferred stock without mandatory redemption 44,120 44,120
Preferred stock with mandatory redemption 22,000 22,000
Long-term debt 278,407 298,397
---------- ----------
Total capitalization 675,898 690,992
---------- ----------
Current liabilities:
Current maturities of long-term debt 20,000 16,000
Notes payable -- 24,600
Accounts payable 30,905 40,483
Accrued taxes 8,352 5,917
Accrued interest 5,236 8,508
Purchased gas adjustment over-recoveries 3,904 1,987
Level payment plan -- 1,870
Other 5,095 6,418
---------- ----------
Total current liabilities 73,492 105,783
---------- ----------
Deferred liabilities and credits:
Accumulated deferred income taxes 143,571 144,378
Regulatory liability, net 59,558 59,482
Investment tax credits 24,064 24,485
Capital lease obligation 2,927 3,025
Other 32,169 31,846
---------- ----------
Total deferred liabilities and credits 262,289 263,216
---------- ----------
Total capitalization and liabilities $1,011,679 $1,059,991
========== ==========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these Balance Sheets.
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Income
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Operating revenues:
Electric $ 76,691 $ 74,345
Gas 78,040 58,882
-------- --------
Total operating revenues 154,731 133,227
-------- --------
Operating expenses:
Cost of fuel 25,932 24,760
Cost of gas 45,589 29,107
Purchased power 2,262 2,784
Other operation and maintenance 26,702 27,315
Depreciation and amortization 15,054 14,146
Income taxes 8,614 7,515
Other taxes 10,386 9,717
-------- --------
Total operating expenses 134,539 115,344
-------- --------
Operating income 20,192 17,883
-------- --------
Other income and deductions:
Cost of equity funds capitalized 19 --
Company-owned life insurance, net (206) (191)
Other, net (60) (16)
-------- --------
Total other income and (deductions) (247) (207)
-------- --------
Income before interest expenses 19,945 17,676
-------- --------
Interest expenses:
Interest on long-term debt 5,304 4,808
Cost of borrowed funds capitalized (16) (231)
Other 739 1,017
-------- --------
Total interest expenses 6,027 5,594
-------- --------
Net income 13,918 12,082
-------- --------
Dividends on preferred stock 815 835
-------- --------
Net income available for common stock $ 13,103 $ 11,247
======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
CENTRAL ILLINOIS LIGHT COMPANY
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income before preferred dividends $ 13,918 $ 12,082
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,232 14,324
Deferred taxes, investment tax credits and
regulatory liability, net (1,152) (1,509)
Increase in accounts receivable (10,470) (4,515)
Decrease in fuel, materials and supplies,
and gas in underground storage 13,424 10,978
Decrease in unbilled revenue 9,414 5,537
Decrease in accounts payable (9,577) (15,897)
Increase (decrease) in accrued taxes and
interest (837) 1,060
Capital lease payments 161 120
Decrease in other current assets 14,025 5,633
Increase (decrease)in other current liabilities (1,275) 41
(Increase) decrease in other non-current
assets 4,598 (1,055)
Increase in other non-current liabilities 580 1,939
-------- --------
Net cash provided by operating activities 48,041 28,738
-------- --------
Cash flows from investing activities:
Capital expenditures (7,852) (15,150)
Cost of equity funds capitalized (19) --
Other (1,509) (1,801)
-------- --------
Net cash used in investing activities (9,380) (16,951)
-------- --------
Cash flows from financing activities:
Common dividends paid (8,208) (8,017)
Preferred dividends paid (815) (835)
Long-term debt issued -- (34)
Retirement of long-term debt (16,000) --
Payments on capital lease obligation (161) (120)
Decrease in short-term borrowing (24,600) (2,800)
-------- --------
Net cash used in financing activities (49,784) (11,806)
-------- --------
Net decrease in cash and temporary cash
investments (11,123) (19)
Cash and temporary cash investments at beginning
of year 16,556 629
-------- --------
Cash and temporary cash investments at March 31 $ 5,433 $ 610
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest (net of cost of borrowed funds
capitalized) $ 9,400 $ 8,903
Income taxes -- 1,479
<FN>
The accompanying Notes to the Consolidated Financial Statements are an
integral part of these statements.
CILCORP INC. AND CENTRAL ILLINOIS LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Introduction
The consolidated financial statements include the accounts of CILCORP
Inc. (CILCORP or Company), Central Illinois Light Company (CILCO),
Environmental Science & Engineering, Inc. (ESE), QST Enterprises Inc.
