UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........ to ........
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification No.
___________ _____________________________ __________________
1-10628 CIPSCO INCORPORATED 37-1260920
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
1-3672 CENTRAL ILLINOIS PUBLIC SERVICE COMPANY 37-0211380
(An Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
217-523-3600
Indicate by check mark whether the Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrants were required to
file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
Yes X No
_______ _______
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
CIPSCO INCORPORATED Common stock, no par value, 34,069,542
shares outstanding at October 31, 1995
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Common stock, no par value, 25,452,373
shares outstanding and held by
CIPSCO INCORPORATED at October 31, 1995
-1-
CIPSCO INCORPORATED
AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIPSCO INCORPORATED
Consolidated Statements of Income 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income 7
Balance Sheets 8
Statements of Cash Flows 9
CONDENSED NOTES TO FINANCIAL STATEMENTS of
CIPSCO Incorporated and Central Illinois
Public Service Company 10 - 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations for CIPSCO Incorporated and
Central Illinois Public Service Company 18 - 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 5. Other Information 26 - 34
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 36 - 37
Exhibit Index 38
Exhibit 12 39
-2-
The unaudited interim financial statements presented herein
include the consolidated statements of CIPSCO Incorporated and
Subsidiaries ("Company") as well as separate financial statements
for Central Illinois Public Service Company ("CIPS"). The
unaudited statements have been prepared by the Company and CIPS,
respectively, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and regulations, although the Company and CIPS believe the
disclosures are adequate to make the information presented not
misleading. Both the Company's consolidated financial statements
and the CIPS financial statements should be read in conjunction
with the financial statements and notes thereto included in the
combined Annual Report on Form 10-K of CIPSCO Incorporated and
CIPS for the year ended December 31, 1994.
In the opinion of the Company and CIPS, their respective interim
financial statements filed as part of this Form 10-Q reflect all
adjustments necessary to present fairly the results for the
respective periods. Due to the effect of weather and other
factors which are characteristic of CIPS' utility operations,
financial results for the periods ended September 30, 1995 and
1994 are not necessarily indicative of trends for any twelve-
month period.
This financial and other information is not given in connection
with any sale or offer to buy any security.
-3-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Income
For the Periods Ended September 30, 1995 and 1994
(in thousands except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ __________________
1995 1994 1995 1994
________ ________ ________ ________
Operating Revenues:
Electric......................... $228,198 $198,767 $544,886 $537,013
Gas.............................. 13,234 15,146 87,523 100,724
Investment....................... 2,431 2,357 5,860 6,660
________ ________ ________ ________
Total operating revenues...... 243,863 216,270 638,269 644,397
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 53,373 45,493 144,228 149,427
Purchased power.................. 18,981 14,486 45,219 40,587
Gas costs........................ 5,253 7,222 48,322 61,835
Other operation.................. 37,361 36,734 113,897 109,795
Maintenance...................... 16,018 14,375 46,690 45,378
Depreciation and amortization.... 21,005 20,162 62,280 60,610
Taxes other than income taxes.... 14,783 13,794 43,133 42,972
________ ________ _______ ________
Total operating expenses...... 166,774 152,266 503,769 510,604
________ ________ _______ ________
Operating Income................... 77,089 64,004 134,500 133,793
________ ________ _______ ________
Interest and Other Charges:
Interest on long-term debt of
subsidiary....................... 8,285 8,138 24,583 24,704
Other interest charges........... 214 125 574 122
Allowance for funds used during
construction..................... (240) (251) (649) (735)
Preferred stock dividends of
subsidiary....................... 957 889 2,896 2,568
Miscellaneous, net............... (579) (881) (1,915) (2,673)
________ ________ _______ ________
Total interest and other
charges....................... 8,637 8,020 25,489 23,986
________ ________ _______ ________
Income Before Income Taxes......... 68,452 55,984 109,011 109,807
________ ________ ________ ________
Income Taxes....................... 26,721 21,728 41,826 42,247
________ ________ ________ ________
Net Income......................... $ 41,731 $ 34,256 $ 67,185 $ 67,560
======== ======== ======== ========
Average Shares of Common Stock
Outstanding........................ 34,070 34,108 34,070 34,108
Earnings per Average Share of
Common Stock....................... $ 1.22 $ 1.00 $ 1.97 $ 1.98
The accompanying condensed notes to financial statements are an integral
part of these statements.
-4-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(in thousands)
September 30, December 31,
1995 1994
_____________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric.......................... $2,287,538 $2,264,930
Gas............................... 223,660 220,347
__________ __________
2,511,198 2,485,277
Less-Accumulated depreciation..... 1,115,529 1,077,533
__________ __________
1,395,669 1,407,744
Construction work in progress..... 51,940 31,816
__________ __________
1,447,609 1,439,560
__________ __________
Current Assets:
Cash.............................. 1,696 1,963
Temporary investments, at cost
which approximates market......... 7,489 5,875
Accounts receivable, net.......... 78,261 67,579
Accrued unbilled revenues......... 16,993 30,484
Materials and supplies, at average
cost.............................. 39,595 39,817
Fuel for electric generation, at
average cost...................... 40,058 30,305
Gas stored underground, at average
cost.............................. 11,548 13,167
Prepayments....................... 13,430 10,925
__________ __________
209,070 200,115
__________ __________
Investments and Other Assets:
Investment in marketable
securities........................ 46,574 43,929
Investment in leveraged leases.... 51,965 49,933
Other............................. 58,145 43,820
__________ __________
156,684 137,682
__________ __________
$1,813,363 $1,777,357
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholders' equity....... $ 664,544 $ 649,230
Unrealized investment gains
(losses), net................... 366 (1,617)
Preferred stock of subsidiary..... 80,000 80,000
Long-term debt of subsidiary...... 478,850 459,619
__________ __________
1,223,760 1,187,232
__________ __________
Current Liabilities:
Long-term debt of subsidiary due
within one year................... - 15,000
Short-term borrowings............. - 14,985
Accounts payable.................. 48,955 54,021
Accrued wages..................... 11,260 9,833
Accrued taxes..................... 23,473 12,629
Accrued interest.................. 8,610 9,408
Other............................. 51,210 31,488
__________ __________
143,508 147,364
__________ __________
Deferred Credits:
Accumulated deferred income taxes. 324,041 313,072
Investment tax credits............ 53,074 55,595
Regulatory liabilities, net....... 68,980 74,094
__________ __________
446,095 442,761
__________ __________
$1,813,363 $1,777,357
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
-5-
CIPSCO INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Periods Ended September 30, 1995 and 1994
(in thousands)
(unaudited)
Nine Months Ended
September, 30,
______________________
1995 1994
__________ __________
Operating Activities:
Net income.............................. $ 67,185 $ 67,560
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 62,280 60,610
Allowance for equity funds used during
construction (AFUDC).................. (599) (503)
Deferred income taxes, net............ 9,133 8,583
Investment tax credit amortization.... (2,521) (2,525)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable, net and accrued
unbilled revenues..................... 2,809 4,416
Fuel for electric generation.......... (9,753) (6,201)
Other inventories..................... 1,841 (956)
Prepayments........................... (2,505) 2,528
Other assets.......................... (14,325) 6,472
Accounts payable and other............ 14,656 1,738
Accrued wages, taxes and interest..... 11,473 5,216
Other................................... (6,340) (1,996)
_________ _________
Net cash provided by operating
activities............................ 133,334 144,942
_________ _________
Investing Activities:
Utility construction expenditures,
excluding AFUDC......................... (66,243) (64,184)
Allowance for borrowed funds used
during construction..................... (49) (231)
Change in temporary investments......... (1,614) (1,354)
Long-term investment in marketable
securities.............................. (662) (5,136)
Long-term investment in leveraged
leases.................................. (2,032) (6,625)
_________ _________
Net cash used in investing activities. (70,600) (77,530)
_________ _________
Financing Activities:
Common stock dividends paid............. (51,786) (50,820)
Proceeds from issuance of long-term
debt of subsidiary...................... 20,000 -
Repayment of long-term debt of
subsidiary.............................. (16,000) (20,000)
Repayment of short-term borrowings...... (14,985) 850
Issuance expense, discount and premium.. (230) 11
_________ _________
Net cash used in financing activities. (63,001) (69,959)
_________ _________
Net decrease in cash.................... (267) (2,547)
Cash at beginning of period............. 1,963 4,630
_________ _________
Cash at end of period................... $ 1,696 $ 2,083
========= =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest, net of amounts capitalized.. $ 24,245 $ 23,881
Income taxes.......................... $ 23,432 $ 25,923
The accompanying condensed notes to financial statements are an
integral part of these statements.
