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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to_________
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
1-10628 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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class on Which Registered
CIPSCO INCORPORATED
Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
None
Securities registered pursuant to Section 12(g) of the Act:
CIPSCO INCORPORATED, None
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY,
Cumulative Preferred Stock, par value $100 per share
Depositary Shares, each representing one-fourth of a share of 6.625%
Cumulative
Preferred Stock, par value $100 per share
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
Aggregate market value at February 1, 1997 of the voting stock held by
non-affiliates of CIPSCO Incorporated (CIPSCO) - $1,225,131,400 - Common
Stock, without par value. Number of shares outstanding of each of CIPSCO's
classes of common stock at February 1, 1997: 34,069,542 shares of Common
Stock, without par value.
Aggregate market value at February 1, 1997 of the voting stock held by
non-affiliates of Central Illinois Public Service Company (CIPS) -
$20,124,700 - Cumulative Preferred Stock (par value $100 per share) [Note:
Excludes value of 400,000 shares of Cumulative Preferred Stock for which
CIPS has been unable to determine market value.] Number of shares
outstanding of each of CIPS' classes of common stock at February 1, 1997:
25,452,373 shares of Common Stock, without par value (all owned by CIPSCO).
Documents Incorporated By Reference:
A portion of CIPSCO's Proxy Statement relating to its 1997 Annual
Meeting of Shareholders is incorporated by reference in Part III hereof.
A portion of CIPS' Proxy Statement relating to its 1997 Annual Meeting
of Shareholders is incorporated by reference in Part III hereof.
===========================================================================
CIPSCO INCORPORATED
AND
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business
CIPSCO Incorporated and its Subsidiaries . . . . . . 5
General . . . . . . . . . . . . . . . . . . . . . . 5
Merger. . . . . . . . . . . . . . . . . . . . . . . 5
Non-Utility Subsidiary - CIPSCO Investment Company . 6
General . . . . . . . . . . . . . . . . . . . . . . 6
Utility Subsidiary - Central Illinois Public
Service Company. . . . . . . . . . . . . . . . . . 6
General . . . . . . . . . . . . . . . . . . . . . . 6
Revenues. . . . . . . . . . . . . . . . . . . . . . 7
Competition -- General. . . . . . . . . . . . . . . 9
Competition -- Electric Business. . . . . . . . . . 9
Competition -- Gas Business . . . . . . . . . . . . 12
Utility Industry. . . . . . . . . . . . . . . . . . 12
Construction Program and Financing. . . . . . . . . 12
Rate Matters. . . . . . . . . . . . . . . . . . . . 14
Electric Operations . . . . . . . . . . . . . . . . 15
Electric Power Sales/Participation Agreements . . . 16
Gas Operations. . . . . . . . . . . . . . . . . . . 17
Fuel. . . . . . . . . . . . . . . . . . . . . . . . 18
Regulation. . . . . . . . . . . . . . . . . . . . . 19
Environmental Matters . . . . . . . . . . . . . . . 19
Employees . . . . . . . . . . . . . . . . . . . . . 21
Cautionary Factors. . . . . . . . . . . . . . . . . 22
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 22
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security Holders . . 23
Executive Officers of the Registrants . . . . . . . . . 24
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . 26
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 27
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 28
Item 8. Financial Statements and Supplementary Data . . . . . . . 38
CIPSCO Consolidated Financial Statements. . . . . . . . . 38
Report of Independent Public Accountants. . . . . . . . . 42
Notes to Consolidated Financial Statements. . . . . . . . 43
CIPS Financial Statements . . . . . . . . . . . . . . . . 64
Report of Independent Public Accountants. . . . . . . . . 68
Notes to Financial Statements . . . . . . . . . . . . . . 69
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 75
PART III
Item 10. Directors and Executive Officers of the Registrants . . . 75
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . 76
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . 76
Item 13. Certain Relationships and Related Transactions. . . . . . 77
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 77
Signatures. . . . . . . . . . . . . . . . . . . . . . . . 90
Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . 92
Note: Information included herein which relates solely to CIPSCO
Incorporated is provided solely by CIPSCO Incorporated and not by
Central Illinois Public Service Company and shall be deemed not
included in the Annual Report on Form 10-K of Central Illinois
Public Service Company.
PART I
Item 1. Business
CIPSCO INCORPORATED AND ITS SUBSIDIARIES
GENERAL. CIPSCO Incorporated (CIPSCO) was incorporated in the State
of Illinois on July 11, 1986. CIPSCO has two first-tier subsidiaries:
CIPSCO Investment Company (CIC), an investment subsidiary, and Central
Illinois Public Service Company (CIPS), an electric and gas public utility
engaged in the sale of electricity and natural gas in portions of central
and southern Illinois. CIPSCO and Subsidiaries are sometimes referred to
as the "Company."
Effective October 1, 1990, CIPSCO became the parent holding company of
CIPS. CIPSCO owns 100% of the outstanding common stock of CIPS
representing in excess of 96% of the voting securities of CIPS.
CIPSCO's business is conducted through properties and employees of
CIPS and CIPSCO reimburses CIPS for their use. Each of CIPSCO's officers
is also an officer of CIPS. CIPSCO's principal executive office is located
in Springfield, Illinois.
CIPSCO is a public-utility holding company as defined in the Public
Utility Holding Company Act of 1935 (the "Holding Company Act"), but is
exempt, by virtue of an order issued September 18, 1990, from all the
provisions of the Holding Company Act except provisions relating to the
acquisition of securities of public utility companies. CIPSCO is not
subject to regulation as a utility under the Illinois Public Utilities Act
or the Federal Power Act.
The ability of CIPSCO to pay dividends on its common stock is
dependent upon distributions made to it by CIPS, CIC and on amounts earned by
CIPSCO on its other investments.
MERGER. On August 11, 1995, CIPSCO entered into an Agreement and Plan
of Merger (the "Merger Agreement") providing for a business combination
(the "merger") with Union Electric Company ("UE"), of St. Louis, Missouri
subject to approval of CIPSCO and UE shareholders and various regulatory
approvals. Pursuant to the Merger Agreement, a new holding company -
Ameren Corporation ("Ameren") - will become the parent of CIPS, UE and the
other direct subsidiaries of CIPSCO. Ameren will be a registered holding
company under the Holding Company Act. When the merger is completed, each
outstanding share of common stock of CIPSCO will be converted into 1.03
shares of Ameren common stock and each outstanding share of common stock of
UE will be converted into one share of Ameren common stock. The
transaction is expected to be tax-free to shareholders for federal income
tax purposes and to be accounted for as a "pooling of interests."
Shareholders of both companies approved the Merger Agreement on December
20, 1995. Following certain regulatory approvals, the merger is expected
to be effective by the end of 1997.
On February 21, 1997, the Missouri Public Service Commission entered a
final order approving the merger. Under this order, UE will continue its
alternative regulation plan through 2001 providing for sharing of earnings
resulting from, among other things, merger related savings. The order approves
recovery of the merger-related expenses (but not the merger premium) over a 10
year period. The order requires UE to take steps to participate in or form an
Independent System Operator to control operation, pricing and planning of its
transmission system.
On March 3, 1997, the Illinois Commerce Commission (the "Illinois
commission") expanded the scope of issues to be considered in reopened
proceedings on the merger which were ordered in January, 1997. The additional
issues relate to treatment of affiliate transactions and preservation of the
Illinois commission's jurisdiction in such matters in light of federal
regulation of CIPS as part of a registered public utility holding company
system.
Hearings at the Federal Energy Regulatory Commission ("FERC") on the
merger have concluded and the administrative law judge's proposed order is
expected by April 30, 1997.
Additional information relation to the merger can be found in
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Merger and in Notes 2 and 3 of the Notes to Consolidated
Financial Statements included under Item 8 of this report.
UE serves about 1,140,000 electric customers and 123,000 gas customers
in Missouri and Illinois. At December 31, 1996 it had assets of $6.9
billion. For 1996, UE had electric revenues of about $2.2 billion, gas
revenues of $99 million and net income of $291.6 million. Further
information concerning UE is contained in its Annual Report on Form 10-K
for the year ended December 31, 1996 and other reports to be filed with the
Securities and Exchange Commission. See "Unaudited Pro Forma Combined
Condensed Financial Information of CIPSCO and Union Electric" contained
under Item 14 of this report for selected historical and unaudited pro
forma combined condensed financial information of CIPSCO and UE.
NON-REGULATED SUBSIDIARY - CIPSCO INVESTMENT COMPANY
GENERAL. CIPSCO Investment Company (CIC), an Illinois corporation and
the non-regulated subsidiary of CIPSCO, was incorporated on October 2,
1990. CIC was formed for the purpose of managing non-regulated investments
and providing investment management services to CIPSCO and its affiliates.
CIC's investment portfolio principally includes common stocks, mutual
funds, hedged preferred and common stocks, equity interests in lease
transactions and energy related projects. Investments are held in the four
subsidiaries of CIC: CIPSCO Securities Company, CIPSCO Leasing Company,
CIPSCO Energy Company and CIPSCO Venture Company. CIPSCO Securities
Company invests in marketable securities, CIPSCO Leasing Company makes long-
term investments in leveraged lease transactions, CIPSCO Energy Company
makes investments in energy-related projects and CIPSCO Venture Company
makes investments within the CIPS utility service territory.
UTILITY SUBSIDIARY - CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
GENERAL. Central Illinois Public Service Company (CIPS), an Illinois
corporation, was organized in 1902. CIPS is a public utility operating
company engaged in the sale of electricity and natural gas in portions of
central and southern Illinois. CIPS generates, transmits and distributes
electricity and, through interchange agreements with other utility systems,
purchases and sells power on a firm basis, in emergency situations or when
economical to do so. CIPS sells and distributes natural gas which it
purchases from natural gas producers and other suppliers and transports
natural gas purchased by end-users directly from suppliers. The principal
executive offices of CIPS are located in Springfield, Illinois.
CIPS furnishes electric service to about 322,000 retail customers in
557 incorporated and unincorporated communities and adjacent suburban and
rural areas. See Business - Electric Operations and - Electric Power
Sales/Participation Agreements regarding certain electric power
arrangements with other utility systems.
CIPS also furnishes natural gas service to about 169,000 retail
customers in 267 incorporated and unincorporated communities and adjacent
suburban and rural areas and provides gas transportation service to about
425 end-users. CIPS furnishes both electric and natural gas service in 236
of the communities served by it.
The territory served by CIPS, located in 66 counties in Illinois, has
an estimated population of 820,000 and is devoted principally to
agriculture and diversified industrial operations. Key industries include
petroleum and petrochemical industries, food processing, metal fabrication
and coal mining.
The electric and gas utility business of CIPS is expected to provide
the major portion of CIPSCO's assets and earnings for the foreseeable
future.
REVENUES. The total operating revenues of CIPS for the year 1996 were
$886,186,000 of which about 82% was derived from the sale of electricity
and about 18% from the sale of natural gas. The retail electric revenues
were derived approximately as follows (percentage of total electric
operating revenue): 31% from residential customers, 26% from commercial
customers, 16% from industrial customers and 3% from public authorities and
other. The electric revenues from sales for resale were derived
approximately as follows (percentage of total electric operating revenue):
10% from power supply agreements, 11% from interchange sales
(economy/emergency) and 3% from full requirements service for cooperatives and
municipal customers. The natural gas revenues for the year 1996 were derived
approximately as follows: 65% from residential customers, 23% from commercial
customers, 7% from industrial customers and 5% from transportation service
customers and miscellaneous.