(QST) and CILCORP's other subsidiaries after elimination of significant
intercompany transactions. CILCORP owns 100% of the common stock of
CILCO. All of the other first-tier subsidiaries are wholly-owned by
CILCORP. The consolidated financial statements of CILCO include the
accounts of CILCO and its subsidiaries, CILCO Exploration and
Development Company and CILCO Energy Corporation.
The accompanying unaudited consolidated financial statements have been
prepared according to the rules and regulations of the Securities and
Exchange Commission. Although CILCORP believes the disclosures are
adequate to make the information presented not misleading, these
consolidated financial statements should be read with the consolidated
financial statements and related notes forming a part of the Company's
1995 Annual Report on Form 10-K.
In the Company's opinion, the consolidated financial statements
furnished reflect all normal and recurring adjustments necessary for a
fair presentation of the results of operations for the periods
presented. Operating results for interim periods are not necessarily
indicative of operating results to be expected for the year or of the
Company's future financial condition.
NOTE 2. Gas Pipeline Supplier Transition Costs
CILCO is subject to various Federal Energy Regulatory Commission
(FERC) orders and settlements related to the transition to a more
competitive natural gas industry. FERC Order 636 unbundled the sale,
transportation and storage functions of interstate gas pipelines, and
also allows the pipelines to recover prudently incurred transition
costs from gas distribution companies. FERC Orders 500 and 528 allow
interstate gas pipelines to bill gas distribution companies for take-
or-pay and other charges related to the transition to a more
competitive gas industry. During the three months ended March 31,
1996, CILCO has paid $.4 million for interstate pipeline transition
costs. These costs have been, or will be, recovered from CILCO's
customers through its purchased gas adjustment clause (PGA). Since
these costs are recoverable from CILCO's customers, management does
not expect gas pipeline supplier transition costs to materially
impact CILCO's financial position or results of operations.
CILCO has recorded a regulatory asset and a corresponding liability
of $2.6 million on its Balance Sheets as of March 31, 1996, of which
$1.1 million will be due in one year. The remaining $1.5 million
represents the minimum amount of the estimated range of such future
direct billings from pipelines which CILCO expects to receive related
to take-or-pay and other transition costs.
NOTE 3. Contingencies
Neither CILCORP, CILCO, nor any of their affiliates has been
identified as a potentially responsible party (PRP) under federal or
state environmental laws.
CILCO continues to investigate and/or monitor four former gas
manufacturing plant sites (Sites A, B, C and D) located within
CILCO's present gas service territory. The purpose of these studies
is to determine if waste materials, principally coal tar, are
present, whether such waste materials constitute an environmental or
health risk and if CILCO is responsible for the remediation of any
remaining waste materials at those sites. CILCO previously operated
plants at Sites A, B and C and currently owns Sites A and B. In
cooperation with the Illinois Environmental Protection Agency, CILCO
completed remedial action in 1991 at Site A, at a cost of $3.3
million. In 1994, CILCO investigated Site B to define the extent of
waste materials on site. A risk assessment for Site B is currently
underway. During the first quarter of 1996 CILCO has paid
approximately $146,000 to outside parties to investigate and/or test
Sites A and B. CILCO has not yet formulated a remediation plan for
Site C. Until more detailed site specific testing has been
completed, CILCO cannot determine the ultimate extent or cost of any
remediation of Site C. CILCO does not currently own Site D and has
not yet determined the extent, if any, of its remediation
responsibility for this site.
CILCO expects to spend approximately $390,000 for site monitoring,
legal fees and feasibility studies in 1996. A $4 million liability
and a corresponding regulatory asset are recorded on the Balance
Sheets representing the minimum amount of coal tar investigation and
remediation costs CILCO expects to incur. Coal tar remediation costs
incurred through March 1996 have been deferred on the Balance Sheets,
net of amounts recovered from customers.
Through March 31, 1996, CILCO has recovered approximately $4.9
million in coal tar remediation costs from its customers through a
gas rate rider approved by the Illinois Commerce Commission (ICC).
Currently, that rider allows recovery of coal tar costs in the year
they are incurred. Under these circumstances, management believes
that the cost of coal tar remediation will not have a material
adverse effect on CILCO's financial position or results of
operations.