-6-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Statements of Income
For the Periods Ended September 30, 1995 and 1994
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ __________________
1995 1994 1995 1994
________ ________ ________ ________
Operating Revenues:
Electric......................... $228,213 $198,775 $544,914 $537,036
Gas.............................. 13,236 15,147 87,528 100,728
________ ________ ________ ________
Total operating revenues...... 241,449 213,922 632,442 637,764
________ ________ ________ ________
Operating Expenses:
Fuel for electric generation..... 53,373 45,493 144,228 149,427
Purchased power.................. 18,981 14,486 45,219 40,587
Gas costs........................ 5,253 7,222 48,322 61,835
Other operation.................. 37,050 36,377 112,897 108,759
Maintenance...................... 16,017 14,374 46,689 45,375
Depreciation and amortization.... 20,780 20,041 61,814 60,227
Taxes other than income taxes.... 14,782 13,790 43,107 42,946
Income taxes:
Current........................ 21,701 16,660 38,305 36,596
Deferred, net.................. 5,125 5,325 4,413 6,588
Deferred investment tax
credits, net................... (840) (842) (2,521) (2,525)
________ ________ ________ ________
Total operating expenses...... 192,222 172,926 542,473 549,815
________ ________ ________ ________
Operating Income................... 49,227 40,996 89,969 87,949
________ ________ ________ ________
Other Income and Deductions:
Allowance for equity funds used
during construction.............. 222 172 599 503
Nonoperating income taxes........ (279) (117) (1,099) (604)
Miscellaneous, net............... 625 1,021 2,325 3,171
________ ________ ________ ________
Total other income and
deductions.................... 568 1,076 1,825 3,070
________ ________ ________ ________
Income Before Interest Charges..... 49,795 42,072 91,794 91,019
________ ________ ________ ________
Interest Charges:
Interest on long-term debt....... 8,285 8,138 24,583 24,704
Other interest charges........... 203 111 540 114
Allowance for borrowed funds used
during construction.............. (18) (79) (49) (231)
________ ________ ________ ________
Total interest charges....... 8,470 8,170 25,074 24,587
________ ________ ________ ________
Net Income......................... 41,325 33,902 66,720 66,432
Preferred Stock Dividends.......... 957 889 2,896 2,568
________ ________ ________ ________
Earnings for Common Stock.......... $ 40,368 $ 33,013 $ 63,824 $ 63,864
======== ======== ======== ========
The accompanying condensed notes to financial statements are an integral
part of these statements.
-7-
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
Balance Sheets
September 30, 1995 and December 31, 1994
(in thousands)
September 30, December 31,
1995 1994
_____________ ____________
(unaudited)
ASSETS
Utility Plant, at original cost:
Electric......................... $2,287,538 $2,264,930
Gas.............................. 223,660 220,347
__________ __________
2,511,198 2,485,277
Less-Accumulated depreciation.... 1,115,529 1,077,533
__________ __________
1,395,669 1,407,744
Construction work in progress.... 51,940 31,816
__________ __________
1,447,609 1,439,560
__________ __________
Current Assets:
Cash............................. 1,672 1,320
Temporary investments, at cost
which approximates market........ 4,924 2,593
Accounts receivable, net......... 78,790 67,686
Accrued unbilled revenues........ 16,993 30,484
Materials and supplies, at average
cost............................. 39,595 39,817
Fuel for electric generation, at
average cost..................... 40,058 30,305
Gas stored underground, at average
cost............................. 11,548 13,167
Prepayments...................... 13,333 10,839
__________ __________
206,913 196,211
__________ __________
Other Assets....................... 48,946 42,879
__________ __________
$1,703,468 $1,678,650
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity...... $ 585,983 $ 574,745
Preferred stock.................. 80,000 80,000
Long-term debt................... 478,851 459,619
__________ __________
1,144,834 1,114,364
__________ __________
Current Liabilities:
Long-term debt due within one
year............................. - 15,000
Short-term borrowings............ - 14,985
Accounts payable................. 48,407 53,900
Accrued wages.................... 11,260 9,833
Accrued taxes.................... 23,824 12,963
Accrued interest................. 8,610 9,408
Other............................ 51,210 31,488
__________ __________
143,311 147,577
__________ __________
Deferred Credits:
Accumulated deferred income
taxes............................ 293,269 287,020
Investment tax credits........... 53,074 55,595
Regulatory liabilities, net...... 68,980 74,094
__________ __________
415,323 416,709
__________ __________
$1,703,468 $1,678,650
========== ==========
The accompanying condensed notes to financial statements are an
integral part of these statements.
-8-
Central Illinois Public Service Company
Statements of Cash Flows
For the Periods Ended September 30, 1995 and 1994
(in thousands)
(unaudited)
Nine Months Ended
September 30,
______________________
1995 1994
__________ __________
Operating Activities:
Net income.............................. $ 66,720 $ 66,432
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization......... 61,814 60,227
Allowance for equity funds used during
construction (AFUDC).................. (599) (503)
Deferred income taxes, net............ 4,413 5,046
Investment tax credit amortization.... (2,521) (2,525)
Cash flows impacted by changes in assets
and liabilities:
Accounts receivable, net and accrued
unbilled revenues..................... 2,387 4,458
Fuel for electric generation.......... (9,753) (6,201)
Other inventories..................... 1,841 (956)
Prepayments........................... (2,494) 2,352
Other assets.......................... (6,067) 6,682
Accounts payable and other............ 14,229 1,773
Accrued wages, taxes and interest..... 11,490 4,832
Other................................... (5,874) (1,612)
_________ _________
Net cash provided by operating
activities............................ 135,586 140,005
_________ _________
Investing Activities:
Construction expenditures, excluding
AFUDC................................... (66,243) (64,184)
Allowance for borrowed funds used during
construction............................ (49) (231)
Changes in temporary investments........ (2,331) (4,147)
_________ _________
Net cash used in investing activities. (68,623) (68,562)
_________ _________
Financing Activities:
Proceeds from issuance of long-term
debt.................................... 20,000 -
Repayment of long-term debt............. (16,000) (20,000)
Repayment of short-term borrowings...... (14,985) -
Dividends paid:
Preferred stock....................... (2,896) (2,568)
Common stock.......................... (52,500) (51,400)
Issuance expense, discount and premium.. (230) 11
_________ _________
Net cash used in financing activities. (66,611) (73,957)
_________ _________
Net increase (decrease) in cash......... 352 (2,514)
Cash at beginning of period............. 1,320 4,038
_________ _________
Cash at end of period................... $ 1,672 $ 1,524
========= =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest, net of amounts capitalized.. $ 24,245 $ 23,871
Income taxes.......................... $ 27,622 $ 29,218
The accompanying condensed notes to financial statements are an
integral part of these statements.
-9-
CIPSCO INCORPORATED AND SUBSIDIARIES
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
CONDENSED NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(unaudited)
Note 1. GENERAL
________________
The consolidated financial statements presented herein include
the accounts of CIPSCO INCORPORATED (CIPSCO), CENTRAL ILLINOIS
PUBLIC SERVICE COMPANY (CIPS), and CIPSCO INVESTMENT COMPANY AND
SUBSIDIARIES (CIC). CIPSCO and Subsidiaries are referred to as
the "Company." CIPSCO has two first-tier subsidiaries: CIC, an
investment subsidiary, and CIPS, an electric and gas public
utility. Prior year amounts have been reclassified on a basis
consistent with the September 30, 1995 presentation.
The financial statements of CIPS, a subsidiary of CIPSCO, include
only the accounts of CIPS. Prior year amounts have been
reclassified on a basis consistent with the September 30, 1995
presentation.