The sources of the operating revenues of CIPS for the years indicated
were as follows:
Electric 1996 1995 1994
(in thousands)
Residential . . . . . . . . . . . . . . . $229,865 $230,103 $213,377
Commercial. . . . . . . . . . . . . . . . 186,836 180,831 178,723
Industrial. . . . . . . . . . . . . . . . 117,113 116,030 118,917
Public authorities and other. . . . . . . 20,028 19,828 13,799
-------- -------- --------
Total retail revenues . . . . . . . . 553,842 546,792 524,816
Power supply agreements . . . . . . . . . 71,142 70,333 78,613
Interchange sales (economy/emergency) . . 82,399 64,188 71,779
Cooperatives and municipals . . . . . . . 23,451 22,196 22,250
-------- -------- --------
Total sales for resale . . . . . . . . 176,992 156,717 172,642
Total electric operating revenues. . . $730,834 $703,509 $697,458
======== ======== ========
Natural Gas 1996 1995 1994
(in thousands)
Residential . . . . . . . . . . . . . . . $101,378 $ 85,202 $ 86,919
Commercial. . . . . . . . . . . . . . . . 35,039 28,234 30,577
Industrial. . . . . . . . . . . . . . . . 11,152 8,464 12,897
Transportation service. . . . . . . . . . 7,373 7,335 7,586
Miscellaneous . . . . . . . . . . . . . . 410 375 445
-------- -------- --------
Total gas operating revenues. . . . . . $155,352 $129,610 $138,424
======== ======== ========
The portions of operating income of CIPS, before income taxes,
attributable to electric operations were approximately $148,407,000 (90%)
in 1996, $137,379,000 (92%) in 1995 and $147,070,000 (93%) in 1994. The
portions of operating income, before income taxes, attributable to gas
operations were approximately $15,817,000 (10%) in 1996, $12,192,000 (8%)
in 1995, and $11,528,000 (7%) in 1994.
Identifiable assets relating to electric and gas operations were as
follows:
1996 1995 1994
(in thousands)
Electric operations . . . . . . . . . . $1,505,767 $1,495,433 $1,469,601
Gas operations. . . . . . . . . . . . . 203,901 181,677 176,788
Other . . . . . . . . . . . . . . . . . 43,650 37,695 32,261
---------- ---------- ----------
Total assets. . . . . . . . . . . . . $1,753,318 $1,714,805 $1,678,650
========== ========== ==========
COMPETITION -- ELECTRIC BUSINESS. Competition is increasing in the
electric utility business. A description of some of the competitive
factors, including state and federal restructuring efforts, and the
potential impact of such matters on the Company and CIPS, are described in
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Consolidated Results of Operations - Regulation and
Competition. Future regulatory, legislative, technological and economic
changes can be expected to further increase competition in wholesale as well
as retail markets.
During 1996, CIPS had generating capacity sales agreements with other
utility systems which represented approximately 520 megawatts or 18% of CIPS'
total generating capacity. This reflects a reduction of 115 megawatts as a
result of a scheduled contract reduction in 1995. Other agreements expire at
various dates over the next several years. (See Business - Utility
Subsidiary - Central Illinois Public Service Company - Electric Power
Sales/Participation Agreements.) Although most of the contracts extend to
the period 2007 to 2014, contracts representing about $17 million in annual
revenues expire in 1999. When such contacts expire, CIPS may not be able to
sell the available capacity or energy at the margins provided under the existing
contracts. In addition to such wholesale power sales contracts, CIPS also
has long-term transmission service agreements with certain customers.
There are proceedings underway before the FERC regarding open access
transmission tariffs for CIPS (to be applicable prior to the proposed
merger with UE) and CIPS and UE, jointly (to be applicable after the
proposed merger). CIPS' open access transmission tariffs to be effective
before and after the proposed merger are expected to offer transmission at
rates lower than those reflected in certain existing long-term transmission
agreements. Certain customers under these long-term transmission agreements
have attempted to challenge such agreements (and one such challenge is still
pending) before FERC on the basis that the rates under these agreements are
higher than those to be available under the open access tariffs. CIPS
believes that its existing wholesale power sales agreements and
transmission service agreements are just and reasonable and should not be
altered by FERC.
Competition in the interchange sales market (economy and emergency power),
which is based primarily on price and availability of energy, has become
much more intense in recent years. Approximately 11 percent of total
electric operating revenues for 1996 were derived from interchange sales.
In 1996, two Illinois electric utilities received approval from the
Illinois commission for experimental "open access" programs which would provide
certain customers within the authorized service area of each such utility the
opportunity to obtain electric power from a supplier other than such utility.
These pilot programs differ from the regulatory reform process (as described
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Consolidated Results of Operations - Regulation and
Competition) in that they are temporary in nature and are approved under
the existing Illinois Public Utilities Act. CIPS is monitoring the
progress of both programs.
The competitive pressures on CIPS' wholesale and retail business
referred to above and in Management's Discussion could have a negative
impact on revenues and earnings. In response to these pressures, CIPS is
working closely with its wholesale, industrial and other customers to find
mutually beneficial solutions to the challenges brought about by
competition. CIPS initiated a new marketing function in 1995 and the
Company and CIPS have taken a number of other steps in recent years to
prepare for increasing competition and to reduce costs and increase sales
in light of the factors outlined above and other circumstances. For
example, CIPS has renegotiated several major coal supply contracts (see
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Consolidated Results of Operations - Coal Contract
Restructuring), instituted a business process re-engineering program and
reduced its workforce through attrition and a voluntary separation program
to reduce costs. Finally, the Company has entered into the Merger
Agreement with UE to form a strategic alliance to enhance the Company's
competitive positions. Certain of these initiatives are described further
below.
In order to assess the various opportunities emerging in the electric and
natural gas energy marketplace and to implement strategies which take
advantage of those opportunities, effective January 1, 1995, CIPS
established a new marketing function. The efforts of this new function are
being directed at product and service development programs, customer
retention and economic development. As a result of the marketing efforts
emphasized during the past two years, CIPS has introduced consumer products
related to lighting and home safety, provided added customer service
options and technical energy and industrial process service assistance.
The CIPS economic development program has been expanded in recent years to
include new customer and community development initiatives. Additional
services to customers have included energy technology assistance and market
development programs. CIPS works in partnership with communities
throughout the service area to implement projects to respond to growth
opportunities. This, in combination with the ongoing business development
initiatives including industrial site location assistance, community
profiles technical development services, and innovative industrial building
design programs, is designed to maximize economic development throughout
the CIPS territory.
In January 1985, CIPS first received approval from the Illinois commission
for an economic development rate. The rate is designed to encourage
industrial expansion and stimulate job creation in the service territory of
CIPS. Under the economic development rate, each qualifying electric
customer receives lower incentive rates for incremental load for a maximum
period of five years. In June 1986, CIPS received further approval which
grants flexibility to renegotiate agreements to fit the specific needs of
certain industrial prospects. The Illinois commission granted CIPS
approval to offer qualifying customers the economic development rate
through January 1, 2000. Since the rate was instituted in 1985, about 207
new or existing business expansions have led to the creation of over 11,475
new jobs in the CIPS service territory. In addition, on July 10, 1995,
CIPS filed a tariff rider with the Illinois commission applicable to
existing electric service customers billed on certain commercial and
industrial rates. This rider allows CIPS to negotiate contractual rates
with customers at rates equal to or greater than the incremental costs of
serving that customer. Such contracts are intended for customers having the
potential to utilize an energy source other than CIPS' electric service
and/or where the total or partial loss of customer load is imminent. This
will allow CIPS to maintain a positive contribution to fixed costs and
avoid permanent loss of revenue.
On August 7, 1996, the Company's new systemwide call center at Pawnee,
Illinois became operational. The new facility will enable CIPS to provide
better customer services regarding billing, credit, energy services and
other matters.
In addition to a general program of controlling costs, in 1987 CIPS
initiated a major program of renegotiating long-term coal supply contracts.
A major coal contract restructuring was completed early in 1997. (See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Consolidated Results of Operations - Coal Contract
Restructuring). CIPS continues to evaluate opportunities to initiate
further renegotiation efforts. This program has helped and will continue
to help CIPS control its fuel costs.
During 1996, CIPS continued its "business process re-engineering" program
focusing on two major areas: field operations (including general office
departments directly supporting field operations) and power generation
(including general office departments directly supporting the power
stations). Multi-disciplined teams were formed in early 1995 to study each
of these areas, with the objective of significantly reducing costs,
improving customer satisfaction, and achieving the Company's strategic
goals. A pilot program in each area was initiated to confirm the
effectiveness of various recommendations submitted by the teams. The field
operations pilot program began in October 1995. A regional office concept
in field operations replaces the division-based organizational structure
whereby separate area and district offices reported to one of three
division offices. At the power stations, a work area maintenance concept
was initiated as a pilot program at the Meredosia Power Station in January,
1996. The Meredosia pilot program has been extended with the mutual
consent of plant management and employees represented by International
Union of Operating Engineers Local 148. Similarly, in January, 1997, the
work area maintenance concept was initiated for a trial period of up to one
year at the Coffeen Power Station. Further implementation of changes in
these areas will occur in 1997.
Early in 1995, CIPS instituted a voluntary separation program. Under the
program, eligible employees could leave CIPS and receive a package of
benefits. Of the employees eligible to participate, 151 accepted the
offer.
COMPETITION -- GAS BUSINESS. Competition in the natural gas industry
is increasing. For a number of years, CIPS customers have had the ability
to purchase natural gas from producers or other suppliers and transport
that gas through the interstate pipelines and the CIPS system. CIPS
collects a rate for transportation through its system. Policies of the
FERC have increased the competitive nature of the gas business. In certain
cases customers have the ability to receive their gas supply directly from
pipelines and bypass the CIPS system. Illinois utilities, under special
rate provisions authorized by the Illinois commission, are authorized to
negotiate special contractual sales arrangements with their larger natural
gas customers as a means of retaining such customers. CIPS has negotiated
or is currently negotiating with a number of its larger industrial gas
customers regarding flexible rates to address the more competitive
environment in which CIPS is operating. While CIPS has had to provide
lower rates to retain some customers, CIPS has used this same flexibility
to obtain some new loads.
UTILITY INDUSTRY. CIPS is experiencing some of the problems common to
electric and gas utility companies, namely, increased competition for
customers, increased construction costs, delays and uncertainties in the
regulatory process and costs of compliance with environmental and other
laws and regulations.
CONSTRUCTION PROGRAM AND FINANCING. Total construction expenditures
for CIPS for 1997 through 2001 are estimated at $482 million. For 1997,
anticipated construction expenditures are $113 million for replacements and
improvements and consist of about $51 million for electric production
facilities, $11 million for electric transmission facilities, $42 million
for electric distribution and general facilities, and $9 million for gas
utility facilities. The projected 5-year amounts include up to $28 million
for environmental compliance, including compliance with regulations under
the Clean Air Act Amendments of 1990. Capital requirements for the 1997-
2001 period are expected to be met primarily through internally generated
funds. In addition to funds required to refinance maturing short-term and
long-term borrowings, external financing requirements are expected to total
about $175 million for the 1997-2001 period which include amounts for
projected construction expenditures and a coal contract restructuring
payment. Such financing could consist of capital from the parent, the
issuance of short-term debt, long-term debt or preferred stock, or any
combination of the four. In addition, refinancings to lower the costs of
capital also may occur, depending on market conditions. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Central Illinois Public Service Company - Capital and Financing
Requirements and - Forward Looking Statements and -- Consolidated Results
of Operations - Clean Air Act and - Coal Contract Restructuring.)
CIPS continuously reviews its construction program, which may be
affected by numerous factors, including availability and cost of capital,
the rate of load growth, escalation of construction costs, Clean Air Act
compliance strategies, changes in governmental and environmental
regulations, customers' patterns of consumption and conservation of energy
and the adequacy of rate relief. Load growth projections are subject to a
number of uncertainties due to various influences on customer consumption,
economic conditions and the effect of rates on consumption and peak load
demand.
CIPS has no electric generating units under construction. On June 30,
1995, CIPS filed its current "least cost resource" plan with the Illinois
commission. The plan includes the 20-year generating unit plan of the
utility. As demonstrated by the plan, CIPS is not expected to require
additional generating capacity or demand-side resources during the 1996-
2016 planning period. Pursuant to the plan, CIPS will engage in several
demand-side management activities intended to enhance its capability to
deliver demand-side management resources in the future. Following
consummation of the merger, CIPS and UE will each re-examine the timing of
additional electric generation resources.