NOTE 4. Commitments
In August 1990, CILCO entered into a firm, wholesale power purchase
agreement with Central Illinois Public Service Company (CIPS). This
agreement, which expires in 1998, provides for an initial purchase of 30
megawatts (MW) of capacity, increasing to 90 MW in 1997. CILCO can
increase purchases to a maximum of 100 MW during the contract period,
provided CIPS then has the additional capacity available.
In March 1995, CILCO and CIPS renegotiated a November 1992 limited-term
power agreement. This renegotiated agreement, which expires in May
2009, provides for CILCO to purchase 150 MW of CIPS' capacity from June
1998 through May 2002, and 50 MW from June 2002 through May 2009. This
renegotiated agreement is subject to the ICC's final approval of CILCO's
1995 electric least cost energy plan, which has been revised to include
the terms of this agreement. ICC approval is expected in May 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CILCORP Inc. (CILCORP or the Company) is the parent of three core
operating businesses, Central Illinois Light Company (CILCO),
Environmental Science & Engineering, Inc. (ESE) and QST Enterprises Inc.
(QST). CILCORP also has two other first-tier subsidiaries, CILCORP
Investment Management Inc. (CIM), and CILCORP Ventures Inc. (CVI), whose
operations, combined with those of the holding company (Holding Company)
itself, are collectively referred to herein as Other Businesses.
CILCO, the primary business subsidiary, is an electric and gas utility
serving customers in central and east central Illinois. CILCO's
financial condition and results of operations are currently the
principal factors affecting the Company's financial condition and
results of operations.
ESE is a national environmental consulting, engineering and analytical
services firm serving governmental, industrial and commercial customers.
ESE, through its subsidiaries, also acquires environmentally impaired
property for remediation and resale.
QST, formed in December 1995, provides energy and energy services --
buying, managing and controlling energy -- for a wide variety of
customers. QST is also engaged in the business of fiberoptic
communication through one of its wholly-owned subsidiaries.
CIM invests in a diversified portfolio of long-term financial
investments which currently includes leveraged leases, energy-related
projects and affordable residential housing.
CVI invests in ventures in environmental services, energy, biotechnology
and health care.
Capital Resources & Liquidity
Declaration of dividends by CILCORP is at the discretion of the Board of
Directors. CILCORP's ability to declare and pay dividends is contingent
upon its receipt of dividend payments from its subsidiaries, business
conditions, earnings and the financial condition of the Company. The
Company believes that internal and external sources of capital which
are, or are expected to be, available to the Holding Company and its
subsidiaries will be adequate to meet the Company's capital expenditures
program, finance acquisitions, pay its financial obligations, meet
working capital needs and retire debt as it matures.
CILCORP
Short-term borrowing capability is available to the Company for
additional cash requirements. CILCORP's Board of Directors has
authorized it to borrow up to $50 million on a short-term basis. On
March 31, 1996, CILCORP had committed bank lines of credit of $50
million, of which $18.7 million was outstanding.
During the first quarter of 1996, CILCORP issued 84,289 shares of common
stock at an average price of $43.15 per share through the CILCORP Inc.
Automatic Reinvestment and Stock Purchase Plan (DRIP) and the CILCO
Employees' Savings Plan (ESP). Depending on market conditions, CILCORP
may issue additional shares of common stock through the DRIP, the ESP or
other stock offerings. The proceeds from newly issued stock will be
used to retire CILCORP debt, to meet working capital and capital
expenditure requirements at QST and for other corporate purposes.
At March 31, 1996, CILCORP had $45 million of medium-term notes
outstanding. CILCORP may issue up to $75 million under its current
medium-term note program. CILCORP may issue additional notes in the
future under this program to retire maturing debt and to provide funds
for other corporate purposes.
CILCO
Capital expenditures totaled $7.9 million for the three months ended
March 31, 1996. Capital expenditures are anticipated to be approximately
$43.8 million for the remainder of 1996 which includes approximately
$2.4 million for the installation of a communication network in Peoria,
Illinois. Capital expenditures for the years 1997 and 1998 are estimated to
be $49.7 million and $49.5 million, respectively.
Currently, CILCO does not plan to issue long-term debt during 1996. CILCO
intends to finance its 1996 and 1997 capital expenditures with funds provided
by operations.
At March 31, 1996, CILCO had committed bank lines of credit aggregating
$30 million, all of which were unused. These lines of credit are used to
support CILCO's issuance of commercial paper. CILCO expects these bank lines
will remain unused through 1996. CILCO had no commercial paper outstanding
at March 31, 1996, but expects to issue commercial paper periodically
throughout the remainder of 1996.
