1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
Commission file number 1-2967.
UNION ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Missouri 43-0559760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Chouteau Avenue, St. Louis, Missouri 63103
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (314) 621-3222
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
--- ---
Shares outstanding of each of registrant's classes of common stock as of
October 31, 1996:
Common Stock, $5 par value - 102,123,834
(excl. 42,990 treasury shares)
2
UNION ELECTRIC COMPANY
INDEX
Page No.
Part I Financial Information (Unaudited)
Balance Sheet --
September 30, 1996 and December 31, 1995 2
Statement of Income --
Three Months, Nine Months and Twelve Months Ended
September 30, 1996 and 1995 3
Statement of Cash Flows --
Nine Months Ended September 30, 1996 and 1995 4
Notes to Financial Statements 5 & 6
Management's Discussion and Analysis 7 thru 11
Part II Other Information
3
UNION ELECTRIC COMPANY
BALANCE SHEET Page 2
UNAUDITED
ASSETS: (Thousands of Dollars) September 30, December 31,
- ------- 1996 1995
Property and plant, at original cost ------------ ------------
Electric $8,580,945 $8,319,632
Gas 181,899 174,231
Other 35,959 35,033
---------- ----------
8,798,803 8,528,896
Less accumulated depreciation and amortization 3,633,370 3,465,699
---------- ----------
5,165,433 5,063,197
Construction work in progress:
Nuclear fuel in process 115,960 85,916
Other 64,990 125,934
---------- ----------
Total property and plant, net 5,346,383 5,275,047
Regulatory assets:
Deferred income taxes 696,852 732,580
Other 181,855 193,593
---------- ----------
Total regulatory assets 878,707 926,173
Deferred charges:
Unamortized debt expense 10,721 11,293
Nuclear decommissioning trust fund 85,629 73,838
Other 28,272 20,101
---------- ----------
Total deferred charges 124,622 105,232
Current assets:
Cash 19,427 1,025
Accounts receivable - trade (less allowance for doubtful
accounts of $5,701 and $6,925 at respective dates) 248,862 191,520
Unbilled revenue 57,595 82,098
Other accounts and notes receivable 26,640 21,602
Materials and supplies, at average cost -
Fossil fuel 67,205 46,381
Construction and maintenance 99,305 92,921
Other 12,672 12,470
---------- ----------
Total current assets 531,706 448,017
---------- ----------
Total Assets $6,881,418 $6,754,469
========== ==========
CAPITAL AND LIABILITIES:
- ------------------------
Capitalization:
Common stock, $5 par value, authorized 150,000,000 shares-
102,123,834 outstanding (excl. 42,990 at par value in treasury) $ 510,619 $ 510,619
Other paid-in capital 717,669 717,669
Retained earnings 1,178,543 1,090,909
---------- ----------
Total common stockholders' equity 2,406,831 2,319,197
Preferred stock not subject to mandatory redemption 218,497 218,497
Preferred stock subject to mandatory redemption 624 650
Capital lease obligation 71,513 62,607
Long-term debt 1,665,585 1,710,585
Unamortized discount and premium on debt (9,153) (9,579)
---------- ----------
Long-term debt, net 1,656,432 1,701,006
---------- ----------
Total capitalization 4,353,897 4,301,957
Accumulated deferred income taxes 1,322,536 1,357,689
Accumulated deferred investment tax credits 161,886 166,524
Regulatory liability 206,991 216,502
Accumulated provision for nuclear decommissioning 87,302 75,511
Other deferred credits and liabilities 152,517 150,600
Current and accrued liabilities:
Current maturity of capital lease obligation 31,490 34,462
Current maturity of long-term debt 45,000 35,000
Accounts payable 73,082 169,012
Wages payable 36,908 36,605
Bank loans - 19,600
Accumulated deferred income taxes 42,345 27,429
Income taxes accrued 113,743 29,986
Other taxes accrued 82,794 17,727
Interest accrued 53,154 46,244
Dividends accrued 3,312 3,312
Other 114,461 66,309
---------- ----------
Total current and accrued liabilities 596,289 485,686
---------- ----------
Total Capital and Liabilities $6,881,418 $6,754,469
========== ==========
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UNION ELECTRIC COMPANY
STATEMENT OF INCOME
(UNAUDITED)
(Thousands of Dollars Except Shares and Per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
---------------------- ---------------------- ------------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
Operating revenues:
Electric $733,785 $747,628 $1,716,061 $1,718,620 $2,151,551 $2,138,372
Gas 9,799 8,866 68,277 60,480 95,610 83,936
Steam 82 71 341 318 464 448
-------- -------- -------- -------- ---------- ----------
Total operating revenue 743,666 756,565 1,784,679 1,779,418 2,247,625 2,222,756
Operating expenses:
Operations
Fuel and purchased power 138,018 153,498 387,038 385,740 506,113 494,701
Other 101,395 100,386 322,169 312,542 428,748 422,064
-------- -------- -------- -------- ---------- ----------
239,413 253,884 709,207 698,282 934,861 916,765
Maintenance 49,526 52,254 159,988 163,342 218,255 220,997
Depreciation and decommissioning 60,816 58,591 180,101 174,369 238,969 232,279
Income taxes 116,681 114,422 189,546 188,492 210,595 200,848
Other taxes 63,256 63,891 166,463 166,944 211,664 212,122
-------- -------- -------- -------- ---------- ----------