For a discussion of the funds requirements for the period 1997-2001
and the assumptions as to the sources of funds to meet those requirements,
see Management's Discussion and Analysis of Financial Condition and Results
of Operations - Central Illinois Public Service Company - Capital and
Financing Requirements.
CIPS has filed shelf registration statements with the Securities and
Exchange Commission, covering up to $200 million of first mortgage bonds
and medium-term notes. CIPS currently has authority from the Illinois
commission to issue or incur up to $200 million of first mortgage bonds,
medium-term notes and bank borrowings outstanding at any time through
December 31, 1998. Pursuant to this authority, in February 1997 CIPS entered
into long-term credit facilities with banks providing for up to $75 million
of borrowings. See Management's Discussion and Analysis of Financial
Condition and Results of Operations - Central Illinois Public Service Company
- -- Capital and Financing Requirements.
The issuance by CIPS of first mortgage bonds, medium-term notes and/or
other secured debt securities, common stock, preferred stock and certain
unsecured debt securities is subject to the receipt of necessary regulatory
approvals. See Business - Utility Subsidiary - Central Illinois Public
Service Company - Regulation.
The Mortgage Indenture of CIPS, as presently operative, permits the
issuance of additional first mortgage bonds up to 60% of available net
expenditures for bondable property, provided the "net earnings" of CIPS
(determined after deducting income taxes and otherwise as provided in the
Mortgage Indenture) for a recent 12-month period equal at least twice the
annual interest requirements on all first mortgage bonds outstanding (and
on all equally secured and prior lien indebtedness) and on the bonds
then to be issued. At December 31, 1996, the more restrictive of these
requirements was the "net earnings" test. The "net earnings" of CIPS for
the year ended December 31, 1996, so computed, were equal to 5.63 times the
interest for one year on the aggregate amount of bonds outstanding under
the Mortgage Indenture at December 31, 1996. Based on the "net earnings"
of CIPS (so computed) for the year ended December 31, 1996, and the bonds
outstanding under the Mortgage Indenture at December 31, 1996, CIPS could
have issued about $480 million of additional first mortgage bonds under the
foregoing interest coverage provision (assuming an annual interest rate of
7.75% on such bonds).
The Articles of Incorporation of CIPS provide, in effect, that so long
as any CIPS preferred stock is outstanding, CIPS shall not, without the
requisite vote of the holders of preferred stock, unless the retirement of
such stock is provided for, (a) issue any preferred or equal ranking stock
(except to retire or in exchange for an equal amount thereof) unless the
"gross income available for interest" of CIPS for a recent 12-month period
is at least one and one-half (1-1/2) times the sum of (i) one year's
interest on all funded debt and notes maturing more than 12 months after
the date of issuance of such shares and (ii) one year's dividend
requirement on all preferred stock to be outstanding after such issue, or
(b) issue or assume any unsecured debt securities maturing less than two
years from the date of issuance or assumption (except for certain refunding
or retirement purposes) if immediately after such issuance or assumption
the total amount of all such unsecured debt securities would exceed 20% of
the sum of all secured debt securities and the capital and surplus of CIPS.
For the year ended December 31, 1996, the "gross income available for
interest" of CIPS equalled 3.13 times the sum of the annual interest
charges and dividend requirements on all such funded debt, notes and
preferred stock outstanding at December 31, 1996. Such "gross income
available for interest" was sufficient under the test to support the
issuance of additional preferred stock (assuming an annual dividend rate on
such preferred stock of 6.50%) in an amount in excess of the maximum amount
($185 million) of authorized and unissued preferred stock under the
Articles.
RATE MATTERS. The most recent CIPS retail rate case before the
Illinois commission resulted in electric and natural gas rate increases
which became effective March 20, 1992. In its decision, the Illinois
commission allowed a return on net original cost rate base of 9.77%
(electric) and 9.88% (natural gas) reflecting a return on common equity of
12.28% (electric) and 12.50% (natural gas).
In April 1993, CIPS began recovering amounts under environmental
adjustment clause riders for the cleanup and restoration of former
manufactured gas plant sites (environmental remediation sites). A total of
$2.9 million was collected from customers through December 31, 1993 under
the riders and no amounts have been collected since January 1994. The
Illinois commission has initiated reconciliation proceedings to determine
whether the costs incurred by CIPS for environmental remediation activities
in 1993, 1994 and 1995 were prudently incurred costs and whether revenues
collected under the riders can be reconciled with the level of prudent costs
properly incurred for environmental remediation activities. The Illinois
commission can order refunds to customers if it determines that costs
incurred for environmental remediation activities were not prudently incurred
or revenues collected under the riders were in excess of costs properly
recoverable under the riders. Management believes that any costs properly
incurred in connection with the sites that are not recovered from others will
be recovered through the environmental rate riders. Accordingly, management
believes that costs incurred in connection with these sites will not have a
material adverse effect on financial position, results of operations or
liquidity of the Company or CIPS. See Note 4 to Consolidated Financial
Statements.
The Illinois commission conducts annual proceedings to determine
whether the electric fuel and purchased gas charges collected by CIPS in
each year pursuant to the applicable fuel adjustment and purchased gas
adjustment clauses reflect the actual costs of electric fuel and natural gas
prudently purchased in that year and to reconcile revenues collected
under the clauses during the year with actual costs incurred. The Illinois
commission can order refunds to customers if it determines that actual
costs of fuel or purchased gas were less than the amounts charged to
customers pursuant to the clauses or if it finds that CIPS was imprudent in
its purchases of fuel or gas. The Illinois commission has completed its
review of fuel adjustment and purchased gas adjustment charges for all years
prior to 1994. No significant refunds or adjustments were required for
those years. Fuel reconciliation proceedings for the years 1994 through 1996
are pending. The 1994 fuel reconciliation proceeding has been marked heard
and taken by the Illinois commission. (See Business - Utility Subsidiary -
Central Illinois Public Service Company - Fuel.)
The most recent general rate increase of CIPS approved by the FERC
became effective in 1984. There are currently no rate increase proceedings
pending at the FERC, and CIPS has no plans for any such rate increase filings.
All of CIPS' requirements sales to cooperatives and municipals for resale are
through negotiated service agreements.
As a result of the retail rate increase granted to CIPS in 1992
referred to above, a corresponding rate adjustment was granted by the FERC
for certain customers who purchase power from CIPS for resale. This rate
adjustment was provided for in the service agreements between CIPS and
these customers.
ELECTRIC OPERATIONS. Since 1977 CIPS has been a net off-system seller
of electricity and during 1996 it generated 130% of its system
requirements.
The maximum gross system load to date on the CIPS electrical system,
on a one-hour integrated basis, occurred on August 14, 1995, and was
2,319,000 kilowatts. Gross system load includes sales to electric
cooperative and municipal customers (but excludes emergency and interchange
sales). The 1996 maximum gross system load of 2,283,000 kilowatts was 1.6%
less than the historical maximum gross system load of 2,319,000 which
occurred in 1995.
CIPS, Illinois Power Company and UE are parties to an Interconnection
Agreement providing for the coordination and interconnected operation of
their respective electric systems and the interchange of power and energy
at rates and under conditions set forth therein, including the maintenance
by the parties of minimum reserve capacity positions. The Agreement
provides that CIPS will maintain a minimum 15% system reserve capacity.
CIPS, Illinois Power and Union Electric are parties to an Interconnection
Agreement with Tennessee Valley Authority (TVA) providing for the
interconnection of the TVA system with the systems of the three companies
to exchange economy and emergency power and for other working arrangements.
In addition, CIPS has interconnection agreements with various other
neighboring utilities, including Central Illinois Light Company,
Commonwealth Edison Company, Indiana Michigan Power Company, Public Service
Company of Indiana, Inc., IES Utilities, Inc. and Northern Indiana Public
Service Company. These agreements provide for various interchanges,
emergency services and other working arrangements.
CIPS owns 20%, (Union Electric owns 40% and two other utilities own
the remaining 40%) of the common stock of Electric Energy, Inc. (EEI). The
owners, including CIPS, are entitled to receive from EEI varying amounts of
power. Electric Energy, Inc. owns and operates a 1,015,000 kilowatt coal-
fired power station located in Joppa, Illinois.
CIPS is a member of the Mid-America Interconnected Network reliability
council made up of utilities, public power generators, power marketers and
others, which has as its purpose the promotion of maximum coordination of
planning, construction and utilization of generation and transmission
facilities on a regional basis in order to assure the reliability of
electric bulk power supply in the area served.
One municipal agency, one cooperative agency and one cooperative are
engaged in the generation of electricity within, or in close proximity to,
portions of the territory served by CIPS.
Electric and magnetic fields (sometimes referred to as EMF) surround
electric wires or conductors of electricity, such as electrical tools,
household wiring and appliances and electric transmission and distribution
lines, such as those owned by CIPS. A number of statistical and laboratory
studies have investigated whether EMF pose human health risks. The United
States Environmental Protection Agency (USEPA) stated in its December 1992
brochure "Questions and Answers about Electric and Magnetic Fields" that
"Some epidemiological evidence is suggestive of an association between
surrogate measurements of magnetic field exposure and certain cancer
outcomes. Though the body of evidence cannot be dismissed, it is not
complete enough at this time to draw meaningful conclusions." The nation's
electric utilities, including CIPS, have participated in the sponsorship of
millions of dollars of EMF research. CIPS has also agreed to participate
in the National EMF Research and Public Information Dissemination Program,
a 5-year $65 million effort headed by the United States Department of
Energy aimed at furthering EMF research. Through its participation with
Electric Power Research Institute, CIPS will continue its investigation and
research with regard to the possible health effects posed by exposure to
EMF.
ELECTRIC POWER SALES/PARTICIPATION AGREEMENTS. As shown in the table
below, CIPS currently has contracts with Norris Electric Cooperative, City
of Newton, Village of Greenup and Mt. Carmel Public Utility Company for the
sale of electric power. These contracts provide for firm full requirements
service which obligates CIPS to maintain adequate system reserves to
support the contracts, or to supply the requirements with off-system
purchases.
1996
Peak Contract
Demand Expiration
Contract (Megawatts) Date
Norris Electric Cooperative. . . . . . 60 MW 2007
City of Newton . . . . . . . . . . . . 8 MW 1999
Village of Greenup . . . . . . . . . . 3 MW 1999
Mt. Carmel Public Utility Co. . . . . 41 MW 2001
Since 1990, CIPS has entered into three successive agreements with
Central Illinois Light Company ("CILCO") to sell to CILCO, Limited Term
Power. These agreements provide for contract delivery periods and amounts
as shown in the following table:
Contract
Delivery Amount
Period (MW)
June 1994 - May 1996. . . . 70
June 1996 - May 1997. . . . 80
June 1997 - May 1998. . . . 90
June 1998 - May 2002. . . . 150
June 2002 - May 2009. . . . 50
In addition, CIPS sells electric power to three power pooling agencies
through negotiated capacity participation agreements identified in the
following table. These agencies include Soyland Power Cooperative
(Soyland), Illinois Municipal Electric Agency (IMEA) and Wabash Valley
Power Association (WVPA).
Maximum
Capability Contract
Entitlement Expiration
Contract (Megawatts) Date
Soyland. . . . . . . . . . . . . . . . 103 MW 1999
IMEA . . . . . . . . . . . . . . . . . 122 MW 2014
WVPA . . . . . . . . . . . . . . . . . 65 MW 2011
(See Business - Utility Subsidiary - Central Illinois Public Service
Company - Competition -- Electric Business above.)
GAS OPERATIONS. CIPS distributes and sells natural gas to 267
incorporated and unincorporated communities located in 41 counties of
central and southern Illinois. The CIPS service territory is predominantly
made up of small towns and rural areas. Of the communities served, only 5
have populations greater than 15,000. Customer density on the CIPS gas
system is approximately 37 customers per mile of main.
Six interstate pipelines pass through various portions of the CIPS
service area: Panhandle Eastern Pipe Line Company, Texas Eastern
Transmission Corporation, Natural Gas Pipeline Company, Texas Gas
Transmission Company, Midwestern Gas Transmission Company and Trunkline Gas
Company. CIPS has multiple interconnections with each of these pipelines,
with the total of all such interconnections being 46. Most of the CIPS
system is integrated by virtue of CIPS owned pipelines, or by
transportation agreements with interstate pipelines.