Note 2. COMMITMENTS AND CONTINGENCIES
______________________________________
ENVIRONMENTAL REMEDIATION COSTS - CIPS and certain of its
predecessors and other affiliates operated facilities in the past
for manufacturing gas from coal. In connection with
manufacturing gas, various by-products were produced, some of
which remain on sites where the facilities were located. CIPS
has identified 13 of these former manufactured gas plant sites
(environmental remediation sites) which contain potentially
harmful materials. Under directives from the Illinois
Environmental Protection Agency (IEPA), CIPS has incurred costs
and associated legal expenses related to the investigation and
remediation of the sites.
One site was added to the United States Environmental Protection
Agency (USEPA) Superfund list on August 30, 1990. On September
30, 1992 the IEPA, in consultation with the USEPA, decided that
the long-term remedial plan for this site should consist of a
ground-water pump-and-treat program. The IEPA and CIPS entered
into an agreement, which received required court approval on
March 14, 1994, for CIPS to carry out the remedial action with
the IEPA providing oversight. It is not known at this time what
specific remedial action will be required at the other 12 sites.
In 1987, CIPS filed a lawsuit against a number of insurance
carriers seeking full indemnification for all costs in connection
with certain environmental sites. On May 10, 1995, the Illinois
-10-
Supreme Court denied CIPS' petition for leave to appeal its
decision upholding an Illinois Appellate Court reversal of a
circuit court verdict in favor of CIPS. Lawsuits against all
insurance carriers have either been settled or dismissed.
The estimated incurred costs relating to studies and remediation
at these 13 sites and associated legal expenses are being accrued
and deferred rather than expensed currently, pending recovery
through rates, or from other parties. At September 30, 1995,
$41.5 million has been deferred representing costs incurred and
estimates for costs of completing studies at various sites and an
estimate of remediation costs at the Superfund site. The total
of the costs deferred, net of recoveries from insurers and
through rate riders described below, was $4.1 million at
September 30, 1995.
In 1992, the Illinois Commerce Commission (the "Illinois
commission") issued an Order (the "Generic Order") in its
consolidated generic proceeding regarding appropriate ratemaking
treatment of cleanup costs incurred by Illinois utilities with
respect to environmental remediation sites. The Generic Order
indicates that allowed cleanup costs may include prudently
incurred costs of investigation, assessment and cleanup of
environmental remediation sites, as well as litigation costs,
including those involved in insurance recovery claims. The
Generic Order authorizes utilities, including CIPS, to propose a
mechanism to recover cleanup costs which is consistent with the
provisions of the Generic Order. Such a mechanism must, among
other things, provide for (1) recovery of cleanup costs over a
five-year period, excluding carrying costs associated with the
unrecovered balance of cleanup costs from the time that the
recovery mechanism becomes effective; (2) a return to ratepayers
over a five-year amortization period of any reimbursement of
cleanup costs received from insurance carriers or other parties;
and (3) a prudence review of each utility's expenditures. The
Generic Order was upheld on appeal by the Third District Illinois
Appellate Court. That decision held that a rate rider mechanism
is an appropriate means for utilities to recover cleanup costs.
The matter was appealed to the Illinois Supreme Court which, on
April 20, 1995, issued an opinion which held that (i) clean-up
costs are recoverable in rates; and (ii) use of a rider mechanism
for recovery of such costs is appropriate. The Court also held
that the evidence in the generic proceeding did not support the
Illinois commission's decision to deny recovery of carrying costs
associated with the unrecovered balance of clean-up costs.
Accordingly, the Supreme Court reversed the Generic Order of the
Illinois commission with regard to the recovery of carrying costs
and remanded the case to the Illinois commission for further
proceedings consistent with the Court's opinion. The Illinois
commission has instituted such proceedings and all parties have
agreed to a joint order which provides for the continued accrual
of carrying charges associated with the unrecovered balance of
clean-up costs as of the date of the Supreme Court order (April
20, 1995). A proposed order to that effect is under review by
the Illinois commission.
-11-
On March 26, 1993, the Illinois commission approved CIPS'
proposed environmental cost-recovery rate riders, effective with
April 1993 billings to customers. Known as the electric
environmental adjustment clause and the gas environmental
adjustment clause, the riders are designed to enable CIPS to
recover from its customers costs associated with cleanup of the
environmental remediation sites, along with associated legal
expenses, over a five-year period on terms consistent with the
Generic Order. The environmental adjustment clause riders
provide for an annual review of amounts recovered through the
riders. Amounts found to have been incorrectly included would be
subject to refund. Through December 31, 1993, CIPS had collected
$2.9 million from its customers pursuant to the riders. Pursuant
to monthly filings made by CIPS under the riders, no additional
amounts have been collected from customers under the riders since
January 1994. On April 6, 1994, the Illinois commission
initiated a reconciliation proceeding to review CIPS'
environmental remediation activities and determine whether the
revenues collected under the riders in 1993 are consistent with
the amount of remediation costs prudently incurred.
The total costs to be incurred for the cleanup of these sites or
the possible recovery from other parties cannot be estimated.
Management believes that any costs incurred in connection with
the sites that are not recovered from insurance carriers or other
parties will be recovered through utility rates. Accordingly,
management believes that costs incurred in connection with these
sites will not have a material adverse effect on the financial
position, results of operations or liquidity of the Company or
CIPS.
FERC ORDER 636 - During 1992, the Federal Energy Regulatory
Commission ("FERC") issued Order No. 636. This and successor
orders have resulted in substantial restructuring of the service
obligations of interstate pipeline suppliers. Order 636 provided
mechanisms for pipelines to recover transition costs associated
with the restructuring. CIPS has paid substantially all direct
transition costs associated with the pipeline restructuring and
is currently recovering all transition costs in its rates. Any
future transition costs identified and billed from pipeline
suppliers are expected to be recoverable from customers of CIPS.
FERC PROPOSES RULEMAKING TO CREATE OPEN ACCESS TRANSMISSION
SERVICE - In March 1995, the FERC issued a notice of proposed
rulemaking (NOPR) through which the FERC intends to require all
utilities subject to its jurisdiction to provide electric
transmission service on a non-discriminatory basis to all
interested parties. Under the NOPR as currently proposed the
"open access" tariffs which are likely to be required are tariffs
designed to provide transmission access to other utility systems
on a basis comparable to the way a utility utilizes its own
electric system. The proposed rules are designed to increase
competition in bulk power markets. CIPS cannot predict when FERC
-12-
will take final action on the NOPR or whether it will be adopted
in its present form. CIPS does not anticipate that operating
revenues or expenses will change materially as a result of the
NOPR. Accordingly, management believes that the NOPR will not
have a material adverse effect on financial position, results of
operations or liquidity of the Company or CIPS.
CLEAN AIR ACT - CIPS' current compliance strategy to meet Phase I
and II of the sulfur dioxide emission reduction requirements of
the Clean Air Act Amendments of 1990 (Amendments) is to switch to
a lower sulfur coal at some of its units along with increased
scrubbing with its existing scrubber at Newton Unit 1. The
currently estimated capital costs of compliance based on the
current strategy are included in the five-year construction
forecast. The forecast has an estimate of $40 million for
environmental compliance including compliance with regulations
under the Clean Air Act. However, the five-year construction
costs may increase if studies being undertaken by CIPS indicate
that renovations to the Newton Unit 1 scrubber are required to
allow existing or additional levels of scrubbing or if such
studies indicate that CIPS should change its compliance strategy
to place more reliance on fuel switching.
In 1991, in accordance with the plan to switch some units to
lower sulfur coal, CIPS signed a long-term coal contract with an
existing supplier for lower sulfur Illinois coal. Due to the
magnitude of the supplier's capital investment, the contract
includes a graduated termination charge. In 1995, CIPS can
terminate the contract under certain conditions, and CIPS would
be required to pay approximately $41 million (plus an inflation
adjustment) in termination charges. During 1995, and each
subsequent year, the termination charge is reduced according to a
formula using tons of coal purchased. The termination charge
would not be effective if CIPS terminated the contract due to
failure of the coal to meet quality specifications provided for
in the contract.