Total operating expenses 529,692 543,042 1,405,305 1,391,429 1,814,344 1,783,011
Operating income 213,974 213,523 379,374 387,989 433,281 439,745
Other income and deductions:
Allowance for equity funds used
during construction 1,137 1,850 4,960 4,758 7,028 6,186
Miscellaneous, net 1,225 (10,304) (361) (8,772) 2,430 (11,629)
-------- -------- -------- -------- ---------- -----------
Total other income/deductions, net 2,362 (8,454) 4,599 (4,014) 9,458 (5,443)
Income before interest charges 216,336 205,069 383,973 383,975 442,739 434,302
Interest charges:
Interest 33,061 33,783 100,589 101,770 133,559 135,108
Allowance for borrowed funds
used during construction (1,691) (1,321) (5,669) (4,661) (7,114) (6,336)
-------- -------- -------- -------- ---------- ----------
Net interest charges 31,370 32,462 94,920 97,109 126,445 128,772
Net income 184,966 172,607 289,053 286,866 316,294 305,530
Preferred stock dividends 3,311 3,312 9,936 9,938 13,249 13,250
-------- ------- ------- --------- -------- --------
Earnings on common stock $181,655 $169,295 $279,117 $276,928 $303,045 $292,280
======== ======== ======== ======== ======== ========
Earnings per share of common stock
(based on average shares outstanding) $1.78 $1.66 $2.73 $2.71 $2.97 $2.86
===== ===== ===== ===== ===== =====
Dividends per share of common stock $0.625 $0.61 $1.875 $1.83 $2.50 $2.44
====== ===== ====== ===== ===== =====
Average number of common shares
outstanding (in thousands) 102,124 102,124 102,124 102,124 102,124 102,124
======= ======= ======= ======= ======= =======
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UNION ELECTRIC COMPANY
STATEMENT OF CASH FLOWS Page 4
UNAUDITED
(Thousands of Dollars)
Nine Months Ended
September 30,
------------------
1996 1995
---- ----
Cash Flows From Operating:
Net income $289,053 $286,866
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 172,869 167,247
Amortization of nuclear fuel 32,198 25,597
Allowance for funds used during construction (10,629) (9,419)
Postretirement benefit accrual (746) 19,569
Deferred income taxes, net 5,980 (5,641)
Deferred investment tax credits, net (4,638) (4,637)
Changes in assets and liabilities:
Receivables, net (37,877) (95,518)
Materials and supplies (27,208) 744
Accounts and wages payable (95,627) 44,798
Taxes accrued 148,824 128,288
Interest and dividends accrued or declared 6,910 1,463
Other, net 46,675 10,388
----------- ----------
Net cash provided by operating activities 525,784 569,745
Cash Flows From Investing:
Construction expenditures (241,899) (224,252)
Allowance for funds used during construction 10,629 9,419
Nuclear fuel expenditures (26,001) (30,405)
----------- ----------
Net cash used in investing activities (257,271) (245,238)
Cash Flows From Financing:
Dividends on preferred stock (9,936) (9,938)
Dividends on common stock (191,483) (186,886)
Environmental bond funds 0 4,443
Redemptions -
Nuclear fuel lease (25,659) (61,552)
Short-term debt (19,600) 0
Long-term debt (35,000) (38,000)
Preferred stock (26) (26)
Issuances -
Nuclear fuel lease 31,593 40,967
----------- ----------
Net cash used in financing activities (250,111) (250,992)
----------- ----------
Net change in cash and cash equivalents 18,402 73,515
Cash and cash equivalents at beginning of period 1,025 1,510
----------- ----------
Cash and cash equivalents at end of period $ 19,427 $ 75,025
=========== ==========
Supplemental disclosure of cash flow information:
Cash and cash equivalents include cash on hand and temporary
investments purchased with a maturity of three months or less
Cash paid during the period:
Interest (net of amount capitalized) $ 83,197 $ 90,684
Income taxes 105,357 138,515
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UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Financial statement note disclosures, normally included in financial
statements prepared in conformity with generally accepted accounting
principles, have been omitted in this Form 10-Q pursuant to the Rules
and Regulations of the Securities and Exchange Commission. However,
in the opinion of the registrant, the disclosures contained in this
Form 10-Q are adequate to make the information presented not
misleading. See Notes to Financial Statements included in the 1995
Annual Report on Form 10-K for information relevant to the financial
statements contained in this Form 10-Q, including information as to
the significant accounting policies of the registrant.
Note 2 - In the opinion of the registrant the interim financial statements
filed as part of this Form 10-Q reflect all adjustments, consisting
only of normal recurring adjustments, necessary to a fair statement
of the results for the periods presented. Registrant's financial
statements were prepared to permit the information required in the
Financial Data Schedule (FDS), Exhibit 27, to be directly extracted
from the filed statements. The FDS amounts correspond to or are
calculable from the amounts reported in the financial statements or
notes thereto.
Note 3 - Due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for
the periods ended September 30, 1996 and 1995 are not necessarily
indicative of trends for any three-month, nine-month or twelve-month
period.