CIPS owns and operates four underground storage fields which provide a
total peak day capacity of 34,500 thousand cubic feet per day (mcf/day).
CIPS also operates one propane-air peak shaving facility which has a peak
day capacity rating of 10,000 mcf/day.
The peak day firm demand recorded by CIPS in 1996 was 302,550 mcf
which was reached on February 2, 1996. This demand level is 5.2% less than
the all-time peak demand of 319,033 mcf which occurred on December 24,
1983. During 1996, the CIPS throughput (total of sales and
transportation) was 39.2 billion cubic feet (bcf) compared to 37.2 bcf
experienced in 1995, the year of highest historical throughput prior to
1996. In 1996, CIPS transported 13.4 bcf of customer-owned gas which
represented 34% of the total system throughput. Volumes of customer-owned
gas transported in 1995 and 1994 were 14.5 bcf and 12.0 bcf, respectively.
The average cost per mcf of natural gas purchased from all suppliers was
about $3.53 in 1996, $3.04 in 1995 and $3.41 in 1994.
The rate schedules of CIPS applicable to all of its gas sales include
a uniform purchased gas adjustment clause, which permits CIPS to adjust its
rates to its customers to reflect substantially all changes in the cost of
purchased gas. (See Note 1 of Notes to Consolidated Financial Statements
included under Item 8 of this report. See Business - Utility Subsidiary -
Central Illinois Public Service Company - Rate Matters.)
CIPS maintains a diversified portfolio of gas supply, transportation,
leased storage and no-notice service contracts to reliably serve its gas
customers. In addition, CIPS' owned storage and propane-air facilities
provide additional reliability and flexibility to meet peak day and peak
season requirements. In recent years CIPS has made investments to
construct additional pipeline interconnections, increase CIPS owned storage
capacity, improve reliability of existing storage facilities, modernize
propane-air facilities and improve data acquisition capabilities. At the
same time CIPS has reorganized and enhanced its gas supply planning and
procurement functions.
FUEL. Over 99% of the net kilowatthour generation of CIPS in 1996 was
provided by coal-fired generating units and the remainder by an oil-fired
unit.
The average costs of fuel consumed by CIPS, per ton and per million
Btu, for the periods shown were as follows:
1996 1995 1994
Per ton ($) . . . . . . . . . . . . 36.16 37.69 35.44
Per million Btu ($) . . . . . . . . 1.71 1.76 1.65
In 1996, approximately 20.1% of the coal purchased for electric
generation was purchased on a spot basis at average delivered costs of
$26.11 per ton and $1.19 per million Btu.
The retail fuel adjustment clause (FAC) of CIPS is consistent with the
uniform FAC mandated by the Illinois commission for all electric utilities
as applicable to retail electric sales in Illinois. The FAC provides for
the recovery of changes in electric fuel costs, including certain
transportation costs of coal, in billings to retail customers. CIPS
adjusts fuel expense to recognize over- or under-recoveries of allowable
fuel costs. The cumulative effect is deferred on the Balance Sheet as a
Current Asset or Current Liability, pending automatic reflection in future
billings to customers. In 1992, CIPS received Illinois commission approval
to include certain coal transportation costs in the FAC in accordance with
the August 1991 modifications to the Illinois Public Utilities Act.
CIPS also has contractual arrangements with certain other utility
system customers which contain a fuel adjustment clause or provide for a
sharing of fuel costs which permit CIPS to adjust its rates to such
customers to reflect substantially all changes in the cost of fuel
(including all transportation costs) used to supply those customers.
The amount of coal supplies on hand at the generating stations of CIPS
varies from time to time. CIPS generally attempts to maintain a 65-day
supply. Approximately 80% of the annual coal requirements of the
generating facilities of CIPS are being met by long-term coal contracts
expiring at various dates from 1997 to 2010. As contracts approach their
expiration, or when appropriate, CIPS evaluates alternative supply
arrangements based on then current and expected market conditions for coal.
CIPS believes there are adequate reserves reasonably available to supply
its existing generating units with the quantity and quality of coal
required for the foreseeable future.
See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Central Illinois Public Service
Company - Capital and Financing Requirements and - Consolidated Results of
Operations - Clean Air Act and - Coal Contract Restructuring.
REGULATION. CIPS is subject to regulation by the Illinois commission
as to rates, accounting practices, issuance of certain securities and in
other respects as provided by Illinois law. The Illinois commission may
consider alternatives to rate-of-return regulation. Further
deregulation and open access proposals are being made in the Illinois
General Assembly. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Consolidated Results of
Operations - Regulation and Competition. The Electric Supplier Act of
Illinois permits utilities and electric cooperatives to delineate their
respective service areas, subject to the approval of the Illinois
commission, and gives the Illinois commission power to determine, pursuant
to guidelines provided in the Act, whether a prospective electric customer
will be furnished service by a public utility or by a cooperative.
The FERC has jurisdiction under the Federal Power Act over certain of
the electric utility facilities and operations, accounting practices,
issuance or acquisition of certain securities and electric rates of CIPS
for resale and interchange customers. CIPS has been classified as a
"public utility" within the meaning of that Act. CIPS has been declared
exempt from the federal Natural Gas Act.
CIPS is presently exempt from all the provisions of the Public Utility
Holding Company Act of 1935, except provisions thereof relating to the
acquisition of securities of other public utility companies, until further
action by the Securities and Exchange Commission, by virtue of an annual
exemption statement filed by CIPS with the Commission pursuant to Rule 2
under the Act. See Business - CIPSCO Incorporated and Its Subsidiaries -
Merger.
ENVIRONMENTAL MATTERS. CIPS is subject to regulation with respect to
air and water quality standards, standards relating to the discharge and
disposal of solid and hazardous wastes and other environmental matters by
various federal, state and local authorities. The Illinois Pollution
Control Board (the "Board") has jurisdiction over all phases of
environmental control by the State of Illinois and has authority to grant
variances from environmental requirements. The Illinois Environmental
Protection Agency (the "Agency") has authority to issue permits,
investigate violations and recommend enforcement cases. The Illinois
Attorney General has the authority to prosecute enforcement cases. The
USEPA has jurisdiction to promulgate and enforce air and water quality
standards in addition to those standards which relate to the discharge and
disposal of solid and hazardous wastes.
Air pollution control regulations promulgated by the Board impose
restrictions on emissions of particulate, sulfur dioxide, nitrogen oxides
and other air pollutants and require that CIPS obtain permits from the
Agency for the construction and operation of its generating facilities in
compliance with these regulations. CIPS has secured all necessary
operating permits for all of its existing generating facilities and is in
substantial compliance with the provisions contained therein. Future
construction projects may require additional construction permits.
Under the Clean Air Act Amendments each utility must have sufficient
emission allowances, which are granted by the USEPA, to cover the amount of
sulfur dioxide to be emitted each year from its generating stations. Any
emission allowances in excess of a utility's needs for a year can be
retained by it for future use or sold. CIPS' current compliance strategy
relies on fuel-switching to lower sulfur coals supplemented with the
purchases of emission allowances. CIPS believes an adequate supply of
emission allowances will be available at a reasonable price for the
foreseeable future. (See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Consolidated Results of
Operations - Clean Air Act and - Coal Contract Restructuring.)
USEPA has proposed revisions to the National Ambient Air Quality
Standards for ozone and particulate matter which may result in the USEPA
seeking additional reductions of sulfur dioxide and nitrogen oxide emissions
from coal fired boilers. Because of the magnitude of these additional
reductions, substantial costs could be incurred to meet future compliance
obligations for CIPS' coal fired boilers. The proposed revisions are expected
to be finalized in 1997. The revisions would be effective some time after the
effective date of the Phase II acid rain control provisions of the Clean Air
Act Amendments.
Water pollution control regulations promulgated by the Board impose
restrictions on effluent discharges, set water quality standards and
require CIPS to obtain construction permits for certain facilities and
National Pollutant Discharge Elimination System ("NPDES") permits for
discharges into public waters. CIPS has secured all necessary NPDES
permits for all of its generating units and is in substantial compliance
with the currently effective provisions contained therein, except as noted
in the following paragraph.
On August 2, 1996, the Company received notice that the Illinois
Attorney General had filed a complaint with the Board alleging various
violations of wastewater discharge permit conditions at the Hutsonville
Power Station. The allegations had been the subject of prior pre-
enforcement conference letters. The complaint seeks monetary penalties and
the award of attorney fees. The Company, the Agency, and the Attorney
General are continuing to work on a plan to resolve these issues. While
the Company cannot predict the final outcome of this matter, it does not
believe that the final resolution will have a material adverse effect on
financial position, results of operations or liquidity of the Company.
Pollution control regulations promulgated by the Board impose
restrictions on the discharge and disposal of solid and hazardous waste,
and determine design standards to prevent contamination of groundwater.
CIPS has secured all necessary permits and authorizations for disposal and
is in substantial compliance with the provisions contained therein. Future
construction projects may require additional authorizations or permits.
On January 16, 1997, the Agency issued CIPS a notice of violation
concerning an incident at the Newton Power Station. On September 9, 1996,
a truck driver delivering sodium hydroxide mistakenly unloaded the caustic
material into an acid storage tank. When the two chemicals mixed, a
violent reaction occurred and the ensuing explosion discharged acid and
caustic material into the environment. The Agency is seeking a thorough
site investigation followed up by appropriate remedial actions. The site
has been extensively cleaned up. The Company believes that sole
responsibility for this incident rests with the trucking company and will
vigorously defend any further action by the Agency.
See the subcaption "Environmental Remediation Costs" under Note 4 of
the Notes to Consolidated Financial Statements, included under Item 8 of
this report, for information relating to costs incurred and to be incurred
in connection with the remediation of certain sites where gas had been
manufactured from coal and which contain potentially harmful materials.
EMPLOYEES. The businesses of CIPSCO and CIC are conducted through the
use of employees of CIPS, and CIPSCO and CIC reimburse CIPS for the cost of
using those employees.
The composition of the work force of CIPS at the payroll period
nearest year-end 1996 and 1995 was as follows:
Number of Employees
Employee Group 1996 1995
Salaried. . . . . . . . . . . . . . . . . 980 1,053
IBEW - 702. . . . . . . . . . . . . . . . 877 922
IUOE - 148. . . . . . . . . . . . . . . . 454 453
----- -----
Total . . . . . . . . . . . . . . . . . . 2,311 2,428
===== =====
Contracts with IBEW - 702 and IUOE - 148 extend through June 30, 1999.
See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Consolidated Results of Operations -- Labor Issues
and Note 4 of the Notes to Consolidated Financial Statements under the
subcaption "Labor Issues" included under Item 8. Financial Statements and
Supplementary Data for a discussion of matters involving those employees
represented by labor unions.
CAUTIONARY FACTORS. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations for information concerning
forward looking statements made in this Form 10-K. All statements made
herein which are not historical facts are forward looking and, accordingly,
involve risks and uncertainties that could cause actual results to differ
materially from those discussed. In addition to those forward looking
statements and cautionary factors referred to in Management's Discussion and
Analysis, forward looking statements included in this Form 10-K include those
relating to:
1. The expected effective date of the merger with UE;
2. The expected contribution of a major portion of CIPSCO's assets and
earnings coming from CIPS;
3. The expected changes leading to increased competition;
4. CIPS' ability to make additional sales when existing contracts expire;
5. CIPS' belief that existing wholesale power sales agreements and
transmission agreements are just and reasonable and should not be
altered by FERC;
6. Estimated construction ependitures, sources of funds and financing
requirements;
7. The expected recovery of environmental remediation expenses through
rates;
8. The expected availability of fuel supplies and emmission allowances;
9. The anticipated outcome of identified environmental proceedings and
litigation.