In addition to declaring a regular common dividend, CILCO's Board of
Directors declared a special $10 million dividend at the April 1996 Board
Meeting. These dividends were paid to CILCORP, the sole common shareholder
of CILCO.
ESE
For the quarter ended March 31, 1996, ESE's capital expenditures were
approximately $800,000, which included $700,000 to acquire land through
its subsidiary, ESE Land Corporation, for remediation and resale.
Capital expenditures for the remainder of 1996 are budgeted to be
approximately $7.9 million, which includes $7 million to acquire land
for remediation and resale.
At March 31, 1996, ESE had borrowings of $20 million from CILCORP and
advances of $2.7 million to CILCORP. ESE also has a $15 million line of
credit with CILCORP. At March 31, 1996, all of this line of credit was
unused. ESE has a $10 million bank line of credit, of which $4.4
million was outstanding at March 31, 1996, to collaterize performance
bonds issued in connection with ESE's projects. ESE expects to finance
its capital expenditures and working capital needs during 1996 with a
combination of funds generated internally and periodic short-term
borrowings from the Holding Company.
QST
Capital expenditures for QST are expected to be approximately
$3.8 million for 1996. This includes $3.6 million for QST
Communications Inc., a subsidiary of QST, for construction of a
fiberoptic communication loop in the Peoria area. QST expects to
finance new investments and working capital needs during 1996 with funds
provided by CILCORP.
CIM
At March 31, 1996, CIM had outstanding debt of $25.7 million, consisting
of $22.3 million borrowed from CILCORP and $3.4 million borrowed from
external sources. CIM expects to finance new investments and working
capital needs during 1996 with a combination of funds generated
internally and periodic short-term borrowings from CILCORP.
Results Of Operations
Overview
The following table summarizes net income of CILCO, ESE, QST and Other
Businesses for the three months ended March 31, 1996 and 1995.
Three Months Ended
March 31,
1996 1995
(In thousands)
(Unaudited)
Core businesses:
CILCO
Electric operating income $10,085 $ 9,065
Gas operating income 10,107 8,818
------- -------
Total utility operating income 20,192 17,883
Utility other income and deductions (6,274) (5,801)
Preferred stock dividends of CILCO (815) (835)
------- -------
Total utility net income 13,103 11,247
ESE
ESE net income (loss) (1,972) 377
QST
QST net loss (446) --
------- -------
Total core business income 10,685 11,624
Other businesses:
Other businesses net loss (291) (151)
------- -------
Consolidated net income available
to common shareholders $10,394 $11,473
======= =======
CILCO Electric Operations
The following table summarizes the components of CILCO electric
operating income for the three months ended March 31, 1996 and 1995:
Three Months Ended
Components of Electric March 31,
Operating Income 1996 1995
(In thousands)
Revenue:
Electric retail $73,256 $72,933
Sales for resale 3,435 1,412
------- -------
Total revenue 76,691 74,345
------- -------
Cost of sales:
Cost of fuel 25,932 24,760
Purchased power expense 2,262 2,784
Revenue taxes 3,645 3,429
------- -------
Total cost of sales 31,839 30,973
------- -------
Gross margin 44,852 43,372
------- -------
Operating expenses:
Other operation and maintenance 18,737 19,082
Depreciation and amortization 10,766 10,213
Income and other taxes 5,264 5,012
------- -------
Total operating expenses 34,767 34,307
------- -------
Electric operating income $10,085 $ 9,065
======= =======
Electric gross margin and retail sales volumes increased 3% and 1%,
respectively, for the three months ended March 31, 1996, compared to the
same period in 1995. A 7% increase in residential sales and a 6%
increase in commercial sales offset a 6% decrease in industrial sales.
Residential and commercial sales were higher primarily due to a 13%
increase in heating degree days compared to the same period in 1995.
The change in industrial sales resulted primarily from lower demand by
several large industrial customers.
The overall level of business activity in CILCO's service territory and
weather conditions are expected to continue to be the primary factors
affecting electric sales in the near term. CILCO's electric sales may
be affected in the long-term by deregulation and increased competition
in the electric utility industry (see Part II. Item 5: Other
Information, Electric Competition).
Sales for resale increased during the first quarter of 1996, due to
higher demand for electricity from neighboring utilities. Sales for
resale vary based on the energy requirements of neighboring utilities,
CILCO's available capacity for bulk power sales and the price of power
available for sale. CILCO expects increased competition in the market
for sales for resale and purchased power.