Note 4 - On July 21, 1995, the Missouri Public Service Commission approved an
agreement involving the registrant's Missouri electric rates. The
agreement provided for a 1.8 percent rate decrease for all classes of
Missouri retail electric customers, effective August 1, 1995,
reducing annual revenues by $30 million. In addition, a $30 million
credit was provided to Missouri electric customers in the third
quarter 1995 under the agreement. Also included is a three-year plan
which provides that earnings in excess of a 12.61 percent regulatory
return on equity (ROE) will be shared equally between customers and
shareholders and earnings above a 14 percent ROE will be credited to
customers. The formula for computing the credit uses twelve-month
results ending June 30, rather than calendar year earnings. During
the first six months of 1996, the registrant recorded an estimated
$45 million credit for the first year of the plan. This credit was
reflected as a reduction in electric revenues.
Note 5 - On July 12, 1996, a joint agreement was filed with the Missouri
Public Service Commission (MPSC) that recommends approval of the
merger between the registrant and CIPSCO Incorporated. The
registrant, the Missouri Public Service Commission staff, the Office
of the Public Counsel, several customer groups and others signed the
agreement. Agreement provisions include a new three-year alternative
regulation plan that would run from July 1, 1998 to June 30, 2001.
Like the current plan (see Note 4 above), the new plan provides that
earnings over a 12.61 percent ROE up to a 14 percent ROE would be
shared equally between customers and shareholders. The new
three-year plan would also return to customers 90 percent of all
earnings above an ROE of 14 percent up to 16 percent. Earnings above
a 16 percent ROE would be credited entirely to customers. Other
agreement provisions include: recovery over a 10-year period of the
Missouri portion of an estimated $71.5 million of merger-related
transaction and transition costs; a Missouri electric rate decrease,
effective September 1, 1998, based on the weather-adjusted average
annual credits to customers under the current alternative regulation
plan (see Note 4 above); and an experimental retail wheeling pilot
program for 100 megawatts of electric power to be filed by the
registrant no later than March 1, 1997. Also, as part of the
agreement, the registrant will not seek to recover in Missouri the
merger premium. The exclusion of the merger premium from rates would
not result in a charge to earnings. On September 25, 1996, the MPSC
ordered that additional information be filed in November 1996 in
connection with the merger proceeding. The MPSC is expected to issue
a decision on the merger in early 1997.
7
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UNION ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
Note 5 - (Continued)
On November 7, 1996, the Hearing Examiner for the Illinois Commerce
Commission issued a proposed order in connection with the
registrant's and CIPSCO's merger proceedings. In the proposed order,
the Hearing Examiner recommended that the merger between the
registrant and CIPSCO be approved. In addition, the Hearing Examiner
recommended that a decision on the registrant's and CIPSCO's
proposals for sharing merger savings be made after the merger. The
registrant and CIPSCO will be required to file a rate case or
alternative regulation plan within one year after closing of the
merger whereby an appropriate sharing of net merger savings between
stockholders and customers will be determined at that time. The
Hearing Examiner also recommended that the registrant's and CIPSCO's
proposed transfer of the registrant's existing Illinois electric and
gas facilities to CIPS be denied, but recommended that the joint
dispatch agreement be approved. A final order from the Illinois
Commerce Commission is expected by the end of 1996.
On October 16, 1996, the Federal Energy Regulatory Commission (FERC)
set the proposed merger for hearing. The FERC directed the presiding
administrative law judge in the case to issue an initial decision no
later than April 30, 1997. The FERC is expected to issue a decision
on the merger by the end of 1997.
Note 6 - In October 1996, the registrant resolved various financial reporting
matters with the FERC. The resolution of these matters resulted in
the reclassification of certain costs from electric plant and nuclear
fuel in process to other regulatory assets, as well as the
reclassification of interchange sales from purchased power expenses
to electric revenues. These reclassifications were made to all
prior-year financial data to conform with 1996 reporting. These
reclassifications did not have a material adverse effect on the
registrant's financial position, results of operations or liquidity.
Note 7 - At September 30, 1996, and December 31, 1995, the registrant had
recorded the following regulatory assets and regulatory liabilities:
Regulatory Assets: September 30, December 31,
(In Thousands) 1996 1995
------------ -----------
Income taxes $696,852 $732,580
Callaway costs 112,086 115,079
Contract termination costs 20,468 25,806
Department of Energy decommissioning assessment 18,456 19,505
Unamortized loss on reacquired debt 30,845 33,203
-------- --------
Total regulatory assets $878,707 $926,173
======== ========
Regulatory Liability:
(In Thousands)
Income taxes $206,991 $216,502
======== ========
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UNION ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS
The registrant and CIPSCO Incorporated entered into a Merger Agreement
dated August 11, 1995, which was approved by the shareholders of both companies
in December 1995. The merged entity is expected to realize approximately $644
million in net savings over 10 years from combining certain operations of the
two companies and is expected to adopt Union Electric's dividend payment level.
However, the merger is conditioned upon, among other things, receipt of certain
regulatory and governmental approvals. The merger is expected to be
consummated by the end of 1997. (See Note 5 to the Financial Statements of
this report.)