All such statements are based on management's belief, judgment and analysis
as well as assumptions made by and information available to management. In
addition to any assumptions and other factors referred to specifically in
connection with such forward looking statements, factors that could cause the
Company's or CIPS' actual results to differ materially from those
contemplated in any forward looking statements include, among others, those
identified in Exhibit 99.03 hereto, which is incorporated herein by reference.
Item 2. Properties.
Currently, CIPSCO and CIC principally conduct their business through
the use of the properties of CIPS. CIPSCO has no other material
properties.
The electric generating facilities of CIPS consist of the following:
Estimated
1997 Summer
Year Capability
Station and Unit Fuel Installed (KW)
Newton
Unit 1 . . . . . . . . . Coal 1977 555,000
Unit 2 . . . . . . . . . Coal 1982 555,000
Coffeen
Unit 1 . . . . . . . . . Coal 1965 340,000
Unit 2 . . . . . . . . . Coal 1972 560,000
Grand Tower
Unit 3 . . . . . . . . . Coal 1951 82,000
Unit 4 . . . . . . . . . Coal 1958 104,000
Hutsonville
Unit 3 . . . . . . . . . Coal 1953 76,000
Unit 4 . . . . . . . . . Coal 1954 77,000
Diesel Unit. . . . . . . Oil 1968 3,000
Meredosia
Unit 1 . . . . . . . . . Coal 1948 62,000
Unit 2 . . . . . . . . . Coal 1949 62,000
Unit 3 . . . . . . . . . Coal 1960 215,000
Unit 4 . . . . . . . . . Oil 1975 168,000
---------
Total . . . . . . . . 2,859,000
=========
All of the generating stations are located in Illinois on land owned
in fee by CIPS.
At December 31, 1996, CIPS owned 13,051 pole miles of overhead
electric lines and 997 miles of underground electric lines. At that date,
CIPS also owned 4,620 miles of natural gas transmission and distribution
mains, four underground gas storage fields and one propane-air gas plant
used to supplement the available pipeline supply of natural gas during
periods of abnormally high demands.
Substantially all of the permanent fixed utility property of CIPS is
subject to the lien of the Mortgage Indenture securing CIPS first mortgage
bonds.
Item 3. Legal Proceedings.
CIPSCO is not involved in any material legal proceedings.
With regard to CIPS, on December 22, 1995, a complaint was filed in
the Circuit Court for the Seventh Judicial Circuit, Sangamon County,
Illinois against CIPS and several other defendants. The complaint seeks
unspecified monetary damages and alleges that, as a result of exposure to
carcinogens contained in coal tar at the CIPS Taylorville gas plant site,
plaintiffs' children had suffered from a rare form of childhood cancer known
as "neuroblastoma." The plaintiffs in this complaint are the plaintiffs who
on October 5, 1995 voluntarily dismissed claims in a similar complaint in the
Circuit Court for the Fourth Judicial Circuit, Christian County, Illinois.
On April 17, 1996, the Seventh Judicial Circuit Court, Sangamon County,
Illinois granted approval of the petition by CIPS requesting transfer of this
case to the Circuit Court for the Fourth Judicial Circuit, Christian County,
Illinois. CIPS will 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.
Reference is made to the caption "Coal Contract Restructuring" under
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 4 of Notes to Consolidated Financial
Statements for a discussion of the order of the Illinois commission approving
a coal contract restructuring, including recovery through the automatic fuel
adjustment clause ("FAC"), over a period estimated to be 72 months, of a $70
million restructuring charge and associated carrying costs. On February 28,
1997, a group of industrial customers who had intervened in the proceeding
before the Illinois commission filed an appeal of the order with the Illinois
Third District Appellate Court. The industrial customers have asked the court
to reverse or remand that portion of the order authorizing CIPS to recover the
restructuring charge through the FAC. If the customers were ultimately to
prevail, CIPS would be required to cease FAC recovery of the restructuring
charge, and could be required to refund any portion of the restructuring
charge that had been collected through the FAC. Any such refund would most
likely occur in the form of a credit in future FAC calculations. In such an
event, CIPS could initiate a rate filing seeking new base rates designed to
recover the restructuring charge. The outcome of any such rate filing cannot
be predicted. Although CIPS believes the Illinois commission's order in this
matter is lawful and proper and will vigorously defend its position that the
Illlinois commission order be upheld as entered, it cannot predict the outcome
of this matter.
See Item 1. Business - Utility Subsidiary - Central Illinois Public
Service Company - Rate Matters, - Gas Operations and - Environmental
Matters with respect to certain matters involving CIPS. See also Item 1.
Business - CIPSCO Incorporated and its Subsidiaries - Merger and Notes 3 and
4 of Notes to Consolidated Financial Statements included under Item 8 of this
report.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders of
either CIPSCO or CIPS during the three months ended December 31, 1996.
Executive Officers of CIPSCO (ages at December 31, 1996).
Name Age Positions Held
C. L. Greenwalt 63 President and Chief Executive Officer
of CIPSCO* and CIPS, and Chairman of
the Board of CIC
G. L. Rainwater 50 Executive Vice President of CIPSCO and CIPS
W. A. Koertner 47 Vice President, Secretary and Chief
Financial Officer of CIPSCO; Vice
President Finance and Secretary of
CIPS; President and Chief Executive
Officer of CIC
F. J. Kinsinger 57 Controller and Chief Accounting Officer of
CIPSCO and CIPS and Controller of CIC
R. C. Porter 40 Treasurer and Assistant Secretary of
CIPSCO, and CIPS; Vice President, Chief
Financial Officer, Treasurer and
Secretary of CIC
______________________
* Mr. Greenwalt is a director of CIPSCO.
The present term of office of the above executive officers extends to
the first meeting of CIPSCO's Board of Directors after the next annual
election of Directors, scheduled to be held on April 23, 1997. There is no
family relationship between any executive officer and any other executive
officer or any director.
Each of the officers named above has been employed by CIPSCO and/or
CIPS for more than the past five years in various executive capacities
except as noted below.
Executive Officers of CIPS (ages at December 31, 1996).
Name Age Positions Held
C. L. Greenwalt 63 President and Chief Executive Officer*
G. L. Rainwater 50 Executive Vice President*
W. A. Koertner 47 Vice President Finance and Secretary*
C. D. Nelson 43 Vice President Corporate Services
J. T. Birkett 59 Vice President Power Generation
D. R. Patterson 60 Vice President Regional Operations
G. W. Moorman 53 Vice President Regional Operations
F. J. Kinsinger 57 Controller (Principal Accounting Officer)*
R. C. Porter 40 Treasurer and Assistant Secretary*
______________________
* Mr. Greenwalt is a director of CIPS and is also an officer and
director of CIPSCO. Mr. Rainwater, Mr. Koertner, Mr. Kinsinger and Mr.
Porter are also officers of CIPSCO.
The present term of office of the above executive officers extends to
the first meeting of the Board of Directors of CIPS after the next annual
election of Directors, scheduled to be held on April 23, 1997. There is no
family relationship between any executive officer and any other executive
officer or any director.
All of the officers named above have been employed by CIPS in their
present positions for more than the past five years except as indicated
below:
Mr. Rainwater began his employment with UE on September 1, 1979 in the
Distribution Engineering Department. After having served in various
capacities in the Corporate Planning Department at UE, Mr. Rainwater became
General Manager of that department on July 1, 1988. On July 1, 1993, Mr.
Rainwater was named Vice President Corporate Planning at UE and he served
in that capacity through January 10, 1997 after which he began employment
in the position of Executive Vice President of CIPSCO and CIPS effective
January 13, 1997.
Mr. Koertner served as Vice President Financial Services from August
1, 1989 to April 1, 1993, and as Vice President Corporate Services from
April 1, 1993 to July 1, 1995 when he was named Vice President Finance and
Secretary.
Mr. Nelson served as Treasurer and Assistant Secretary from August 1,
1989 to December 3, 1996 when he was named Vice President Corporate
Services. Mr. Nelson also served as Treasurer, Assistant Secretary and
Assistant Controller of CIPSCO Incorporated from April 1, 1993 to December
3, 1996.
Mr. Birkett served as Manager of Purchasing and Stores from March 1,
1985 to July 1, 1995 when he was named Vice President Power Generation.
Mr. Patterson served as Western Division Manager from March 1, 1985 to
July 1, 1995, and as Vice President Corporate Services from July 1, 1995 to
October 1, 1996 when he was named Vice President Regional Operations.
Mr. Moorman served as Vice President Power Supply from June 1, 1988 to
October 1, 1996 when he was named Vice President Regional Operations.
Mr. Kinsinger served as Assistant Controller in the Accounting
Department from December 12, 1977 to June 4, 1996 when he was named
Controller.
Mr. Porter served as Revenue Contracts Supervisor in the Accounting
Department from January 18, 1990 to March 18, 1992 and as Assistant
Secretary in the Treasury Department from March 18, 1992 to July 31, 1995,
at which time he was also named Assistant Treasurer, until August 1, 1995.
Since August 1, 1995 he has served as Vice President, Chief Financial
Officer, Treasurer and Secretary of CIC and was assigned the additional
duties of Treasurer and Assistant Secretary of CIPS and CIPSCO on December
3, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
CIPSCO
CIPSCO's common stock is publicly held and traded on both the New York
Stock Exchange and the Chicago Stock Exchange. The table below sets forth,
for the periods indicated, the dividends per share of common stock of
CIPSCO and the high and low sales prices of the CIPSCO common stock as
reported in New York Stock Exchange Composite listings.
Quarter
1996 First Second Third Fourth
Price Range
High $41 1/4 $38 5/8 $38 1/2 $38 1/4
Low 37 1/8 35 7/8 34 7/8 34 7/8
Close 38 5/8 38 5/8 35 5/8 36
Cash dividends
declared (cents) $ .51 $ .52 $ .52 $ .52
======= ======= ======= =======
1995 First Second Third Fourth
Price Range
High $29 1/2 $30 3/4 $34 1/2 $39
Low 27 28 1/2 28 3/4 34 3/8
Close 28 5/8 29 7/8 34 3/8 39
Cash dividends
declared (cents) $ .50 $ .51 $ .51 $ .51
======= ======= ======= =======
The number of CIPSCO common shareholders of record as of December 31,
1996, was 35,658.
The market price for CIPSCO Common Stock increased in the third and
fourth quarter of 1995 partially in response to the announcement of the
Merger Agreement with UE. See Item 1. Business - CIPSCO Incorporated and
its Subsidiaries - Merger. Consummation of the merger is subject to the
receipt of all necessary regulatory approvals.
CIPS
All the common stock of CIPS, 25,452,373 shares, is owned by CIPSCO
and is not publicly traded. The following table sets forth the cash
distributions on common stock paid to CIPSCO by CIPS and CIC:
1996 1995
CIPS CIC CIPS CIC
(in thousands)
First Quarter $16,500 $ - $17,500 $ -
Second Quarter 17,500 - 17,500 -
Third Quarter 16,250 - 17,500 -
Fourth Quarter 12,700 5,000 18,500 -
DIVIDEND RESTRICTIONS
CIPSCO and CIPS are subject to restrictions on the use of retained
earnings for cash dividends on common stock as described in Note 8 of Notes
to Consolidated Financial Statements included under Item 8 of this report.
The ability of CIPSCO to pay dividends on its common stock is dependent
upon distributions made to it by CIPS, CIC, and on amounts earned by CIPSCO
on its other investments.
Item 6. Selected Financial Data.