Substantially all of CILCO's electric generating capacity is coal-fired.
The cost of fuel increased 5% in the first quarter of 1996, compared to
the same period in 1995, due to a 12% increase in electric generation,
partially offset by an 8% reduction in the cost of coal burned.
Purchased power decreased for the three months ended March 31, 1996,
compared to the same period in 1995. Purchased power expense varies
based on CILCO's need for energy and the price of power available for
purchase. CILCO makes use of purchased power when it is economical to
do so and when required during maintenance outages at CILCO plants.
Costs and savings realized from the purchase of power are passed through
to CILCO's customers via the fuel adjustment clause (FAC). The FAC
allows CILCO to pass increases or decreases in the cost of fuel through
to customers.
Other operation and maintenance expenses decreased 2% for the three
months ended March 31, 1996, compared to the corresponding period in
1995, primarily due to decreased employee salaries, pension expense,
injury and damage claims and tree trimming expenses. Increases in
outside services and employee benefits partially offset the decrease for
the first quarter of 1996.
Depreciation and amortization expense increased 5%, reflecting additions
and replacements of utility plant at costs in excess of the original
cost of the property retired, and the addition of CILCO's new customer
information system in October 1995.
Income and other tax expense increased primarily due to higher pre-tax
operating income.
CILCO Gas Operations
The following table summarizes the components of CILCO gas operating
income for the three months ended March 31, 1996 and 1995:
Three Months Ended
Components of Gas Operating Income March 31,
1996 1995
(In thousands)
Revenue:
Sale of gas $75,290 $56,168
Transportation services 2,750 2,714
------- -------
Total revenue 78,040 58,882
------- -------
Cost of sales:
Cost of gas 45,589 29,107
Revenue taxes 3,678 3,114
------- -------
Total cost of sales 49,267 32,221
------- -------
Gross margin 28,773 26,661
------- -------
Operating expenses:
Other operation and maintenance 7,965 8,233
Depreciation and amortization 4,288 3,933
Income and other taxes 6,413 5,677
------- -------
Total operating expenses 18,666 17,843
------- -------
Gas operating income $10,107 $ 8,818
======= =======
Gas gross margin increased 8% for the quarter ended March 31, 1996,
compared to the same period in 1995, primarily due to increased sales to
residential and commercial customers. Residential sales increased 11%
and commercial sales increased 14% for the first quarter of 1996. The
increases in residential and commercial sales were primarily due to
cooler winter weather. Heating degree days were 13% higher compared to
the same period in 1995. The overall level of business activity in
CILCO's service territory and weather conditions are expected to
continue to be the primary factors affecting gas sales in the near term.
In the long term, CILCO natural gas sales may be affected by further
deregulation in the natural gas industry.
Revenue from gas transportation services increased 1% for the quarter
ended March 31, 1996, compared to the same period in 1995. Revenue
increased primarily due to peak-day overrun penalties incurred by
transportation customers during the quarter ended March 31, 1996. The
increase was offset by a 2% decrease in transportation sales volumes for
the quarter.
The cost of gas increased 57% for the quarter ended March 31, 1996,
compared to the same quarter of 1995. This increase was principally due
to increased sales and higher natural gas prices from CILCO's suppliers.
The higher natural gas prices, which accounted for the majority of the
34% increase in gas retail revenue, were passed through to CILCO's gas
customers via the PGA. The PGA is the mechanism used to pass increases
or decreases in the cost of natural gas through to customers.
Other operation and maintenance expenses decreased 3% for the three
months ended March 31, 1996, compared to the corresponding period in
1995, due to a decrease in salaries and injury and damage claims. These
decreases were partially offset by increases in employee benefits and
outside service expenses.
Depreciation and amortization expense increased 9% for the quarter ended
March 31, 1996 compared to the same period in 1995, reflecting additions
and replacements of utility plant at costs in excess of the original
cost of the property retired, and the addition of CILCO's new customer
information system in October 1995.
Income and other taxes expense increased for the quarter ended March 31,
1996, primarily due to higher pre-tax operating income.
CILCO Other Income and Deductions and Interest Expense
The following table summarizes other income and deductions and
interest expense for the three months ended March 31, 1996 and 1995:
Three Months Ended
Components of Other Income and March 31,
Deductions and Interest Expense 1996 1995
(In thousands)
Net interest expense $(5,914) $(5,814)
Income taxes 712 565
Other (1,072) (552)
------- -------
Other income (deductions) $(6,274) $(5,801)
======= =======
Interest expense increased primarily as a result of a higher long-term
debt balance during the first quarter of 1996, compared to the same
period in 1995. Other deductions increased primarily due to increased
corporate contributions and a loss on the sale of a parcel of land at
the Duck Creek generating site.