RESULTS OF OPERATIONS
Third-quarter 1996 common stock earnings increased $12.4 million, or 12
cents per share, from 1995's third quarter to $181.7 million, or $1.78 per
share. Common stock earnings for the nine months ended September 30, 1996
totaled $279.1 million, or $2.73 per share, an increase of $2.2 million, or 2
cents per share, from the same 1995 period. Common stock earnings for the
twelve months ended September 30, 1996 were $303 million, or $2.97 per share, a
$10.8 million, or 11 cent-per-share, increase from the preceding twelve-month
period.
Earnings and earnings per share fluctuated due to many conditions, the
primary ones being: weather variations, electric rate reductions, credits to
electric customers, sales growth, fluctuating operating costs and
merger-related costs. The significant items affecting revenues, costs and
earnings during the three-month, nine-month and twelve-month periods ended
September 30, 1996 and 1995 are detailed below:
Electric Operating Revenues
- ---------------------------
(Millions of Dollars) Variations for periods ended September 30, 1996
from comparable prior-year periods
---------------------------------------------------
Three Months Nine Months Twelve Months
------------ ----------- -------------
Rate variations $(4.1) $(19.6) $(26.0)
Credits to customers 32.6 (13.3) (13.3)
Effect of abnormal weather (81.9) (66.0) (48.0)
Growth and other 44.7 91.6 97.5
Interchange sales (5.1) 4.7 3.0
------ ------ ------
$(13.8) $ (2.6) $ 13.2
====== ====== ======
The $13.8 million decrease in third-quarter electric revenues compared
to the year-ago quarter is primarily due to lower kilowatthour sales resulting
from milder summer weather. Third-quarter 1996 kilowatthour sales decreased 4
percent from the same quarter of 1995. Weather-sensitive residential and
commercial sales declined 11 percent and 2 percent, respectively, while
industrial sales grew 2 percent compared to the year-ago quarter. Interchange
sales decreased 6 percent compared to the same prior-year period.
The decrease in quarterly revenues was partly offset by growth in the
registrant's service area, as well as by a one-time credit to Missouri electric
customers recorded in the 1995 third quarter. (See Note 4 to the Financial
Statements of this report.)
Electric revenues for the first nine months of 1996 decreased $2.6
million as increased kilowatthour sales were more than offset by the effects of
the rate decrease and the net increase in customer credits during the period.
(See Note 4 to the Financial Statements of this report.) Year-to-date
kilowatthour sales were up 3 percent from the comparable 1995 period.
Residential, commercial and industrial sales each rose 3 percent, and
interchange sales grew 6 percent. These increases reflect the positive effects
of strong economic growth in the registrant's service area and leap year,
partly offset by milder weather.
9
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UNION ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
Electric revenues for the twelve months ended September 30, 1996
increased $13.2 million over the prior twelve-month period. The increase is
due to a 4 percent increase in kilowatthour sales over the comparable year-ago
period, partly offset by the rate decrease and the net increase in customer
credits recorded during the period. (See Note 4 to the Financial Statements of
this report.) The kilowatthour sales increase reflects strong economic growth
in the registrant's service area, partially offset by milder weather during the
period. Residential sales rose 5 percent, and commercial, industrial and
interchange sales each grew 3 percent.
Operating Expenses
Fuel and Purchased Power Variations for periods ended September 30, 1996
- ------------------------ from comparable prior-year periods
(Millions of Dollars) ----------------------------------------------
Three Months Nine Months Twelve Months
------------ ----------- -------------
Fuel:
Variation in generation $ (0.1) $ 10.4 $ 8.5
Price (5.3) (22.3) (24.3)
Generation efficiencies (0.5) 3.2 4.6
Department of Energy assessment 0.1 (0.5) (0.7)
Purchased power variation (9.7) 10.5 23.3
------ ------ ------
$(15.5) $ 1.3 $ 11.4
====== ====== ======
The decline in fuel and purchased power costs for the three months
ended September 30, 1996 versus the comparable prior year quarter was primarily
due to lower kilowatthour sales, reflected in reduced purchased power costs,
and decreased fuel prices.
The increases in fuel and purchased power costs for the nine months and
twelve months ended September 30, 1996 versus the comparable prior-year periods
were driven mainly by higher kilowatthour sales. Increases in purchased power
costs and generation were partially offset by lower fuel prices.
Other Operating Expenses
Other operating expense variations reflect recurring conditions such as
growth, inflation and wage increases.
Third-quarter 1996 operations expenses other than fuel and purchased
power were up $1 million over last year's third quarter primarily due to higher
gas purchased for resale costs. Third-quarter maintenance expenses declined $3
million primarily due to decreased expenses at the Callaway nuclear plant.
Year-to-date operations expenses other than fuel and purchased power
increased $10 million over the first nine months of 1995 primarily due to
higher gas purchased for resale costs. Maintenance expenses declined $3
million as decreased Callaway expenses, caused by the absence of a nuclear
plant refueling in the 1996 period compared to the prior-year nine-month
period, more than offset increased fossil-plant expenses.