CIPSCO
For the Years Ended
December 31, 1996 1995 1994 1993 1992
(in thousands, except per share data)
Operating Revenues $ 896,715 $ 842,262 $ 844,615 $ 844,760 $ 739,877
Operating Income 173,009 156,742 165,345 170,735 142,986
Net Income 80,057 72,015 83,954 85,498 72,499
Earnings per common
share 2.35 2.11 2.46 2.51 2.13
Dividends declared
per common share 2.07 2.03 1.99 1.95 1.91
As of December 31,
Total Assets $1,871,656 $1,827,911 $1,777,357 $1,757,750 $1,725,456
Long-Term Debt 421,227 478,926 474,619 494,323 503,700
CIPS
For the Years Ended
December 31, 1996 1995 1994 1993 1992
(in thousands)
Operating Revenues $ 886,186 $ 833,119 $ 835,882 $ 834,556 $ 729,402
Operating Income 116,531 106,029 110,678 113,651 97,372
Net Income 77,393 70,631 81,913 84,011 72,601
Preferred Stock
Dividends 3,721 3,850 3,510 3,718 4,549
Earnings for Common
Stock 73,672 66,781 78,403 80,293 68,052
Common Stock Dividends 62,950 71,000 68,600 33,500* -*
As of December 31,
Total Assets $1,753,318 $1,714,805 $1,678,650 $1,668,462 $1,645,059
Long-Term Debt 421,228 478,926 474,619 494,323 503,700
* Reflects the repurchase of common shares of CIPS.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CIPSCO Incorporated (CIPSCO or the Company) is a holding company
incorporated under the laws of Illinois. Its principal subsidiary is
Central Illinois Public Service Company (CIPS), an electric and natural gas
utility. Another subsidiary, CIPSCO Investment Company (CIC), has
subsidiaries engaged in non-regulated investing activities. Material
changes in the consolidated financial condition and results of operations
are primarily attributable to CIPS operations, except where noted.
Merger
On August 11, 1995, CIPSCO entered into an Agreement and Plan of Merger
providing for a business combination (the merger) with Union Electric
Company (UE) of St. Louis, Missouri, subject to the approval of
shareholders of both companies and various regulatory agencies. As a
result of the merger, a newly formed holding company - Ameren Corporation
(Ameren) - will become the parent of CIPS, UE, and CIC. The merged entity
is expected to realize $644 million in net savings over 10 years from
combining certain operations of the two companies and is expected to adopt
UE's dividend payment level, currently $2.54 per share. Shareholders of
both companies approved the merger agreement on December 20, 1995.
Following regulatory approvals, the merger is expected to be effective by
the end of 1997. (See Notes 2 and 3 to Consolidated Financial Statements.)
CIPSCO Incorporated
The fundamental financial position of CIPSCO and its subsidiaries remained
strong in 1996. CIPSCO's business activities are conducted by CIPS and
CIC. A discussion of the financial condition of CIPS and CIC follows
below.
The total number of shares of common stock authorized under CIPSCO's
articles of incorporation is 100 million. At year-end 1996, a total of
34,069,542 shares of common stock was outstanding, which was unchanged from
1995. No underwritten offerings of common stock are planned.
Dividends paid to common stock shareholders during 1996 resulted in
payout ratios of 88 percent of consolidated earnings and 41 percent of net
cash provided by operating activities.
CIPSCO is authorized to issue 4.6 million shares of preferred stock,
none of which has been issued. There are no constraints in the CIPSCO
articles of incorporation as to the amount of debt which may be issued.
At year-end 1996 CIPSCO had $0.9 million of temporary investments and
no debt outstanding.
CIPSCO Investment Company
At year-end 1996 there were $117 million of non-regulated investments
managed by CIC and its subsidiaries.
One subsidiary, CIPSCO Securities Company, manages marketable
securities. At year-end 1996 it had $51 million invested in hedged
portfolios of preferred and common stocks and other marketable securities.
A second subsidiary, CIPSCO Leasing Company, invests in long-term
leveraged lease transactions. At year-end 1996 it had $34 million invested
in leased assets consisting of real estate and equipment.
A third subsidiary, CIPSCO Energy Company, seeks energy-related
investment opportunities. At year-end 1996 it had $28 million invested in
leases, or interests in leases, of combustion turbine generating units and
an interest in a partnership which owns a power sales agreement.
A fourth subsidiary, CIPSCO Venture Company, invests primarily within
the CIPS service territory. At year-end 1996 it had less than $1 million
invested in real estate.
At year-end 1996 CIC had $3 million of temporary investments and no
short-term borrowings.
Central Illinois Public Service Company
FINANCIAL CONDITION. The utility's financial position remained
fundamentally strong during 1996. Neither CIPSCO nor CIPS has had to raise
additional capital through the sale of common stock to the general public
since 1980.
The long-range financial objectives for CIPS' capital structure are:
a debt ratio of no more than 45 percent, a common equity ratio of no less
than 45 percent, and a preferred equity ratio of no more than 10 percent.
At December 31, 1996, the capitalization at CIPS consisted of 39 percent
long-term debt, 54 percent common equity and 7 percent preferred stock.
At year end, 25,452,373 shares of CIPS common stock were outstanding,
all of which were held by CIPSCO.
CAPITAL AND FINANCING REQUIREMENTS. Construction expenditures were $106
million in 1996. Of that amount, $93 million and $13 million related to
improvements and replacements to the electric and natural gas systems,
respectively. For the 12 months ended December 31, 1996, 95 percent of
CIPS' total capital requirements was provided from internal sources.
Construction expenditures are expected to be about $113 million in
1997. Of that amount, $104 million is scheduled for electric facilities,
while gas system expenditures are estimated at $9 million.
For the five-year period 1997-2001, construction expenditures are
estimated at $482 million. This is $25 million less than was spent in the
preceding five years. The projected five-year amounts include up to $28
million for environmental compliance, including compliance with the Clean
Air Act Amendments of 1990.
Capital requirements for the 1997-2001 period are expected to be met
primarily through internally generated funds. In addition to funds
required to refinance maturing short-term and long-term borrowings,
external financing requirements are expected to total about $175 million
for the 1997-2001 period which include amounts for projected construction
expenditures and a coal contract restructuring payment. Such financing
could consist of capital from the parent, the issuance of short-term debt,
long-term debt or preferred stock, or any combination of the four. In
addition, refinancings to lower the costs of capital also may occur,
depending on market conditions.
CIPS currently has authority from the Illinois Commerce Commission
(Illinois commission) to issue or incur up to $200 million of first
mortgage bonds, medium-term notes and bank borrowings through December 31,
1998. Registration statements covering $200 million of first mortgage
bonds and medium-term notes have been filed with the Securities and
Exchange Commission.
Capital and financing requirements may be affected by such factors as
the coal contract restructuring, availability and cost of capital, load
growth, changes in construction expenditures, changes in Clean Air Act
compliance strategies, regulatory and legislative developments, changes in
environmental regulations and other governmental activities.
FINANCING FLEXIBILITY AND LIQUIDITY. The utility's ability to finance its
construction program and to provide for other capital needs at reasonable
cost is dependent upon its ability to earn a fair return on capital.
Financing flexibility is enhanced by providing a high percentage of total
capital requirements from internal sources and having the ability, if
necessary, to issue long-term securities and to obtain short-term credit.
Flexibility also is provided by the parent corporation which is capable of
providing additional capital if circumstances warrant. Securities issued
by the utility are subject to regulatory approvals.
The utility's mortgage indenture limits the amount of first mortgage
bonds which may be issued. At December 31, 1996, CIPS could have issued
about $480 million of additional first mortgage bonds under the indenture,
assuming an annual interest rate of 7.75 percent.
CIPS' articles of incorporation limit amounts of preferred stock which
may be issued. Assuming a preferred dividend rate of 6.50 percent, the
utility could have issued all $185 million of authorized but unissued
preferred stock as of year-end.
At year-end 1996 CIPS had no temporary investments and $58 million of
short-term borrowings.
CONSOLIDATED RESULTS OF OPERATIONS
EARNINGS. Net income and earnings per share improved by 11 percent in 1996
to $80.1 million and $2.35, respectively, following declines of 14 percent
in 1995. The return on average common equity for 1996 was 12.2 percent
compared with 11.1 percent in 1995 and 13.1 percent in 1994.
The improvement in net income, earnings per share and return on
average common equity in 1996 is a result of increased sales, lower
maintenance costs and fewer unusual costs in 1996 than 1995.
Merger-related expenses reduced earnings 15 cents per common share in 1996.
Costs related to a workforce reduction, merger-related expenses, and the
write off of certain system development costs reduced earnings 34 cents per
common share in 1995.
INVESTMENT REVENUES. Investment revenues are comprised of income from
temporary investments, long-term marketable securities, leveraged leases
and partnership income. Investment revenues increased 15 percent in 1996
due principally to gains on marketable securities. Investment revenues
increased in 1995 due to additional investments and increased earnings from
marketable securities.
ELECTRIC OPERATIONS. Electric kilowatthour sales increased 5 percent in
1996 primarily due to an increase in interchange sales. Cooling degree
days were 11 percent lower than in 1995 and 7 percent lower than average.
However, heating degree days were 6 percent above 1995, and 8 percent above
average.
Total electric kilowatthour sales declined 2 percent in 1995 due
principally to a decline in wholesale kilowatthour sales and discontinued
sales to two industrial customers who ceased operations. A capacity
participation agreement with one of CIPS' wholesale customers called for a
115-megawatt reduction for the customer starting in 1995. This reduced
wholesale power supply participation revenues for CIPS by $8.7 million.
The electric margins for the three years ended December 31, were:
ELECTRIC MARGIN 1996 1995 1994
(millions of dollars)
Electric revenues $731 $704 $697
Less: Revenue taxes (25) (25) (24)
Fuel (221) (189) (196)
Purchased power (53) (59) (55)
Electric margin $432 $431 $422
==== ==== ====
The 1996 electric margin was favorably impacted by colder weather
early in the year which increased sales to residential and commercial
customers and a 14 percent increase in interchange sales to other utilities
and brokers. The 1995 electric margin improved primarily because warmer
weather during July and August increased residential and commercial sales
and provided opportunities for interchange sales. Fuel costs were $1.71
per million Btu in 1996, $1.76 in 1995 and $1.65 in 1994. Purchased power
amounts fluctuated between years according to system requirements and sales
opportunities.
GAS OPERATIONS. Therms sold and transported increased 5 percent in 1996
due principally to colder weather. Heating degree days for 1996 were 6
percent higher than in 1995 and 8 percent above average.
The gas margins for the three years ended December 31, were:
GAS MARGIN 1996 1995 1994
(millions of dollars)
Gas revenues $155 $130 $138
Less: Revenue taxes (7) (7) (7)
Gas costs (96) (74) (85)
Gas margin $ 52 $ 49 $ 46
==== ==== ====
The 1995 gas margin was favorably impacted by colder weather as
evidenced by a 6 percent increase in heating degree days from the prior
year. Gas costs fluctuated according to system requirements in each year.
The average price paid for gas from suppliers increased nearly five cents
per therm in 1996 and decreased more than three and one-half cents per therm
in 1995.
OPERATING EXPENSES. Other operation expenses declined 6 percent in 1996.
The decline results from unusual costs in 1995 which included $5.8 million
related to a voluntary separation program and $5.7 million related to write
offs of system development costs. Other operation expenses increased 11
percent in 1995 over 1994 primarily due to these costs.
The following table shows other operation expenses for the years ended
December 31, adjusted for unusual costs.
OTHER OPERATION EXPENSES 1996 1995 1994
(millions of dollars)
Other operation $147 $155 $140
Voluntary separation - (6) -
Write off of system costs - (6) -
Merger-related system costs (2) - -
Other operation, adjusted $145 $143 $140
==== ==== ====
Maintenance expense changes between years are due to normal planning
and scheduling of major power plant maintenance outages.
Depreciation and amortization expense increases primarily are related
to property additions.
Income taxes reflect the changes in pre-tax income between years.
Taxes other than income taxes change primarily in relation to changes
in retail revenues.
Miscellaneous, net, reflects $2.0 million of merger transaction costs
(not tax deductible) and $2.9 million of merger transition costs in 1996.
Miscellaneous, net, reflects $4.7 million of merger transaction costs (not
tax deductible) in 1995.
CHANGES IN CONSOLIDATED BALANCE SHEET ACCOUNTS. Significant changes in the
balance sheet accounts at December 31, 1996, compared to balances at
December 31, 1995 are: fuel for electric generation declined 49 percent
during 1996 due to increased burn of coal inventories resulting primarily
from higher electric sales; gas stored underground increased 37 percent due
to both higher gas prices and greater net volumes of gas injected into
storage; regulatory assets increased due to undepreciated plant costs plus
cost of removal being reflected as a regulatory asset attributable to the
retirement of the Newton Unit 1 scrubber, and increases in recoverable
costs for environmental remediation; other liabilities increased due to
inclusion of scrubber removal costs and increases in recoverable costs for
environmental remediation.