ESE Operations
The following table summarizes the components of ESE's results for the
three months ended March 31, 1996 and 1995:
Components of ESE Net Income (Loss)
1996 1995
(In thousands)
Environmental and engineering
services revenue $20,475 $34,674
Direct non-labor project costs 5,666 13,960
------- -------
Net revenue 14,809 20,714
------- -------
Expenses:
Direct salaries and other costs 9,407 10,148
General & administrative 6,749 7,808
Depreciation and amortization 1,332 1,443
------- -------
Operating expenses 17,488 19,399
------- -------
Interest expense 396 511
------- -------
Income (loss) before income taxes (3,075) 804
Income taxes (1,103) 427
------- -------
ESE net income (loss) $(1,972) $ 377
======= =======
ESE's results have fluctuated from quarter to quarter since its
acquisition in 1990. Such fluctuations may be expected to continue.
Factors influencing such variations include: project delays, which may
be caused by regulatory agency approvals or client considerations; the
level of subcontractor services; and weather, which may limit the amount
of time ESE professionals have in the field. Accordingly, results for
any one quarter are not necessarily indicative of results for any other
quarter or for the year.
ESE incurs substantial direct project costs from the use of
subcontractors on projects. These costs are passed directly through to
ESE's clients. As a result, ESE measures its operating performance on
the basis of net revenues, which are determined by deducting such direct
project costs from gross revenues.
Net revenues were 29% lower for the quarter ended March 31, 1996
compared to the same period in 1995. This decrease in net revenue is
due to a decrease in net revenue for both the consulting and laboratory
operations during the first quarter of 1996. As legislatures debate
both environmental funding and regulations, industry clients have
delayed initiating projects. Government projects are under strict
fiscal limits which impact ESE work levels in this area. Net revenues
for the first quarter of 1996 were also impacted by inclement weather,
resulting in project interruptions. The first quarter of 1995 had
favorable weather conditions resulting in uninterrupted project
activity. Also, net revenues for the first quarter of 1996 were
adversely impacted by intense competition in the laboratory marketplace
which has resulted in reduced profit margins beginning in late 1995 and
continuing into the first quarter of 1996.
Direct salaries and other expenses include the cost of professional and
technical staff and other costs billable to customers. These costs
include salaries and related fringe benefits, including employer-paid
medical and dental insurance, payroll taxes, paid time off, and 401(k)
contributions. Direct salaries and other costs decreased by 7% in the
first quarter of 1996, compared to the corresponding period in 1995.
This decrease is primarily due to a decrease in the number of technical
staff.
General and administrative expenses include non-billable employee time
devoted to marketing, proposals, supervision, and professional
development; supplies expenses; and corporate administrative expenses.
General and administrative expenses decreased 14% in the first quarter
of 1996 compared to the same period in 1995. This decrease is due to
lower general and administrative salary expense, lower overall payroll
benefit expense, and cost controls which have reduced overhead expenses.
Due to the labor-intensive nature of ESE's business, ESE has the ability
to adjust staffing levels to recognize changing business conditions.
ESE had 972 full-time equivalent employees at March 31, 1996 compared to
1,223 at March 31, 1995.
QST Operations
The following table summarizes QST's results for the three months ended
March 31, 1996:
Components of QST Net Loss
Three Months Ended
March 31,
1996 1995
(In thousands)
Revenue: $ -- $ --
------- -------
Expenses:
General and Administrative 786 --
Operating expenses 1,486 1,155
Depreciation and amortization 47 49
Interest expense 1,340 1,592
Income and other taxes 198 41
------- -------
Total expenses 3,071 2,837
------- -------
Other businesses net loss $ (291) $ (151)
======= =======
Operating expenses increased for the first quarter of 1996, compared to
the first quarter of 1995, primarily due to higher operating expenses
related to the leveraged lease investment portfolio.
Interest expense decreased in 1996 as a result of a decrease in long-
term debt outstanding.