For the twelve months ended September 30, 1996, operations expenses
other than fuel and purchased power were up $7 million versus the comparable
year-ago period. The rise is primarily due to higher gas purchased for resale
costs and increased labor expenses, partially offset by a decrease in employee
benefits expenses, and a reduction in injuries, damages and insurance premiums
expenses. Maintenance expenses for the current twelve-month period decreased
$3 million as increased fossil-plant maintenance expenses were more than offset
by reduced Callaway and tree-trimming expenses.
10
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UNION ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
Depreciation expense for the three-month, nine-month and twelve-month
periods ended September 30, 1996 increased $2 million, $6 million and $7
million, respectively, versus comparable 1995 periods, primarily due to
increases in depreciable property.
Income taxes charged to operating expenses for the three months ended
September 30, 1996 increased $2 million versus the comparable 1995 period,
primarily due to higher pretax income. Income taxes charged to operating
expenses for the nine months and twelve months ended September 30, 1996
increased $1 million and $10 million, respectively, versus the comparable 1995
periods, principally due to a higher effective tax rate.
Other Income and Deductions
Miscellaneous other net income and deductions for the three-month and
nine-month periods ended September 30, 1996 increased $12 million and $8
million, respectively, versus the comparable 1995 periods primarily due to
merger-related expenses. Merger-related expenses totaled $1 million for the
third quarter of 1996 compared to $9 million in 1995.
Miscellaneous other net income and deductions increased $14 million for
the twelve months ended September 30, 1996, versus the comparable 1995 period,
primarily reflecting reduced charitable contributions and merger-related
expenses. Merger-related expenses totaled $5 million during the twelve months
ended September 30, 1996, compared to $9 million in the prior-year period.
Interest
Interest charges for the twelve months ended September 30, 1996
decreased $2 million versus the prior-year period, primarily due to a reduction
of debt outstanding and lower rates on variable-rate long-term debt.
Allowance for Funds Used During Construction (AFC)
Variations in AFC track construction work in progress and changes were
not significant for the reporting periods. During the twelve-month periods
ended September 30, 1996 and 1995, AFC rates averaged 9.1 percent and 9.2
percent, respectively.
Balance Sheet
The $33 million increase in accounts receivable and unbilled revenues
is due primarily to higher kilowatthour sales and revenues in August and
September 1996 compared to November and December 1995.
Changes in accounts payable, income taxes accrued and other tax
accruals result from the timing of various payments to taxing authorities and
suppliers.
The $48 million increase in other current and accrued liabilities at
September 30, 1996 compared to December 31, 1995 is primarily due to the
estimated $45 million Missouri customer credit. (See Note 4 to the Financial
Statements of this report.)
Rate Matters
See Notes 4 and 5 under Notes to Financial Statements of this report.
11
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UNION ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
On April 24, 1996 the Federal Energy Regulatory Commission (FERC)
issued Orders 888 and 889 which are intended to promote competition in the
wholesale electric energy market. FERC requires transmission-owning public
utilities, such as the registrant, to provide transmission access and service
to others in a manner similar and comparable to that which the utility has by
virtue of ownership. In Order 888, FERC requires that a single tariff be used
by the utility in providing transmission service. Order 888 also provides for
the recovery of stranded costs. On July 9, 1996, the registrant filed an open
access tariff under FERC Order 888. On September 25, 1996, the FERC set the
open access tariff filing for hearing. The hearings are scheduled to begin
April, 1997.
Order 889 established the Standards of Conduct and information
requirements that transmission owners must adhere to in doing business under
the open access rule. Under Order 889, utilities must obtain transmission
service for their own use in the same manner its customers will obtain service,
thus mitigating market power through control of transmission facilities. In
addition under Order 889, utilities must separate their merchant function
(buying and selling wholesale power) from their transmission and reliability
functions.
Based on its preliminary analysis, the registrant believes that Orders
888 and 889, which relate to its wholesale business, will not have a material
adverse effect on its financial condition, results of operations or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by the registrant's operations totaled $526 million for
the nine months ended September 30, 1996 compared to $570 million during the
same 1995 period.
Cash flows used in investing activities totaled $257 million and $245
million for the nine months ended September 30, 1996 and 1995, respectively.
Construction expenditures for the nine months ended September 30, 1996 were for
constructing new or improving existing facilities, purchasing railroad coal
cars and complying with the Clean Air Act. In addition, the registrant
expended $26 million for the acquisition of nuclear fuel. Capital requirements
for the remainder of 1996 are expected to be principally for construction
expenditures and the acquisition of nuclear fuel.
Cash flows used in financing activities were $250 million for the nine
months ended September 30, 1996, compared to $251 million during the same 1995
period. The registrant's principal financing activities for the nine months
ended September 30, 1996 were the redemption of $35 million of First Mortgage
Bonds, $20 million of short-term debt bank loans and the payment of dividends.
On July 19, 1996, the registrant's Board of Directors declared a quarterly
dividend of 62.5 cents per common share which was paid to shareholders
September 30, 1996. Common stock dividends paid for the twelve months ended
September 30, 1996 resulted in a pay out rate of 84% of the registrant's
earnings to common shareholders. Dividends paid to registrant's common
shareholders relative to net cash provided by operating activities for the same
period were 43%. On October 11, 1996, the registrant's Board of Directors
increased the quarterly common stock dividend to 63.5 cents per share.