CLEAN AIR ACT. In 1996, CIPS adopted a revised compliance strategy to meet
the requirements of the Clean Air Act Amendments of 1990. The new strategy
relies primarily on switching to a lower sulfur coal at its generating
units rather than increased scrubbing and use of higher sulfur coal at its
Newton Unit 1. The estimated capital costs of compliance are included in
the CIPS five-year construction forecast.
COAL CONTRACT RESTRUCTURING. In June 1996, CIPS and a major coal supplier
for the Newton and Grand Tower power stations signed a letter of intent
calling for a restructuring of their existing long-term contract. Under
the restructuring, CIPS paid the supplier a $70 million restructuring
charge plus interest from November 1, 1996 to the payment date on February
13, 1997; will be able to purchase low-sulfur, out-of-state coal at market
prices through the supplier (in substitution for the high-sulfur Illinois
coal CIPS was obligated to purchase under the original contract); and
received options for future purchases of low-sulfur, out-of-state coal from
the supplier in 1997 through 1999 at set negotiated prices.
By switching to low-sulfur coal, CIPS will be able to discontinue
operating the Newton Unit 1 scrubber. The benefits of the restructuring
include lower-cost coal; avoidance of significant capital expenditures to
renovate the scrubber; and elimination of scrubber operating and
maintenance costs (offset by scrubber retirement expenses). The net
benefits of the restructuring are expected to exceed $100 million over the
next 10 years. In December 1996, the Illinois commission entered an order
approving the switch to out-of-state coal, recovery of the restructuring
charge plus associated carrying costs through the fuel adjustment clause
over six years, and continued recovery in rates of the undepreciated
scrubber investment plus costs of removal. The order approving the
restructuring will be subject to appeal through mid-March 1997. Any such
appeal would likely result in lengthy further proceedings. (See Note 4 to
Consolidated Financial Statements.)
REGULATION AND COMPETITION. The electric utility industry is becoming more
competitive due to market forces and a changing regulatory and legislative
environment. To maintain market position in this environment and to take
advantage of opportunities presented through increased competition, CIPS
may from time to time consider and implement various business strategies,
including the restructuring of its wholesale and retail business
operations. Increased competition has reduced margins on certain wholesale
and retail electricity and gas sales and further reductions can be expected
in the future.
Large gas and electric customers often have the ability to choose
alternative energy supplies. Deregulation will bring choice to additional
customers. To the extent CIPS is unable to reduce costs, increase
efficiency and attract new sales, these competitive pressures could
negatively affect future revenues and earnings.
On April 24, 1996, the Federal Energy Regulatory Commission (FERC)
issued Orders 888 and 889. Citing a goal of enhancing competition in the
wholesale market for generation sales, Order 888 requires transmission-
owning utilities, such as CIPS, to provide transmission access and service
to others in a manner similar and comparable to that which the utility has
by virtue of transmission ownership. Order 888 implements the provisions
of the National Energy Policy Act of 1992 which were designed to promote
competition in the wholesale and generation segments of the electric
utility industry.
CIPS has filed an open access transmission tariff in compliance with
Order 888. In addition, CIPS and UE have filed tariffs covering the
combined system to be effective upon completion of the merger.
Order 889 sets forth the standards of conduct and information
requirements that must be put in place and observed by transmission-owning
public utilities doing business under the open access rule. These include
establishment by each utility of an open access, same-time information
system, or OASIS. This system will provide information, on a real-time
basis, needed by the utility's customers to apply for and obtain
transmission service. Using OASIS, the utility must obtain transmission
service for its own use in the same manner its customers will obtain such
service. This will help mitigate market power through control of
transmission facilities. CIPS is implementing the requirements of Order
889.
Additional changes in federal energy policy leading to further
deregulation can be expected. Deregulation efforts also are increasing at
the state level.
In July 1995, legislation was passed authorizing the Illinois
commission, after hearings, to approve a public utility's petition to
operate under alternative forms of regulation. The Illinois commission can
now consider, on a trial basis, alternatives to rate-of-return regulation
which could reward or penalize utilities based on performance. CIPS plans
to make an alternative regulation filing after completing the merger with
UE, to establish a mechanism for sharing merger-related and other savings
between ratepayers and shareholders.
On November 18, 1996, the Illinois Coalition for Responsible
Electricity Choice, which includes CIPS, most other Illinois utilities,
business and consumer groups, submitted a retail competition proposal to
the Illinois State Legislative Reference Bureau. The proposal contemplates
a phase-in of direct access beginning in the year 2000 and continuing until
2005 for all retail customers. Other deregulation proposals urge faster
transition to full deregulation and certain groups are urging adoption of
federal legislation that would mandate nationwide retail open access.
Although the final design and impact of federal and state regulatory
policies and legislation relating to wholesale and retail wheeling are not
known, CIPS is actively planning its transition to a competitive
environment.
Deregulation also could force utilities to change accounting methods.
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 costs of providing service to customers
through the ratemaking process. CIPS periodically reviews the criteria of
SFAS No. 71 to ensure that continuing application is appropriate. Changes
in regulation or in the competitive environment for regulated services
could cause CIPS to no longer be eligible to apply SFAS No. 71 to
established regulatory assets and liabilities. CIPS has evaluated the
possibility that SFAS No. 71 would no longer apply to it, along with
various factors and conditions that are expected to impact future cost
recovery, and currently believes that its net regulatory assets are
probable of future recovery. (See Note 3 to Consolidated Financial
Statements.)
ENVIRONMENTAL REMEDIATION COSTS. CIPS has identified 13 former
manufactured gas plant sites which may contain potentially harmful
materials. In 1990, one site was added to the United States Environmental
Protection Agency Superfund list. The utility is implementing an approved
long-term remedial plan for the site.
Since 1987, the costs related to studies and remediation at these
sites, associated legal and litigation expenses and certain carrying
charges are being accrued and deferred rather than expensed currently.
This is being done pending recovery of these expenses from rates, insurance
carriers, other parties or a combination of these.
Management believes that costs properly incurred in connection with
the sites that are not recovered from others will be recovered through
environmental rate riders. Accordingly, management believes that costs
incurred in connection with these sites will not have a material adverse
effect on financial position, results of operations or liquidity of the
Company or CIPS. (See Note 4 to Consolidated Financial Statements.)
LABOR ISSUES. The International Union of Operating Engineers Local 148 and
the International Brotherhood of Electrical Workers Local 702 have filed
unfair labor practice charges with the National Labor Relations Board
(NLRB) relating to the legality of the 1993 lockout by CIPS. The Peoria
Regional Office of the NLRB has issued complaints against CIPS concerning
its lockout. 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 $16 million. An
administrative law judge of the NLRB has ruled that the lockout was
unlawful. On July 23, 1996, the Company appealed to the NLRB. 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. CIPS successfully negotiated renewed contracts with both unions in
1996 which extend through June 30, 1999. (See Note 4 to Consolidated
Financial Statements.)
FORWARD LOOKING STATEMENTS. This report includes forward looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995. All statements made herein which are not based on historical
facts are forward looking and, accordingly, involve risks and uncertainties
that could cause actual results to differ materially from those discussed.
Such forward looking statements include those under Management's Discussion
and Analysis relating to (i) the timing of regulatory approvals and
consummation of the merger with UE, (ii) the long-range financial
objectives for the capital structure of CIPS, (iii) amounts of future
construction expenditures, sources of funds to meet capital requirements
and financing requirements, (iv) anticipated benefits of the coal contract
restructuring, (v) levels of capital and operating costs needed to comply
with environmental requirements, (vi) the anticipated impact of competitive
conditions and deregulation on revenues, earnings and margins, (vii) the
anticipated recovery of manufactured gas plant site cleanup costs and
associated legal and litigation expenses through environmental rate riders
and (viii) anticipated results of the NLRB proceedings regarding the
legality of the lockout of union employees by CIPS. Such statements are
based on management's belief, judgment and analysis as well as assumptions
made by and information available to management at the date hereof. In
addition to any assumptions and cautionary factors referred to specifically
in this report in connection with such forward looking statements, factors
that could cause actual results to differ materially from those
contemplated by the forward looking statements include (i) the speed and
the nature of increased competition and deregulation in the electric and
gas utility industry, (ii) economic or weather conditions affecting future
sales and margins, (iii) changing energy prices, (iv) availability and cost
of capital, (v) unanticipated or adverse decisions in regulatory
proceedings or litigation, (vi) changes in laws and other governmental
actions, and (vii) other matters detailed from time to time in the
Company's or CIPS' reports filed with the Securities and Exchange
Commission. Customer usage of electricity and natural gas varies with
weather conditions, general business conditions, the state of the economy
and the cost of energy services. The level of sales also is impacted by
conditions in the interchange market.
OTHER MATTERS. Rates for retail electric and gas service are regulated by
the Illinois commission. Non-retail electric rates are regulated by FERC.
The utility's rates are designed to recover operating costs including
traditional depreciation and capital costs on utility plant investment.
Changes in the cost of fuel for electric generation and gas costs generally
are reflected in billings to customers on a timely basis through fuel and
purchased gas adjustment clauses. Inflation continues to be a factor
affecting operations, earnings, shareholders' equity and financial
performance.
Item 8. Financial Statements and Supplementary Data.