Income and other taxes were higher in the first quarter of 1996,
compared to the first quarter of 1995, primarily due to greater pre-tax
income and an adjustment to an income tax reserve in the first quarter
of 1996.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Reference is made to "Environmental Matters" under "Item 1. Business"
in the Company's 1995 Annual Report on Form 10-K (the "1995 Form 10-K"),
and "Note 2. Gas Pipeline Supplier Transition Costs" and "Note 3.
Contingencies," herein, for certain pending legal proceedings and
proceedings known to be contemplated by governmental authorities.
The Company and its subsidiaries are subject to certain claims and
lawsuits in connection with work performed in the ordinary course of
their businesses. Except as otherwise disclosed or referred to in this
section, in the opinion of management, all such claims currently pending
either will not result in a material adverse effect on the financial
position and results of operations of the Company or are adequately
covered by: (i) insurance; (ii) contractual or statutory
indemnification; and/or (iii) reserves for potential losses.
CILCO
As discussed in the 1995 Form 10-K, on July 6, 1994, a lawsuit was filed
against CILCO in a United States District Court by Vector-Springfield
Properties, Ltd., seeking damages related to alleged coal tar
contamination from the site of a former gas manufacturing plant which
was owned but never operated by CILCO. The lawsuit seeks cost recovery
of more than $3 million related to coal tar investigation expenses,
operating losses and diminution of market value. CILCO is vigorously
defending against these claims. Management cannot currently determine
the outcome of this litigation, but does not believe it will have a
material adverse impact on CILCO's financial position or results of
operations.
Item 4: Submission of Matters to a Vote of Security Holders
Shareholders cast the following votes at the Company's Annual Meeting of
Shareholders held April 23, 1996:
Votes Abstentions &
Against Broker
Votes for or Withheld Non-Votes
Elected to the Board of
Directors:
J. R. Brazil 10,440,840 268,683 0
J. D. Caulder 10,418,349 290,220 0
M. M. Yeomans 10,462,271 239,351 0
Item 5: Other Information
Electric Competition
The National Energy Policy Act of 1992 (NEPA) encourages competition
but specifically bans federally-mandated transmission of power to
retail customers. However, several state legislatures and public
utility regulatory commissions are investigating or adopting pilot
programs to initiate competition at the retail level. In addition,
incentive regulation is being implemented or considered by
legislatures and public utility commissions in more than twenty
states. Utilities may benefit or lose depending upon their ability
to reduce costs and improve efficiency.
In July 1995, Illinois enacted legislation which offers gas and electric
public utilities an opportunity to develop alternative regulation and
performance-based ratemaking programs. These programs will be subject
to standards established by the ICC and will be restricted to the
utility's service territory. These programs must be approved by the ICC
and must end by June 30, 2000. A report on the results of the programs
will be delivered to the Illinois legislature by December 31, 2000.
With the proposed changes in the regulatory environment and the
potential for increased competition in the electric utility industry
at both the wholesale and retail levels, CILCO anticipates
significant changes in the industry in the years to come. Management
cannot predict the ultimate effect of these changes, but believes
that they will result in customers having the opportunity to select
the electric supplier of their choice and that low operating costs,
improved efficiency and new and better services and products will be
key competitive factors for electric utilities.
In August 1995, CILCORP took steps to position itself and its
subsidiaries to deal more effectively with industry change. The
Company developed a point of view about the future utility and energy
services industry which has led it to champion customer choice and to
develop a growth strategy. In addition, CILCORP identified the need
to gain additional customer insight through market research and other
means, to obtain new core competencies, to develop new product and
service offerings, to make operational changes to become more
competitive, to pursue legislative and regulatory strategies to
further competition, and to identify and strategically allocate
Company resources.
To lead the movement toward increased customer choice, CILCO
requested regulatory approval from the ICC in August 1995 to
establish two electric pilot retail competition programs known as
Power Quest. The programs offer greater choice to customers and
provide the opportunity for CILCO and its customers to participate in
a competitive business environment. These programs were approved by
the ICC in March 1996 and approved by the FERC in April 1996.
One program permits eight of CILCO's industrial customers that had
peak loads of 10 megawatts or more during the twelve months ended
July 31, 1995, to secure part or all of their electric power
requirements from suppliers other than CILCO, subject to the
limitation that at no time shall total purchases by participants in
the program exceed 50 megawatts (approximately 10% of CILCO's
industrial load). The program's two-year term may be extended with
the approval of the ICC.
In the other program, CILCO designated five areas within its service
territory as "Open Access Sites" for up to five years. The sites
include three Central Illinois communities, a shopping center, and a
developing commercial business site. During that period, customers
located within these Open Access Sites--whether residential,
commercial or industrial--are eligible to purchase some or all of
their electric power requirements from suppliers other than CILCO.