The registrant plans to utilize short-term debt as support for normal
operations and other temporary requirements. The registrant is authorized by
the FERC to have outstanding at any one time up to $600 million of short-term
unsecured debt instruments. Short-term borrowings of the registrant consist of
bank loans (maturities generally on an overnight basis) and commercial paper
(maturities generally within 10-45 days). At September 30, 1996, the
registrant had committed banks lines of credit aggregating $169 million (of
which all was unused at such date) which make available interim financing at
various rates of interest based on LIBOR, the bank certificate of deposit rate,
or other options, and in support of which the registrant pays to its lending
banks annual fees up to 0.10%. These lines of credit are renewable annually at
various dates throughout the year. The registrant also has bank credit
agreements due 1999 which permit the registrant to borrow up to $300 million
and $200 million, respectively, on a long-term basis. At September 30, 1996,
no such borrowings were outstanding.
12
Page 11
UNION ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS (Continued)
Additionally, the registrant has a lease agreement which provides for
the financing of nuclear fuel. At September 30, 1996, the maximum amount which
could be financed under the agreement was $120 million. Cash provided from
financing for the nine months ended September 30, 1996 included issuances for
nuclear fuel of $32 million offset by $26 million of redemptions. At September
30, 1996, $103 million was financed under the lease.
13
Page 12
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION
AMEREN CORPORATION
On August 11, 1995, the registrant and CIPSCO Incorporated ("CIPSCO")
entered into an Agreement and Plan of Merger, which was subsequently approved
by the shareholders of both parties. The merger ("Merger") is further
conditioned on, among other things, receipt of regulatory and governmental
approvals, and will result in a newly formed holding company, Ameren
Corporation. The following unaudited pro forma financial information combines
the historical balance sheets and statements of income of the registrant and
CIPSCO, including their respective subsidiaries, after giving effect to the
Merger. The unaudited pro forma combined condensed balance sheet at September
30, 1996 gives effect to the Merger as if it had occurred at September 30,
1996. The unaudited pro forma combined condensed statements of income for the
nine-month periods ended September 30, 1996 and 1995, and the twelve-month
period ended September 30, 1996, give effect to the Merger as if it had
occurred at the beginning of the periods presented. These statements are
prepared on the basis of accounting for the Merger as a pooling of interests
and are based on the assumptions set forth in the notes thereto. In addition,
the pro forma financial information does not give effect to the expected
synergies of the transaction.
The following pro forma financial information has been prepared from,
and should be read in conjunction with, the historical financial statements and
related notes thereto of the registrant and CIPSCO. The following information
is not necessarily indicative of the financial position or operating results
that would have occurred had the Merger been consummated on the date, or at the
beginning of the periods, for which the Merger is being given effect nor is it
necessarily indicative of future operating results or financial position. In
addition, due to the effect of weather on sales and other factors which are
characteristic of public utility operations, financial results for the
nine-month periods ended September 30, 1996 and 1995, are not necessarily
indicative of trends for any twelve-month period.
Also see Part I, Note 5, Notes to Financial Statements.
14
Page 13
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
AT SEPTEMBER 30, 1996
(Thousands of Dollars)
ASSETS: As Reported (Note 1) Pro Forma
- ------- ------------------------- Adjustments Pro Forma
Property and plant UE CIPSCO (Notes 2,9) Combined
----- ------ ----------- ---------
Electric $8,580,945 $2,355,551 $ 374,452 $11,310,948
Gas 181,899 236,594 - 418,493
Other 35,959 - - 35,959
---------- ---------- ---------- -----------
8,798,803 2,592,145 374,452 11,765,400
Less accumulated depreciation and amortization 3,633,370 1,184,008 265,107 5,082,485
---------- ---------- ---------- -----------
5,165,433 1,408,137 109,345 6,682,915
Construction work in progress:
Nuclear fuel in process 115,960 - - 115,960
Other 64,990 61,546 3,922 130,458
---------- ---------- ---------- ----------
Total property and plant, net 5,346,383 1,469,683 113,267 6,929,333
Regulatory assets:
Deferred income taxes (Note 6) 696,852 42,479 - 739,331
Other 181,855 12,505 - 194,360
---------- ---------- ---------- ----------
Total regulatory assets 878,707 54,984 - 933,691
Other assets:
Unamortized debt expense 10,721 2,925 608 14,254
Nuclear decommissioning trust fund 85,629 - - 85,629
Investments in nonregulated activities - 110,808 - 110,808