LABOR DISPUTES - The International Union of Operating Engineers
Local 148 and the International Brotherhood of Electrical Workers
Local 702 have both filed unfair labor practice charges with the
National Labor Relations Board (NLRB) relating to the legality of
the lockout by CIPS of both unions during 1993. The Peoria
Regional Office of the NLRB has issued complaints against CIPS
concerning its lockout of both unions. Both unions seek, among
other things, back pay and other benefits for the period of the
lockout. CIPS estimates the amount of back pay and other
benefits for both unions to be less than $12 million dollars. A
hearing, before an administrative law judge of the NLRB, was
completed on April 25, 1995. Management believes the lockout was
both lawful and reasonable and that the final resolution of the
disputes will not have a material adverse effect on financial
position, results of operations or liquidity of the Company or
CIPS.
-13-
OTHER ISSUES - CIPS is involved in other legal and administrative
proceedings before various courts and agencies with respect to
rates, taxes, gas and electric fuel cost reconciliations, service
area disputes, environmental torts and other matters. Although
unable to predict the outcome of these matters, management
believes that appropriate liabilities have been established and
that final disposition of these actions will not have a material
adverse effect on financial position, results of operations or
liquidity of the Company or CIPS.
Note 3. REGULATORY ASSETS AND LIABILITIES
__________________________________________
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for Effects of Certain Types of Regulation," applies
to regulated entities whose rates are designed to recover the
cost of providing service to customers through the ratemaking
process. SFAS No. 71 allows certain costs that would normally be
reflected in net income to be deferred on the balance sheet as
regulatory assets. These costs are then amortized as the related
amounts are reflected in rates. Under current accounting
pronouncements, if a loss becomes probable, any unamortized
balance, net of tax, would reduce net income. (See Note 4.)
The Company continually reviews regulatory assets and
liabilities. As shown below, the Company is in a net regulatory
liability position at September 30, 1995, and currently believes
that there would be no material adverse impact on results of
operations, financial position or liquidity if the Company or
CIPS were to discontinue application of SFAS No. 71.
-14-
The components of regulatory assets and liabilities at September
30, 1995 are:
Description Amount
___________ ______
(in thousands)
Regulatory Assets:
Deferred environmental remediation costs $ 4,096
Other deferrals - primarily
FERC 636 and Take-or-Pay costs 1,851
Unamortized costs relating to reacquired
debt 13,694
________
Total Regulatory Assets - in
Other assets on balance sheet $ 19,641
========
Regulatory Liabilities:
Clean Air Act credits, net $ 1,430
SFAS 109 - Income Taxes, net 67,550
________
Total Regulatory Liabilities, Net $ 68,980
========
Regulatory Liabilities Net of Regulatory Assets $ 49,339
========
-15-
Note 4. SFAS NO. 121
_____________________
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," which was issued in March 1995
and will be effective on January 1, 1996, establishes accounting
standards for the impairment of long-lived assets. SFAS No. 121
also requires that regulatory assets which are no longer probable
of recovery through future revenue to be charged to earnings.
SFAS No. 121 is not expected to have an impact on the financial
position, results of operations or liquidity of the Company or
CIPS upon adoption.
Note 5. VOLUNTARY SEPARATION PROGRAM
_____________________________________
Early in 1995, the Company offered a voluntary separation program
to most of its salaried employees, which was accepted by 151
employees in February 1995. The Company recorded a $6.3 million
one-time charge in the first quarter of 1995 based on estimates
of the cost of separation benefits provided under the program.
The detailed costs of the program consisted of separation
payments of $5.5 million, educational benefits of $.4 million,
and medical benefits of $.4 million. The separation payments
were dependent upon ending salary and number of years employed,
and ranged from 6 months to a maximum of 12 months pay per
individual. The one-time charge reduced first quarter 1995
earnings by 11 cents per share. The Company estimates that the
payback period (time frame over which resulting benefits will be
derived through reduced operating expenses resulting from the
program) will be approximately two years.
Note 6. MERGER AGREEMENT
_________________________
On August 11, 1995, CIPSCO entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Union Electric Company, a
Missouri corporation ("UE"), Arch Holding Corp., a newly formed
Missouri corporation (which was recently renamed as Ameren
Corporation) 50% owned by CIPSCO and 50% owned by UE ("Ameren"),
and Arch Merger Inc., a newly formed Missouri corporation and
wholly owned subsidiary of Ameren ("Merger Sub"), pursuant to
which, among other things, Merger Sub will be merged with and
into UE and CIPSCO will be merged with and into Ameren (the
"Mergers"), with the result that UE and Central Illinois Public
Service Company, an Illinois corporation and the wholly owned
operating subsidiary of CIPSCO, as well as other direct
subsidiaries of CIPSCO, will continue as wholly owned operating
subsidiaries of Ameren. As a result of the Mergers, each
outstanding share of UE's common stock, par value $5.00 per share
("UE Common Stock"), (other than shares with respect to which
dissenters' rights are perfected under applicable state laws)
will be converted into the right to receive one share of common
-16-
stock of Ameren, par value $0.01 per share ("Ameren Common
Stock"), each outstanding share of UE's preferred stock, without
par value, (other than shares with respect to which dissenters'
rights are perfected under applicable state laws), will remain
outstanding and unchanged and each outstanding share of CIPSCO's
common stock, without par value ("CIPSCO Common Stock")
(including shares with respect to which dissenters' rights are
perfected under applicable state laws) will be converted into the
right to receive 1.03 shares of Ameren Common Stock (or cash in
lieu of fractional shares otherwise deliverable in respect
thereof). The business combination is intended to be tax-free
for income tax purposes and to be accounted for as a "pooling of
interests."
Simultaneous with their execution and delivery of the Merger
Agreement, UE and CIPSCO entered into stock option agreements
(the "Stock Option Agreements"), pursuant to one of which UE
granted CIPSCO the right, upon the terms and subject to the
conditions set forth therein, to purchase up to 6,983,233 shares
of Common Stock at a price of $35.94 per share, and pursuant to
the other of which CIPSCO granted UE the right, upon the terms
and subject to the conditions set forth therein, to purchase up
to 6,779,838 shares of CIPSCO Common Stock at a price of $37.02
per share.
After the Mergers, Ameren will become a registered public utility
holding company under the Public Utility Holding Company Act of
1935, as amended. The Mergers are conditioned upon, among other
things, approval by holders of two-thirds of the Common Stock and
of the preferred stock, without par value, of UE voting together
as a single class, by holders of two-thirds of the CIPSCO Common
Stock, and upon receipt of certain regulatory and governmental
approvals.
The Merger Agreement and certain related matters will be
submitted to shareholders of UE and CIPSCO for approval at
meetings expected to be held later this year. Also, in November
1995, UE filed an application for approval of the merger
with the Missouri Public Service Commission and CIPSCO and UE
filed a joint application for approval of the merger with the
Illinois Commerce Commission. Shortly thereafter, UE and CIPSCO
will file a joint application for approval of the merger with the
Federal Energy Regulatory Commission. In those applications, UE
and CIPSCO seek recovery of merger transaction costs and a
sharing of net merger savings between ratepayers and
shareholders. The merger is expected to be consummated by the
end of 1996.
-17-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company and Union Electric Company entered into a Merger
Agreement dated August 11, 1995. Information concerning the
agreement is included in Note 6 to the Condensed Notes to
Financial Statements of this report.
The following discussion and analysis of financial condition and
results of operations is for CIPSCO Incorporated and Subsidiaries
("Company") unless otherwise stated.
THE OUTLOOK
CIPS currently estimates that its total construction expenditures
for the 1995-1999 period will be about $449 million, including
about $7 million of allowance for funds used during construction.
In addition to funds for construction, projected capital
requirements for the remainder of 1995 and for the 1996-1999
period include $108 million for scheduled debt retirements.
Capital requirements for the 1995-1999 period are expected to be
met primarily through internally generated funds. External
financing to fund scheduled debt retirements may be required.
Included in the five-year construction forecast is an estimate of
$40 million for environmental compliance, including compliance
with regulations under the Clean Air Act Amendments of 1990.