The five-year program period may be extended with ICC approval.
Under Power Quest, CILCO will deliver, for an approved fee, other
suppliers' power from a designated receipt point on CILCO's system to
the customer's location, as well as provide other associated services.
CILCO will not impose any exit fees, entrance fees, or stranded cost
recovery upon any customers in connection with Power Quest.
During Power Quest, CILCO anticipates a reduction in electric profit
margin because some eligible customers are expected to purchase some or
all of their power requirements from other suppliers. The amount of any
such reduction depends largely upon the extent of customer participation
in Power Quest. CILCO expects, but cannot assure, that some of the
reduced profit margin will be offset by increased sales to customers and
utilities outside its service territory. For the industrial program,
the Company anticipates a reduction in net income of up to $4 million if
the entire 50 megawatts of eligible industrial capacity moves to off-
system suppliers. For the Power Quest Open Access Sites, the Company
anticipates a reduction in net income of up to $.1 million, based on
customers' initial participation through May 1, 1996. If all eligible
customers in the open access sites participate in Power Quest, the
Company would experience a reduction in net income of up to $.7 million.
Management cannot currently predict the additional impact on its
financial condition which may result from proposed changes in the
regulatory environment or from increased competition in the electric
utility industry.
In an effort to obtain a competitive advantage, various mergers and
business combinations are occurring in the utility industry. There
have been several announced utility industry mergers or business
combinations which will have an impact on the region in which CILCO
currently operates. Mergers and combinations have also been
announced in other areas of the country. CILCO management will
monitor this activity and continue to position itself for competition
by keeping its costs and prices low, maintaining good customer
relations and developing the flexibility to respond directly to
individual customer requirements.
Reduction of Materials and Supplies Inventory
As part of an effort to become more competitive, CILCO personnel are
performing a detailed analysis of materials and supplies inventories
at power plant and transmission and distribution storerooms. As a
result of the analysis, CILCO plans to reduce materials and supplies
inventory levels by approximately $4 million through the sale,
disposal, or use of identified inventory items. Throughout the
remainder of 1996, this inventory reduction is expected to result in
an after-tax reduction to net income of approximately $1.8 million.
Restructuring of Subsidiary Boards of Directors
To better focus strategic decision-making at the Holding Company Board
level, the Board of Directors of CILCO, ESE, CIM and CVI were
restructured effective as of their respective annual meetings during the
second quarter of 1996. The Board of Directors of CILCO was reduced
from 11 members to 3 members effective at the Annual Meeting of CILCO on
April 23, 1996. The three directors include the following officers of
CILCO: Thomas S. Romanowski, Vice President and Chief Financial
Officer; James F. Vergon, President and Chief Operating Officer; and
Robert O. Viets, Chairman and Chief Executive Officer. The Boards of
Directors of CIM and CVI were restructured to include internal directors
only, and the Board of ESE will include only one outside director.
CILCO Gas Pilot Program
On May 8, 1996, CILCO filed a petition with the Illinois Commerce
Commission (ICC) seeking regulatory permission to create a five-year
pilot program that would allow certain residential consumers to select
their natural gas supplier. CILCO will continue to provide distribution
and metering services. Under this program, known as Therm Quest, a
limited number of CILCO's residential gas sales customers, located in
open access sites to be designated by CILCO, will be permitted to elect
to receive only gas transportation services from CILCO, and thus
purchase natural gas from providers other than CILCO. The gas open
access sites to be designated by CILCO will contain approximately 10,000
residential gas sales customers. The sites chosen for this pilot
program will be identified after the petition has been approved. CILCO
is requesting approval of this petition by the ICC within 45 days, with
an effective date of September 1, 1996. Management does not believe
this program will have a material adverse impact on CILCO's financial
position or results of operations.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial data schedules
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CILCORP Inc.
(Registrant)
Date May 10, 1996 R. O. Viets
R. O. Viets
President and
Chief Executive Officer
Date May 10, 1996 J. L. Barnett
J. L. Barnett
Controller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the regis
trant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL ILLINOIS LIGHT COMPANY
(Registrant)
Date May 10, 1996 T. S. Romanowski
T. S. Romanowski
Vice President and Chief
Financial Officer
Date May 10, 1996 R. L. Beetschen
R. L. Beetschen
Controller and Manager
of Accounting