Other 28,272 34,881 (3,284) 59,869
---------- ---------- ---------- ----------
Total other assets 124,622 148,614 (2,676) 270,560
Current assets:
Cash and temporary investments 19,427 13,074 9,886 42,387
Accounts receivable, net 248,862 54,274 16,816 319,952
Unbilled revenue 57,595 19,669 - 77,264
Materials and supplies, at average cost -
Fossil fuel 67,205 48,442 9,087 124,734
Other 99,305 39,827 4,540 143,672
Other 39,312 46,025 3,243 88,580
---------- ---------- ---------- ----------
Total current assets 531,706 221,311 43,572 796,589
---------- ---------- ---------- ----------
Total Assets $6,881,418 $1,894,592 $ 154,163 $8,930,173
========== ========== ========= ==========
CAPITAL AND LIABILITIES:
- ------------------------
Capitalization:
Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372
Other stockholders' equity (Note 2) 1,896,212 310,978 866,059 3,073,249
---------- ---------- ---------- ----------
Total common stockholders' equity 2,406,831 667,790 - 3,074,621
Preferred stock of subsidiary 219,121 80,000 - 299,121
Long-term debt 1,727,945 421,152 130,000 2,279,097
---------- ---------- ---------- ----------
Total capitalization 4,353,897 1,168,942 130,000 5,652,839
Minority interest in consolidated subsidiary - - 3,534 3,534
Accumulated deferred income taxes 1,322,536 332,042 (6,810) 1,647,768
Accumulated deferred investment tax credits 161,886 49,722 - 211,608
Regulatory liability 206,991 109,421 - 316,412
Accumulated provision for nuclear decommissioning 87,302 - - 87,302
Other deferred credits and liabilities 152,517 33,210 4,753 190,480
Current liabilities:
Current maturity of long-term debt 76,490 58,000 - 134,490
Short-term debt - 53,991 - 53,991
Accounts payable 73,082 42,851 16,951 132,884
Wages payable 36,908 10,727 - 47,635
Taxes accrued 238,882 12,700 8 251,590
Interest accrued 53,154 8,785 2,864 64,803
Other 117,773 14,201 2,863 134,837
---------- ---------- ---------- ----------
Total current liabilities 596,289 201,255 22,686 820,230
---------- ---------- ---------- ----------
Total Capital and Liabilities $6,881,418 $1,894,592 $ 154,163 $8,930,173
========== ========== ========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
15
Page 14
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO
-- ------ Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,4,10) (Notes 1,4,7) (Notes 2,9) Combined
-------------- ------------- ----------- ---------
OPERATING REVENUES:
Electric $1,716,061 $ 560,188 $ 130,034 $2,406,283
Gas 68,277 101,280 - 169,557
Other 341 7,464 971 8,776
---------- ---------- ---------- ----------
Total operating revenues 1,784,679 668,932 131,005 2,584,616
OPERATING EXPENSES:
Operations
Fuel and purchased power 387,038 205,023 68,671 660,732
Gas costs 42,455 60,227 - 102,682
Other 279,714 107,486 13,322 400,522
---------- ---------- ---------- ----------
709,207 372,736 81,993 1,163,936
Maintenance 159,988 43,005 13,157 216,150
Depreciation and amortization 180,101 64,810 11,341 256,252
Income taxes (Note 7) 189,546 43,260 6,128 238,934
Other taxes 166,463 43,505 1,503 211,471
---------- ---------- ---------- ---------
Total operating expenses 1,405,305 567,316 114,122 2,086,743
OPERATING INCOME 379,374 101,616 16,883 497,873
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 4,960 196 - 5,156
Minority interest in consolidated subsidiary - - (3,760) (3,760)
Miscellaneous, net (361) (2,874) (5,528) (8,763)
---------- ---------- ----------- ---------
Total other income and deductions, net 4,599 (2,678) (9,288) (7,367)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 383,973 98,938 7,595 490,506
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 100,589 27,876 7,595 136,060
Allowance for borrowed funds used during
construction (5,669) (250) - (5,919)
Preferred dividends of subsidiaries (Note 8) 9,936 2,794 - 12,730
----------- ---------- ----------- ----------
Net interest charges and preferred dividends 104,856 30,420 7,595 142,871
NET INCOME $ 279,117 $ 68,518 $ - $ 347,635
========== ========== =========== ==========
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.73 $2.01 $2.53
===== ===== =====
AVERAGE COMMON SHARES OUTSTANDING (Note 2) 102,123,834 34,069,542 1,022,086 137,215,462
=========== ========== ========= ===========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
16
Page 15
AMEREN CORPORATION
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 1,3,7) (Notes 2,9) Combined
-------------- ------------- ------------ ------------
OPERATING REVENUES:
Electric $1,718,620 $ 544,886 $ 115,808 $2,379,314
Gas 60,480 87,523 - 148,003
Other 318 5,860 244 6,422
---------- ---------- ---------- ----------
Total operating revenues 1,779,418 638,269 116,052 2,533,739
OPERATING EXPENSES:
Operations
Fuel and purchased power 385,740 189,447 51,527 626,714
Gas costs 35,051 48,322 - 83,373
Other 277,491 113,897 14,452 405,840
---------- ---------- ---------- ----------
698,282 351,666 65,979 1,115,927
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 1,391,429 545,595 99,587 2,036,611
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.