CIPS is evaluating alternatives for reducing fuel costs and other
expenses while maintaining environmental compliance. Maintaining
the current compliance strategy, or adoption of certain
alternatives in fuel and/or environmental strategies, could
result in substantial increases in capital expenditures in the
1995-1999 period from the amounts shown above. Additional
external financing could be required.
On June 9, 1995 CIPS issued $20 million First Mortgage Bonds,
Medium-Term Note Series 1995-1, 6.49%, due June 1, 2005. The
proceeds of this issue together with other funds were used for
general corporate purposes, including replacement of funds used
to pay at maturity the CIPS $10,000,000 First Mortgage Bonds,
Series I, 4-1/2%, due May 1, 1993 and $20,000,000 First Mortgage
Bonds, Series J, 4-1/2%, due May 1, 1994. CIPS has an effective
shelf registration statement on file with the Securities and
Exchange Commission which permits the issuance of an aggregate of
up to $30 million of first mortgage bonds, medium-term notes
and/or preferred stock. Other financing under the shelf will be
for general corporate purposes including replacing funds used to
pay the $15,000,000 First Mortgage Bonds, Series K, 4-5/8%, due
June 1, 1995.
-18-
For the first nine months of 1995, 97% of CIPS' total capital
requirements were provided from internal sources.
Common stock dividends paid for the twelve months ended September
30, 1995, resulted in a payout ratio of 82% of the Company's
earnings to common shareholders. Common stock dividends paid to
the Company's common shareholders in relation to net cash
provided by operating activities for the same period were 41%.
In connection with consummation of the Mergers contemplated by
the Merger Agreement described in Note 6 to the Condensed Notes
to Financial Statements, it is expected that the Company will
incur $9.3 million of transaction costs. Through September 30,
1995 these transaction costs were not material. The
Company expects that these transaction costs for 1995 will approximate
$4.6 million (14 cents per share) and will be reflected in
operating results for the fourth quarter.
FINANCIAL CONDITION
Financial condition and changes in total Shareholder Equity of
the Company and CIPS for the nine-month periods ended September
30, 1995 and 1994 are as follows:
Nine Months Ended
September 30,
________________________
(in thousands)
The Company: 1995 1994
_________ _________
Common Shareholders' Equity
Net income $ 67,185 $ 67,560
Common stock dividends paid (51,786) (50,820)
Other (85) (54)
________ ________
Change in Shareholders' Equity $ 15,314 $ 16,686
======== ========
Nine Months Ended
September 30,
________________________
(in thousands)
CIPS: 1995 1994
_________ _________
Common Shareholder's Equity
Earnings for common stock $ 63,824 $ 63,864
Common stock dividends paid (52,500) (51,400)
Other (86) (53)
________ ________
Change in Shareholder's Equity $ 11,238 $ 12,411
======== ========
OVERVIEW
The Company's earnings per share were $1.22 for the quarter ended
September 30, 1995, compared to $1.00 per share earned during the
-19-
same period in 1994. The increase primarily reflects higher
electric sales due to hotter-than-normal temperatures in the
third quarter this year compared to cooler-than-normal conditions
a year ago. The Company's earnings per share were $1.97 for the
nine months ended September 30, 1995, compared to $1.98 per share
earned during the same period in 1994. The decrease is a result
of lower revenues from wholesale power supply agreements due to
expiration at year-end 1994 of a portion of a power supply
agreement with a wholesale electric customer, and the one-time
cost of the voluntary separation program effected in the first
quarter of 1995 (see Note 5), both nearly offset by the increase
in electric sales during the third quarter of 1995 previously
mentioned.
The following table summarizes the components of consolidated net
income and CIPS earnings for common stock for both the three- and
nine-month periods ended September 30, 1995 and 1994 (see Results
of Operations for further discussion). In this table, electric
operating margin equals electric operating revenues less revenue
taxes, fuel for electric generation and purchased power. Gas
operating margin equals gas operating revenues less revenue taxes
and gas costs.
Third Quarter Nine Months Ended
Ended September 30, September 30,
___________________ __________________
1995 1994 1995 1994
________ ________ ________ ________
CIPS
Electric operating
margin $147,944 $131,649 $336,393 $328,457
Gas operating margin 7,471 7,341 34,089 33,085
Other deductions and
interest expenses (114,090) (105,088) (303,762) (295,110)
CIPS preferred stock
dividends (957) (889) (2,896) (2,568)
________ ________ ________ ________
Total earnings
for common stock 40,368 33,013 63,824 63,864
________ ________ ________ ________
NON-UTILITY
Investment revenues 2,381 2,213 5,440 6,151
Other deductions
and expenses (1,018) (970) (2,079) (2,455)
________ ________ ________ ________
Total non-utility
net income 1,363 1,243 3,361 3,696
________ ________ ________ ________
Consolidated net
income $ 41,731 $ 34,256 $ 67,185 $ 67,560
======== ======== ======== ========
-20-
RESULTS OF OPERATIONS
The results of operations of the Company and CIPS for the three-
and nine-month periods ended September 30, 1995, compared to the
same periods in 1994 are presented below.
The Company
Net Income
(in thousands) Earnings Per Share
________________________ ________________________
Three Months Nine Months Three Months Nine Months
____________ ___________ ____________ ___________
1995 $41,731 $67,185 $1.22 $1.97
1994 34,256 67,560 1.00 1.98
_______ _______ _____ _____
Increase
(Decrease) $ 7,475 $ (375) $ .22 $(.01)
======= ======= ===== =====
Percent
Increase
(Decrease) 22 % (1)% 22 % (1)%
CIPS
Earnings for Common Stock
(in thousands)
__________________________________
Three Months Nine Months
____________ ___________
1995 $40,368 $63,824
1994 33,013 63,864
_______ _______
Increase
(Decrease) $ 7,355 $ (40)
======= =======
Percent
Increase 22 % 0 %
OPERATING REVENUES
The changes in electric and gas revenues described below are for
the Company. The only differences between changes in electric
and gas operating revenues for the Company and for CIPS are
intercompany revenues that are eliminated in the consolidated
financial statements. These intercompany amounts are immaterial.
-21-
Electric revenues increased 15% in the third quarter of 1995
compared to the third quarter of 1994 reflecting higher KWH sales
due principally to hotter weather in 1995. KWH sales to
residential and commercial customers increased 21% and 9%,
respectively, due to the hotter weather while industrial electric
sales, which are less weather sensitive, declined 3%. The
decline in industrial sales was primarily attributable to two
industrial customers which ceased operations in 1995. Public
authorities and other revenues increased 59% in the third quarter
of 1995 compared to the same period in 1994 due to inclusion in
this category, in 1995, of gains on disposition of clean air
emission credits which are included in revenues, but returned to
customers through the fuel adjustment clause. Power supply
agreement revenues for the third quarter of 1995 were 6% below
those of the third quarter 1994 due to expiration at year-end
1994 of a portion of a power supply contract with a wholesale
electric customer. Economy and emergency interchange sales and
sales to cooperatives and municipals increased in the third
quarter of 1995 compared to the same quarter in 1994 due
primarily to the hotter weather in 1995.
Electric revenues and KWH sales increased 1% for the first nine
months of 1995 compared to the same period in 1994 principally
due to the warmer temperatures in the summer months of 1995.
Electric revenues to residential and commercial customers
increased 9% and 2%, respectively, for the first nine months of
1995 compared to 1994 due to increased sales caused by the hotter
summer in 1995. Industrial revenues declined 2% due to a 1%
decline in industrial electric sales, which are less weather
sensitive. The decline in industrial sales was primarily
attributable to two industrial customers which ceased operations in
1995. Public authorities and other revenues increased 44% in the
first nine months of 1995 compared to the same period of 1994 due
to inclusion in this category, in 1995, of gains on disposition
of clean air emission credits which are included in revenues, but
returned to customers through the fuel adjustment clause. Power
supply agreement revenues for the first nine months of 1995 are
12% below those of the first nine months of 1994 due to
expiration at year-end 1994 of a portion of a power supply
contract with a wholesale electric customer. Economy and
emergency interchange revenues declined 9% in the first nine
months of 1995 compared to the same period in 1994 due to lower
margins on the opportunity sales to other utilities.
-22-
The changes in electric revenue and KWH sales are shown below:
CHANGES IN ELECTRIC REVENUE AND KILOWATTHOUR SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
____________________________________________________________________
Third Quarter Nine Months
_________________________________ _________________________________
Revenue Rev % KWH KWH % Revenue Rev % KWH KWH %
________ _____ _________ _____ ________ _____ _________ _____
Residential $ 16,574 25 % 157,028 21 % $14,624 9 % 118,009 6 %
Commercial 5,954 12 58,331 9 2,558 2 27,584 1
Industrial 144 0 (20,634) (3) (1,702) (2) (22,006) (1)
Public Authorities
and Other 2,116 59 1,205 3 4,584 44 5,881 5
________ _______ ________ ________
Total Retail $ 24,788 16 % 195,930 9 % $20,064 5 % 129,468 2 %
Power Supply
Agreements $ (1,166) (6)% 64,923 16 % $(7,209) (12)% (43,061) (4)%
Interchange Sales
(economy/emergency) 4,784 26 109,002 11 (5,082) (9) (1,235) -
Cooperatives and
Municipals 1,025 18 16,579 13 100 1 8,757 2
________ _______ ________ ________
Total Sales for
Resale $ 4,643 10 % 190,504 12 % $(12,191) (9)% (35,539) (1)%
________ _______ ________ ________
Total $ 29,431 15 % 386,434 11 % $ 7,873 1 % 93,929 1 %
======== ======= ======== ========
Gas revenues decreased 13% in the third quarter of 1995 compared
to the same period in 1994 even though gas sales increased 24%.
The revenue decline was principally due to lower purchased gas
costs in 1995 which flow through to revenues through the
Purchased Gas Adjustment clause (PGA). The commercial and
industrial gas revenue decline of 14% and 33%, respectively, in
the third quarter of 1995 over the same period in 1994 is due to
both the decline in purchased gas costs discussed above, and to
more customers transporting their own gas in 1995. Gas
transportation revenues declined 6% in the third quarter of 1995
even though therms transported increased 47% over the same
quarter in 1994. The increase in transported therms and reduced
revenue in 1995 was caused by a change in the method of billing
one large customer where revenues were reduced with corresponding
reductions in the amount charged to gas costs.
Gas revenues decreased 13% in the first nine months of 1995
compared to the same period in 1994 due to milder weather in 1995
and lower purchased gas costs which flow through to revenues
through the PGA. Residential gas revenues declined 9% in the
first nine months of 1995 compared to 1994 due to milder weather
in 1995. The commercial and industrial gas revenue decline of
14% and 39%, respectively, in the first nine months of 1995 over
the same period in 1994 is due to both the decline in purchased
gas costs discussed above, and to more customers transporting
their own gas in 1995. Gas transportation revenues declined 7%
in the first nine months of 1995 even though therms transported
-23-
increased 16% over the same period in 1994. The increase in
transported therms and reduced revenue in 1995 was caused by a
change in the method of billing one large customer where revenues
were reduced with corresponding reductions in the amount charged
to gas costs.
The changes in gas revenues and therm sales are shown below.
CHANGES IN GAS REVENUE AND THERM SALES
INCREASE (DECREASE) FROM PRIOR YEAR
(in thousands)
____________________________________________________________________
Third Quarter Nine Months
_________________________________ _________________________________
Therms Therms
Revenue Rev % Therms % Revenue Rev % Therms %
________ _____ _________ ______ ________ _____ _________ ______
Residential $ (587) (7)% 246 3 % $(5,891) (9)% (7,856) (8)%
Commercial (419) (14) (120) (3) (2,981) (14) (3,890) (10)
Industrial (803) (33) (970) (14) (3,873) (39) (8,300) (30)
Transportation (108) (6) 11,451 47 (379) (7) 14,029 16
Miscellaneous 5 15 - - (77) (20) - -
________ ______ ________ ________
Total $ (1,912) (13)% 10,607 24 % $(13,201) (13)% (6,017) (2)%
======== ====== ======== ========
OPERATIONS
__________
Fuel for electric generation increased 17% in the third quarter
of 1995 compared to the third quarter of 1994. The increase
corresponds to the higher retail sales levels in the third
quarter of 1995. Fuel for electric generation decreased 3% in
the first nine months of 1995 compared to 1994 because less
generation was required for fewer sales due to the milder weather
in the first half of 1995.
Purchased power increased 31% for the third quarter and 11% for
the nine months ended September 30, 1995 compared with the same
periods in 1994 reflecting an increase in marketable purchases
made for resale to interchange economy and emergency customers.
Gas costs declined 27% for the third quarter and 22% for the
first nine months of 1995 compared to the same periods in 1994
due to declines in gas requirements for the CIPS system and
because of a substantially lower average cost per therm.
Other operation expenses increased 2% in the third quarter of
1995 compared to 1994 primarily due to general escalation in
operating expenses. Other operation expenses increased 4% in the
first nine months of 1995 compared to the same period in 1994
primarily due to a $6.3 million charge relating to the voluntary
separation program offered to most salaried employees in February
1995. This charge was partially offset by reduced operating
expenses in the remainder of the nine-month period.
-24-
Maintenance expenses increased 11% in the third quarter and 3%
for the first nine months of 1995 compared to the same periods of
1994 due primarily to the scheduled timing of maintenance
projects between periods.
Depreciation and amortization expense increased 4% in the third
quarter and 3% for the first nine months of 1995 compared to 1994
due to normal plant additions.
Significant changes in the balance sheet accounts at September
30, 1995 compared to balances at December 31, 1994 are:
Fuel for electric generation, at average cost, increased 32% for
the first nine months of 1995 due primarily to the additional
purchase of coal to cover anticipated contract shortages which
did not occur.
Other assets increased 33% for the first nine months of 1995 due
primarily to an increase in non-utility energy related
investments, the deferral of expenses relating to business
systems development costs, and environmental remediation costs.
Other liabilities increased 63% for the first nine months of 1995
due primarily to postretirement medical costs accrued monthly
during 1995 but not funded until year-end.
-25-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(1) Reference is made to the fifth paragraph under Item 3.
Legal Proceedings in Part I on page 25 in the CIPSCO
and CIPS combined 1994 Annual Report on Form 10-K (the
"1994 Form 10-K") and to paragraph (2) under Item 1.
Legal Proceedings in Part II on page 21 of the CIPSCO
and CIPS combined Form 10-Q Quarterly Report for the
quarter ended June 30, 1995 for information regarding
May, et al v. Central Illinois Public Service Company
and Hanson Engineers, Inc. On October 5, 1995, the
court granted the plaintiffs' petition for voluntary
dismissal of the lawsuit. It is management's
expectation that the plaintiffs will file a new
complaint, possibly before year-end 1995. A defendant
in the case, Hanson Engineers, Inc., has been dismissed
from the lawsuit. CIPS will continue to vigorously
defend the action and believes it has meritorious
defenses. Management believes that final disposition
of this matter will not have a material adverse effect
on financial position, results of operations or liquidity
of the Company or CIPS.
Item 5. Other Information
(1) Reference is made to Item 1. Business - Competition --
Electric Business on page 9 in the 1994 Form 10-K for a
discussion of the manner in which the competitive
process appears to be evolving in the electric utility
industry. At a recent meeting of the Technical
Advisory Group of the Joint Committee on Electric
Utility Reform, the management of CIPS discussed a CIPS
proposal on competition and restructuring of the
electric utility industry. CIPS' proposal centers
around a two-step process. The first step would
involve a three-year initial phase in which, beginning
January 1, 1999, new retail electric customers with
load of 5,000 kilowatts or greater, or customers with
incremental additions to retail load of 5,000 kilowatts
or greater, would be allowed direct access to Illinois
public utilities, municipal power systems or electric
cooperatives, other than their own local utility
company, on a reciprocal basis. The second step of the
proposal would allow, beginning January 1, 2002, any
existing retail customer with electric load of 5,000
kilowatts or greater to have direct access to such
suppliers on the same basis.
(2) Two Illinois electric utilities recently filed with the
Illinois commission proposed "open access" programs
which would establish a pilot program under which
-26-
customers within the authorized service area of each
such utility would have the opportunity to obtain
electric power from a supplier other than such utility.