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Page 16
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1996
(Thousands of Dollars Except Shares and Per Share Amounts)
UE CIPSCO
-- ------ Pro Forma
(As Reported) (As Reported) Adjustments Pro Forma
(Notes 1,4,10) (Notes 1,3,4,7) (Notes 2,9) Combined
-------------- --------------- ----------- ----------
OPERATING REVENUES:
Electric $2,151,551 $ 718,785 $ 170,168 $3,040,504
Gas 95,610 143,363 - 238,973
Other 464 10,777 1,081 12,322
---------- ---------- ---------- ----------
Total operating revenues 2,247,625 872,925 171,249 3,291,799
OPERATING EXPENSES:
Operations
Fuel and purchased power 506,113 263,801 88,054 857,968
Gas costs 58,655 85,959 - 144,614
Other 370,093 148,958 18,018 537,069
---------- ---------- ---------- ----------
934,861 498,718 106,072 1,539,651
Maintenance 218,255 64,311 17,060 299,626
Depreciation and amortization 238,969 85,792 15,222 339,983
Income taxes (Note 7) 210,595 47,206 7,778 265,579
Other taxes 211,664 56,985 1,918 270,567
---------- ---------- ---------- ---------
Total operating expenses 1,814,344 753,012 148,050 2,715,406
OPERATING INCOME 433,281 119,913 23,199 576,393
OTHER INCOME AND DEDUCTIONS:
Allowance for equity funds used during
construction 7,028 486 - 7,514
Minority interest in consolidated subsidiary - - (4,921) (4,921)
Miscellaneous, net 2,430 (7,088) (8,283) (12,941)
----------- ---------- ----------- ----------
Total other income and deductions, net 9,458 (6,602) (13,204) (10,348)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 442,739 113,311 9,995 566,045
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest 133,559 36,489 9,995 180,043
Allowance for borrowed funds used during
construction (7,114) (274) - (7,388)
Preferred dividends of subsidiaries (Note 8) 13,249 3,748 - 16,997
----------- ---------- ----------- ----------
Net interest charges and preferred dividends 139,694 39,963 9,995 189,652
NET INCOME $ 303,045 $ 73,348 $ - $ 376,393
========== ========== =========== ==========
EARNINGS PER SHARE OF COMMON STOCK
(BASED ON AVERAGE SHARES OUTSTANDING) $2.97 $2.15 $2.74
===== ===== =====
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.
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Page 17
AMEREN CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Reclassifications were made to certain "as reported" account balances
reflected in the registrant's and CIPSCO's financial statements to
conform to this reporting presentation (See Notes 6, 7 and 8). All
other financial statement presentation and accounting policy
differences were immaterial and were not adjusted in the pro forma
combined condensed financial statements.
2. The pro forma combined condensed financial statements reflect the
conversion of each share of the registrant's Common Stock ($5 par
value) outstanding into one share of Ameren Common Stock ($.01 par
value) and the conversion of each share of CIPSCO Common Stock (no par
value) outstanding into 1.03 shares of Ameren Common Stock, as provided
in the Merger Agreement. The pro forma combined condensed financial
statements are presented as if the companies were combined during all
periods included therein.
3. Net income for the twelve months ended September 30, 1996 included $5.7
million of system development expenses. Net income for the nine months
ended September 30, 1995 included CIPSCO's pre-tax charges of $5.8
million for a voluntary separation program.
4. The allocation between the registrant and CIPSCO and their customers of
the estimated cost savings resulting from the merger, net of the costs
incurred to achieve such savings, will be subject to regulatory review
and approval. Merger-related costs (which include transaction costs
and costs to achieve such savings) are currently estimated to be
approximately $73 million (including costs for financial advisors,
attorneys, accountants, consultants, filings, printing, system
integration, relocation, etc.). None of these estimated cost savings
have been reflected in the pro forma combined condensed financial
statements. However, net income for the nine months and twelve months
ended September 30, 1996 included merger-related costs of $5.3 million,
net of income taxes, for the registrant, and $4.5 million and $9.3
million, net of income taxes, for CIPSCO, respectively. Net income for
the nine months ended September 30, 1995 included merger-related costs
of $9.0 million, net of income taxes, for the registrant.
5. Intercompany transactions (including purchased and exchanged power
transactions) between the registrant and CIPSCO during the periods
presented were not material and, accordingly, no pro forma adjustments
were made to eliminate such transactions.
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 were reflected as operating expenses to conform
to this reporting presentation.
8. Currently, the registrant's Preferred Stock is not issued by a
subsidiary; subsequent to the merger, the registrant's Preferred Stock
will be issued by a subsidiary of Ameren. As a result, the
registrant's preferred dividend requirements were reclassified to
conform to this reporting presentation.
9. Pro forma adjustments were 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. The registrant and
CIPSCO hold 40% and 20% ownership interests, respectively, in EEI and
account for these investments under the equity method of accounting.
All intercompany transactions between the registrant, CIPSCO and EEI
were eliminated.
10. Net income for the nine and twelve months ended September 30, 1996
included credits for Missouri electric customers which reduced revenues
and pre-tax income of the registrant by $45 million. Net income for
the nine months ended September 30, 1995 included a credit to Missouri
electric customers which reduced revenues and pre-tax income of the
registrant by $30 million.
19
Page 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 12(a) - Computation of Ratio of Earnings to Fixed
Charges, 12 Months Ended September 30, 1996.
Exhibit 12(b) - Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend
Requirements, 12 Months Ended September 30,
1996.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION ELECTRIC COMPANY
(Registrant)
November 13, 1996 By /s/ Donald E. Brandt
--------------------------------
Donald E. Brandt
Senior Vice President
Finance and Corporate Services