CIPS is monitoring the Illinois commission proceedings
in which these proposals are being considered.
(3) Reference is made to paragraph (6) under Item 5. Other
Information in Part II on page 21 of the CIPSCO and
CIPS combined Form 10-Q Quarterly Report for the
quarter ended March 31, 1995 for information regarding
the docket opened by the Illinois commission for
purposes of revising the current purchased gas
adjustment (PGA) clause mechanism. On October 3, 1995,
the Illinois commission issued a final order in this
matter. The order denies the proposal made by the
Citizens Utility Board to remove pipeline demand
charges and supplier demand charges from the PGA and
instead recover them through base rates. The order
does not allow sharing of "off-system" revenues between
the utility and its customers as had been proposed by
CIPS and other gas utilities. The order requires such
revenues to be flowed back to customers through the
PGA. Management believes that implementation of the
revised PGA mechanism will not have a material adverse
effect on financial position, results of operations
or liquidity of the Company or CIPS.
(4) MERGER AGREEMENT WITH UNION ELECTRIC COMPANY
As reported in its Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, CIPSCO, on August 11,
1995, entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Union Electric Company.
Further information concerning the Merger Agreement and
proposed merger transaction is included in Note 6 to
the Condensed Notes to Financial Statements in Part I
of this report. Details of the proposed transaction
will be included in the Joint Proxy Statement/
Prospectus which will be sent to the shareholders of
both parties in connection with shareholder voting on
the merger.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information
combines the historical balance sheets and statements
of income of CIPSCO and Union Electric, including their
respective subsidiaries, after giving effect to the
Mergers. The unaudited pro forma combined condensed
balance sheet at September 30, 1995 gives effect to the
Mergers as if they had occurred at September 30, 1995.
The unaudited pro forma combined condensed statements
of income for the nine-month periods ended September
30, 1995 and 1994, and the twelve-month period ended
September 30, 1995 give effect to the Mergers as if
-27-
they had occurred at the beginning of the periods
presented. These statements are prepared on the basis
of accounting for the Mergers as a pooling of interests
and are based on the assumptions set forth in the notes
thereto. In addition, the pro forma financial
information does not give effect to the expected
synergies of the transaction.
The following pro forma financial information has been
prepared from, and should be read in conjunction with,
the historical financial statements and related notes
thereto of CIPSCO and Union Electric. The following
information is not necessarily indicative of the financial
position or operating results that would have occurred had the
Mergers been consummated on the date, or at the
beginning of the periods, for which the Mergers are
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, 1995 and 1994 are not
necessarily indicative of trends for any twelve-month
period.
-28-
AMEREN CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
AT SEPTEMBER 30, 1995
(Thousands of Dollars)
As Reported (Note 1) Pro Forma
_______________________ Adjustments Pro Forma
UE CIPSCO (Notes 2, 9) Combined
ASSETS ___________ __________ ____________ ___________
Property and plant
Electric $8,441,276 $2,287,538 $ 374,294 $11,103,108
Gas 169,820 223,660 - 393,480
Other 35,007 - - 35,007
__________ __________ __________ ___________
8,646,103 2,511,198 374,294 11,531,595
Less accumulated depreciation and amortization 3,454,662 1,115,529 246,430 4,816,621
__________ __________ __________ ___________
5,191,441 1,395,669 127,864 6,714,974
Construction work in progress:
Nuclear fuel in process 109,353 - - 109,353
Other 100,187 51,940 1,389 153,516
__________ __________ __________ ___________
Total property and plant, net 5,400,981 1,447,609 129,253 6,977,843
Regulatory asset - deferred income taxes (Note 6) 726,788 45,589 - 772,377
Other assets:
Unamortized debt expense 45,733 16,813 673 63,219
Nuclear decommissioning trust fund 69,124 - - 69,124
Investments in nonregulated activities - 98,539 - 98,539
Other 22,635 41,332 (2,014) 61,953
__________ __________ __________ ___________
Total other assets 137,492 156,684 (1,341) 292,835
Current assets:
Cash and temporary investments 75,025 9,185 327 84,537
Accounts receivable, net 270,534 78,261 21,665 370,460
Unbilled revenue 58,983 16,993 - 75,976
Materials and supplies, at average cost -
Fossil fuel 55,434 39,595 6,890 101,919
Other 95,038 51,606 5,600 152,244
Other 34,031 13,430 3,527 50,988
__________ __________ __________ ___________
Total current assets 589,045 209,070 38,009 836,124
__________ __________ __________ ___________
Total Assets $6,854,306 $1,858,952 $ 165,921 $ 8,879,179
========== ========== ========== ===========
CAPITAL AND LIABILITIES
Capitalization:
Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372
Other stockholders' equity (Note 2) 1,848,477 308,098 866,059 3,022,634
__________ __________ __________ ___________
Total common stockholders' equity 2,359,096 664,910 - 3,024,006
Preferred stock of subsidiary 219,147 80,000 - 299,147
Long-term debt 1,764,343 478,850 130,000 2,373,193
__________ __________ __________ ___________
Total capitalization 4,342,586 1,223,760 130,000 5,696,346
Minority interest in consolidated subsidiary - - 3,534 3,534
Accumulated deferred income taxes 1,348,881 324,041 (5,842) 1,667,080
Accumulated deferred investment tax credits 168,068 53,074 - 221,142
Regulatory liability 219,525 114,569 - 334,094
Accumulated provision for nuclear decommissioning 70,797 - - 70,797
Other deferred credits and liabilities 160,417 - 5,613 166,030
Current liabilities:
Current maturity of long-term debt 69,295 - - 69,295
Short-term debt - - 6,800 6,800
Accounts payable 107,436 48,955 20,101 176,492
Wages payable 33,982 11,260 - 45,242
Taxes accrued 209,132 23,473 86 232,691
Interest accrued 57,372 8,610 2,885 68,867
Other 66,815 51,210 2,744 120,769
__________ __________ __________ ___________
Total current liabilities 544,032 143,508 32,616 720,156
__________ __________ __________ ___________
Total Capital and Liabilities $6,854,306 $1,858,952 $ 165,921 $ 8,879,179
========== ========== ========== ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
-29-
AMEREN CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,4,10) (Notes 1,3) (Notes 2,9) Combined
_____________ _____________ ____________ ____________
OPERATING REVENUES:
Electric $ 1,613,570 $ 544,886 $ 138,378 $ 2,296,834
Gas 60,480 87,523 - 148,003
Other 318 5,860 244 6,422
____________ ___________ __________ ____________
Total operating revenues 1,674,368 638,269 138,622 2,451,259
OPERATING EXPENSES:
Operations
Fuel and purchased power 280,690 189,447 74,097 544,234
Gas Costs 35,051 48,322 - 83,373
Other 277,491 113,897 14,452 405,840
____________ ___________ __________ ____________
593,232 351,666 88,549 1,033,447
Maintenance 163,342 46,690 14,038 224,070
Depreciation and amortization 174,369 62,280 11,866 248,515
Income taxes (Note 7) 188,492 41,826 6,208 236,526
Other taxes 166,944 43,133 1,496 211,573
____________ ___________ __________ ____________
Total operating expenses 1,286,379 545,595 122,157 1,954,131
OPERATING INCOME 387,989 92,674 16,465 497,128
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 4,758 600 - 5,358
Minority interest in consolidated subsidiary - - (3,396) (3,396)
Miscellaneous, net (8,772) 1,915 (5,153) (12,010)
____________ ___________ __________ ____________
Total other income and deductions, net (4,014) 2,515 (8,549) (10,048)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 383,975 95,189 7,916 487,080
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 101,770 25,157 7,916 134,843
Allowance for borrowed funds used during
construction (4,661) (49) - (4,710)
Preferred dividends of subsidiaries (Note 8) 9,938 2,896 - 12,834
____________ ___________ __________ ____________
Net interest charges and preferred dividends 107,047 28,004 7,916 142,967
NET INCOME $ 276,928 $ 67,185 $ - $ 344,113
============ =========== ========== ============
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.71 $1.97 $2.51
===== ===== =====
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.
-30-
AMEREN CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1994
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Note 1) (Note 1) (Notes 2,9) Combined
_____________ _____________ ____________ ____________
OPERATING REVENUES:
Electric $ 1,586,088 $ 537,013 $ 181,129 $ 2,304,230
Gas 62,653 100,724 - 163,377
Other 343 6,660 108 7,111
____________ ___________ __________ ____________
Total operating revenues 1,649,084 644,397 181,237 2,474,718
OPERATING EXPENSES:
Operations
Fuel and purchased power 256,906 190,014 117,952 564,872
Gas Costs 45,928 61,835 - 107,763
Other 280,216 109,795 14,380 404,391
____________ ___________ __________ ____________
583,050 361,644 132,332 1,077,026
Maintenance 140,105 45,378 13,465 198,948
Depreciation and amortization 168,135 60,610 9,035 237,780
Income taxes (Note 7) 194,065 42,247 7,787 244,099
Other taxes 165,299 42,972 1,480 209,751
____________ ___________ __________ ____________
Total operating expenses 1,250,654 552,851 164,099 1,967,604
OPERATING INCOME 398,430 91,546 17,138 507,114
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 4,340 504 - 4,844
Minority interest in consolidated subsidiary - - (4,110) (4,110)
Miscellaneous, net 3,259 2,673 (6,193) (261)
____________ ___________ __________ ____________
Total other income and deductions, net 7,599 3,177 (10,303) 473
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 406,029 94,723 6,835 507,587
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 107,774 24,826 6,835 139,435
Allowance for borrowed funds used during
construction (3,838) (231) - (4,069)
Preferred dividends of subsidiaries (Note 8) 9,939 2,568 - 12,507
____________ ___________ __________ ____________
Net interest charges and preferred dividends 113,875 27,163 6,835 147,873
NET INCOME $ 292,154 $ 67,560 $ - $ 359,714
============ =========== ========== ============
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.86 $1.98 $2.62
===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,107,706 1,023,231 137,254,771
============ =========== ========== ============
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
-31-
AMEREN CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1995
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,4,10) (Notes 1,3) (Notes 2,9) Combined
_____________ _____________ ____________ ____________
OPERATING REVENUES:
Electric $ 1,997,016 $ 705,300 $ 202,438 $ 2,904,754
Gas 83,936 125,218 - 209,154
Other 448 7,969 317 8,734
____________ ___________ __________ ____________
Total operating revenues 2,081,400 838,487 202,755 3,122,642
OPERATING EXPENSES:
Operations
Fuel and purchased power 353,345 251,300 113,763 718,408
Gas Costs 49,218 71,530 - 120,748
Other 372,846 144,170 20,024 537,040
____________ ___________ __________ ____________
775,409 467,000 133,787 1,376,196
Maintenance 220,997 66,488 19,649 307,134
Depreciation and amortization 232,279 82,769 16,607 331,655
Income taxes (Note 7) 200,848 48,661 8,160 257,669
Other taxes 212,122 56,178 1,945 270,245
____________ ___________ __________ ____________
Total operating expenses 1,641,655 721,096 180,148 2,542,899
OPERATING INCOME 439,745 117,391 22,607 579,743
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 6,186 726 - 6,912
Minority interest in consolidated subsidiary - - (4,840) (4,840)
Miscellaneous, net (11,629) 2,744 (7,257) (16,142)
____________ ___________ __________ ____________
Total other income and deductions, net (5,443) 3,470 (12,097) (14,070)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 434,302 120,861 10,510 565,673
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 135,108 33,551 10,510 179,169
Allowance for borrowed funds used during
construction (6,336) (107) - (6,443)
Preferred dividends of subsidiaries (Note 8) 13,250 3,838 - 17,088
____________ ___________ __________ ____________
Net interest charges and preferred dividends 142,022 37,282 10,510 189,814
NET INCOME $ 292,280 $ 83,579 $ - $ 375,859
============ =========== ========== ============
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.86 $2.45 $2.74
===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,078,037 1,022,341 137,224,212
============ =========== ========== ============
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
-32-
AMEREN CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Reclassifications have been made to certain "as reported" account
balances reflected in CIPSCO's and Union Electric's financial
statements to conform to this reporting presentation (See Notes 6,
7 and 8). All other financial statement presentation and
accounting policy differences are immaterial and have not been
adjusted in the pro forma combined condensed financial statements.
2. The pro forma combined condensed financial statements reflect the
conversion of each share of Union Electric Common Stock ($5 par
value) outstanding into one share of Ameren Common Stock ($.01
par value) and the conversion of each share of CIPSCO Common Stock
(no par value) outstanding into 1.03 shares of Ameren Common
Stock, as provided in the Merger Agreement. The pro forma combined
condensed financial statements are presented as if the companies
were combined during all periods included therein.
3. Net income for the nine months and twelve months ended September
30, 1995 includes a pre-tax charge of $6.3 million for CIPSCO's
voluntary separation program.
4. The allocation between Union Electric and CIPSCO and their
customers of the estimated cost savings resulting from the Mergers,
net of the costs incurred to achieve such savings, will be subject
to regulatory review and approval. Transaction costs are currently
estimated to be approximately $22 million (including fees for
financial advisors, attorneys, accountants, consultants, filings
and printing). None of these estimated cost savings or the costs
to achieve such savings have been reflected in the pro forma
combined condensed financial statements. However, net income for
the nine months and twelve months ended September 30, 1995 includes
a charge with a $9 million impact on net income for merger transaction
costs.
5. Intercompany transactions (including purchased and exchanged power
transactions) between Union Electric and CIPSCO during the periods
presented were not material and, accordingly, no pro forma
adjustments were made to eliminate such transactions.
6. CIPSCO's regulatory asset related to deferred income taxes was
reclassified from the regulatory liability account balance to
conform to this reporting presentation.
7. CIPSCO's income taxes are reflected as operating expenses to
conform to this reporting presentation.
8. Currently, the Union Electric Preferred Stock is not issued by a
subsidiary; subsequent to the Merger, the Union Electric Preferred
Stock will be issued by a subsidiary of Ameren. As a result,
Union Electric's preferred dividend requirements have been
reclassified to conform to this reporting presentation.
-33-
9. Pro forma adjustments have been made to consolidate the financial
results of Electric Energy, Inc. (EEI), which will, in substance,
be a 60% owned subsidiary of Ameren subsequent to the Merger.
Prior to the Merger, Union Electric and CIPSCO held 40% and 20%
ownership interests, respectively, in EEI and accounted for these
investments under the equity method of accounting. All
intercompany transactions between Union Electric, CIPSCO and EEI
have been eliminated.
10. Net income for the nine and twelve months ended September 30, 1995
includes a one-time credit to Missouri electric customers which
reduced revenues and pre-tax income of Union Electric by $30
million.
-34-
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
Exhibit 12 Computation of Ratio of Earnings to
Fixed Charges and Computation of
Ratio of Earnings to Fixed Charges
plus Preferred Stock Dividend
Requirements Before Income Taxes for
CIPS.
Exhibit 27.1 Financial Data Schedule for CIPSCO
(required for electronic filing only
in accordance with Item 601(c)(1) of
Regulation S-K).
Exhibit 27.2 Financial Data Schedule for CIPS
(required for electronic filing only
in accordance with Item 601(c)(1) of
Regulation S-K).
(B) Reports on Form 8-K:
None
-35-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, CIPSCO Incorporated, has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
CIPSCO Incorporated
Date: November 13, 1995 /s/ L. E. Marlett
L. E. Marlett
Controller
(Chief Accounting Officer)
-36-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, Central Illinois Public Service Company, has duly caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Central Illinois Public Service Company
Date: November 13, 1995 /s/ L. E. Marlett
L. E. Marlett
Controller
(Principal Accounting Officer)
-37-
CIPSCO INCORPORATED AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Exhibit No. Description
___________ ___________
Exhibit 12 Computation of Ratio of Earnings
to Fixed Charges and Computation of
Ratio of Earnings to Fixed Charges
plus Preferred Stock Dividend
Requirements Before Income Taxes for
CIPS.
Exhibit 27.1 Financial Data Schedule for CIPSCO
Exhibit 27.2 Financial Data Schedule for CIPS
-38-