CIPSCO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
(in thousands, except per share data)
Operating Revenues:
Electric $ 730,812 $ 703,483 $ 697,427
Gas 155,348 129,606 138,418
Investment 10,555 9,173 8,770
------- ------- -------
Total operating revenues 896,715 842,262 844,615
Operating Expenses:
Fuel for electric generation 220,936 188,731 196,324
Purchased power 53,279 59,495 55,543
Gas costs 96,228 74,054 85,043
Other operation 146,588 155,368 140,068
Maintenance 61,461 67,996 65,176
Depreciation and amortization 87,397 83,263 81,099
Taxes other than income taxes 57,817 56,613 56,017
------- ------- -------
Total operating expenses 723,706 685,520 679,270
Operating Income 173,009 156,742 165,345
Interest and Other Charges:
Interest on long-term debt of subsidiary 33,118 32,871 32,842
Other interest charges 4,633 898 378
Allowance for funds used during construction (861) (962) (919)
Preferred stock dividends of subsidiary 3,721 3,850 3,510
Miscellaneous, net 2,784 2,298 (3,502)
Total interest and other charges 43,395 38,955 32,309
------ ------ ------
Income Before Income Taxes $ 129,614 $ 117,787 $ 133,036
Income taxes 49,557 45,772 49,082
Net Income $ 80,057 $ 72,015 $ 83,954
========== ========== ==========
Average Shares of Common Stock Outstanding 34,070 34,070 34,107
Earnings per Average Share of Common Stock $ 2.35 $ 2.11 $ 2.46
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
1996 1995 1994
(in thousands, except per share data)
Balance, beginning of year $ 294,720 $ 290,801 $ 277,040
Add (deduct):
Net income 80,057 72,015 83,954
Common stock dividends
($2.07, $2.03 and $1.99 per
share, respectively) (70,524) (69,161) (67,874)
Other 529 1,065 (2,319)
--------- --------- ---------
Balance, end of year $ 304,782 $ 294,720 $ 290,801
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
Assets (in thousands)
Utility Plant, at original cost:
Electric $2,244,571 $2,296,402
Gas 242,664 229,118
--------- ---------
2,487,235 2,525,520
Less - Accumulated depreciation 1,099,261 1,132,355
--------- ---------
1,387,974 1,393,165
Construction work in progress 70,150 72,490
--------- ---------
1,458,124 1,465,655
--------- ---------
Current Assets:
Cash 2,287 1,088
Temporary investments, at cost which
approximates market 3,983 7,147
Accounts receivable, net 74,693 65,267
Accrued unbilled revenues 30,126 27,234
Materials and supplies, at average cost 38,806 40,246
Fuel for electric generation, at average cost 21,610 42,634
Gas stored underground, at average cost 13,361 9,774
Prepayments 14,403 10,649
Other current assets 7,704 8,197
--------- ---------
206,973 212,236
Investments and Other Assets:
Marketable securities 51,293 45,967
Leveraged leases and energy investments 62,017 59,114
Regulatory assets 64,754 19,851
Other 28,495 25,088
--------- ---------
206,559 150,020
--------- ---------
$1,871,656 $1,827,911
========= =========
Capitalization and Liabilities
Capitalization:
Common shareholders' equity:
Common stock, no par value, authorized
shares, 100,000,000; outstanding
34,069,542 shares $ 356,812 $ 356,812
Retained earnings 304,782 294,720
---------- ----------
661,594 651,532
Preferred stock of subsidiary 80,000 80,000
Long-term debt of subsidiary 421,227 478,926
---------- ----------
1,162,821 1,210,458
---------- ----------
Current Liabilities:
Long-term debt of subsidiary due within
one year 58,000 -
Short-term borrowings 57,768 47,921
Accounts payable 62,774 60,603
Accrued wages 10,294 9,335
Accrued taxes 13,692 11,266
Accrued interest 8,432 9,525
Other 49,302 33,265
---------- ----------
260,262 171,915
---------- ----------
Deferred Credits:
Accumulated deferred income taxes 341,373 325,181
Investment tax credits 48,885 52,234
Regulatory liabilities, net 58,315 68,123
---------- ----------
448,573 445,538
$1,871,656 $1,827,911
========= =========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
CIPSCO INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
(in thousands)
OPERATING ACTIVITIES:
Net income $ 80,057 $ 72,015 $ 83,954
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization 87,397 83,263 81,099
Allowance for equity funds used
during construction (AFUDC) (378) (889) (630)
Deferred income taxes, net 7,219 10,577 19,891
Investment tax credit amortization (3,349) (3,361) (3,367)
Cash flows impacted by changes in
assets and liabilities:
Accounts receivable, net and accrued
unbilled revenues (12,318) 5,562 2,156
Fuel for electric generation 21,024 (12,329) (4,259)
Other inventories (2,147) 2,964 2,175
Prepayments (3,754) 276 (783)
Other assets (6,941) (6,724) 5,955
Accounts payable and other 6,208 8,359 (5,433)
Accrued wages, taxes and interest 2,292 (1,744) (3,082)
Other (2,285) (9,581) 626
---------- ---------- ----------
Net cash provided by operating
activities 173,025 148,388 178,302
---------- ---------- ----------
INVESTING ACTIVITIES:
Utility construction expenditures,
excluding AFUDC (105,740) (102,820) (95,682)
Allowance for borrowed funds used
during construction (483) (73) (289)
Changes in temporary investments 3,164 (3,864) (489)
Long-term marketable securities (4,881) (866) (2,843)
Long-term leveraged leases and
energy investments (2,903) (9,181) (7,717)
---------- ---------- ----------
Net cash used in investing
activities (110,843) (116,804) (107,020)
---------- ---------- ----------
FINANCING ACTIVITIES:
Common stock dividends paid (70,524) (69,161) (67,874)
Proceeds from issuance of
long-term debt of subsidiary - 20,000 -
Repayment of long-term debt of
subsidiary - (16,000) (20,000)
Retirement of common stock - - (1,020)
Proceeds from short-term borrowings 9,847 32,936 14,985
Issuance expense, discount and
premium (306) (234) (40)
---------- ---------- ----------
Net cash used in financing
activities (60,983) (32,459) (73,949)
---------- ---------- ----------
Net increase (decrease) in cash 1,199 (875) (2,667)
Cash at beginning of year 1,088 1,963 4,630
---------- ---------- ----------
Cash at end of year $ 2,287 $ 1,088 $ 1,963
=========== =========== ===========
Supplemental disclosures of
cash flow information:
Cash payments during the year:
Interest, net of amounts
capitalized $ 36,512 $ 31,490 $ 30,714
Income taxes $ 47,053 $ 40,147 $ 34,264
The accompanying notes to consolidated financial statements are an integral
part of these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CIPSCO Incorporated and Subsidiaries:
We have audited the accompanying consolidated balance sheets of CIPSCO
Incorporated (an Illinois corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CIPSCO Incorporated and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of CIPSCO Incorporated (CIPSCO or the Company), a holding
company, Central Illinois Public Service Company (CIPS), a combination
electric and gas utility, and CIPSCO Investment Company (CIC) engaged in
non-regulated investing activities. All significant intercompany balances
and transactions have been eliminated from the consolidated financial
statements. Certain items previously reported for years prior to 1996 have
been reclassified to conform with the current-year presentation.
The operating revenues of all investment activities are included under
the caption Operating Revenues, "Investment." Operating expenses are
included under the appropriate captions as shown on the Consolidated
Statements of Income.
Concentration of Credit Risk. CIPS is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to
a diversified retail base of about 322,000 residential, commercial and
industrial customers in 557 communities. CIPS also is engaged in the
purchase, transport, distribution and sale of natural gas to a diversified
retail base of approximately 169,000 residential, commercial and industrial
customers in 267 communities. The combined electric and gas service
territory has an area of approximately 20,000 square miles in central and
southern Illinois and has an estimated population of approximately 820,000.
Credit risk is spread over the diversified retail base of electric and gas
customers from which approximately four-fifths of total operating revenues
were derived in 1996. Furthermore, CIPS has wholesale power supply
agreements and power service agreements with seven other utilities,
cooperatives, municipal associations and municipalities, and engages in the
purchase and sale of interchange power with about 50 other utilities and
utility power marketers, from which approximately one-fifth of total
operating revenues was derived in 1996.
See Note 5 to Consolidated Financial Statements for a discussion of
receivables related to leveraged lease investments.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. These affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Regulation. CIPS is a public utility subject to regulation by the Illinois
Commerce Commission (Illinois commission) and the Federal Energy Regulatory
Commission (FERC). The utility maintains its accounts in accordance with
the Uniform System of Accounts as prescribed by these agencies. Its
accounting policies conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process. (See Note 3 to Consolidated Financial Statements.)
Operating Revenues. CIPS accrues an estimate of electric and gas revenues
for service rendered but unbilled at the end of each accounting period.
Investment revenues are comprised of interest on temporary investments
and income from long-term marketable securities, leveraged leases and
partnership income.
Utility Plant. Utility plant in service is stated at original cost.
Substantially all of the utility plant of CIPS is subject to the lien of
its first mortgage bond indenture. Additions to utility plant include the
cost of contracted services, material, labor, overheads and an allowance
for funds used during construction. Maintenance and repair of property and
replacement of minor items of property are charged to operating expenses.
Property retired is removed from utility plant accounts and charged to
accumulated depreciation.
Allowance for Funds Used During Construction (AFUDC). AFUDC is included in
Construction Work in Progress (CWIP) and represents the cost of financing
that construction. AFUDC does not represent a current source of cash
funds. The inclusion of AFUDC in CWIP affords the opportunity to earn a
return on the cost of construction capital after the related asset is
placed in service and included in the rate base.
The AFUDC rate, based on a formula prescribed by FERC, on a before-tax
basis, was 7.7 percent for 1996 and 9 percent for the years 1995 and 1994.
Depreciation. Depreciation expense is based on remaining life straight-
line rates (composite, approximately 3.5 percent for 1996, 3.3 percent for
1995, and 3.4 percent for 1994) applied to the various classes of
depreciable property.
Fuel and Gas Costs. CIPS adjusts fuel expense to recognize over- or under-
recoveries from customers of allowable fuel costs through the uniform fuel
adjustment clause (FAC). The FAC provides for the current recovery of
changes in the cost of fuel for electric generation in billings to
customers. Monthly, the difference between revenues recorded through
application of the FAC and recoverable fuel costs is recorded as a current
asset or liability, pending reflection in future billings to customers,
with a corresponding decrease or increase in cost of fuel for electric
generation.
The uniform purchased gas adjustment clause (PGA) provides a matching
of gas costs with revenues. Monthly, the difference between revenues
recorded through application of the PGA and recoverable gas costs is
recorded as a current asset or liability with a corresponding decrease or
increase in the gas cost.
The Illinois commission conducts annual reconciliation proceedings
with respect to each year's FAC and PGA revenues and has completed its
review for all years prior to 1994. Reconciliation proceedings for 1994
through 1996 are pending.
Income Taxes and Investment Tax Credits. CIPSCO and its subsidiaries file
a consolidated federal income tax return. Income taxes are allocated to
the individual companies, based on their respective taxable income or loss.
Investment tax credits are being amortized over the estimated average
useful lives of the related properties.
The Company uses the liability method of accounting for deferred
income taxes. The liability method requires the establishment of deferred
tax liabilities and assets for all temporary differences between the tax
basis of assets and liabilities and the amounts reported in the financial
statements. Deferred income taxes are recorded resulting from the use of
accelerated depreciation methods, rapid amortization, repair allowance and
certain other temporary differences in recognition of income and expense
for tax and financial statement purposes. (See Note 12 to Consolidated
Financial Statements.)
Cash and Temporary Investments. Temporary investments principally consist
of U.S. Treasury obligations. For purposes of Consolidated Statements of
Cash Flows, temporary investments are not considered cash equivalents.
Marketable Securities. CIC holds a portfolio consisting primarily of
common and preferred stocks that are substantially hedged with futures and
options. (See Note 13 to Consolidated Financial Statements.) All
securities are publicly traded. The investments and related hedging
instruments are managed by professional investment managers in an overall
managed portfolio strategy. Common stocks consist of investments that are
representative of the Standard & Poor's 100 Index. Preferred stocks
consist of perpetual and sinking fund issues primarily of public utilities,
utility holding companies, commercial banks and bank holding companies.
The portfolio also includes investments in limited partnerships which pool
money from multiple investors to invest in a variety of investment
vehicles, principally marketable securities.
The investments in common and preferred stocks and the options and
futures used to hedge these investments are measured at market value on the
Consolidated Balance Sheets, with the change in value reflected in the
Consolidated Income Statements. For hedged investments, the investment and
related hedging instrument have been combined on the Consolidated Balance
Sheets.
Note 2. MERGER AGREEMENT
On August 11, 1995, the Company entered into an Agreement and Plan of
Merger with Union Electric Company (UE), and Ameren Corporation (Ameren), a
newly formed, jointly owned entity, pursuant to which among other things,
the Company will be merged with Ameren. Pursuant to the merger agreement,
CIPS, UE and CIC will be wholly-owned operating subsidiaries of Ameren. As
a result of the merger, each outstanding share of the Company's common
stock will be converted into 1.03 shares of common stock of Ameren, or cash
in lieu of fractional shares. Each outstanding share of UE's common stock
will be converted into one share of Ameren common stock. The preferred
stock of CIPS and UE will remain outstanding and unchanged. The merger is
expected to be tax-free for federal income tax purposes and will be
accounted for under the "pooling of interests" method of accounting.
With the execution and delivery of the merger agreement, the Company
and UE entered into stock option agreements, pursuant to one of which the
Company granted UE the right, upon the terms and subject to the conditions
set forth therein, to purchase up to 6,779,838 shares of the Company's
common stock at a price of $37.02 per share. Pursuant to the other stock
option agreement, UE granted the Company the right, upon the terms and
subject to the conditions set forth therein, to purchase up to 6,983,233
shares of UE's common stock at a price of $35.94 per share. These options
will expire upon consummation of the merger.
After the merger, Ameren will become a registered public utility
holding company under the Public Utility Holding Company Act of 1935. In
December 1995, the merger was approved by the shareholders of CIPSCO and
UE. The merger is conditioned upon, among other things, receipt of certain
regulatory and governmental approvals. (See Note 3 to Consolidated
Financial Statements.)
The following unaudited pro forma financial information at December
31, reflects the effects of combining CIPSCO and UE into Ameren under the
pooling-of-interests method of accounting.
(unaudited)
(in thousands, except per share data)
1996 1995 1994
Total revenues $3,333,505 $3,240,923 $3,269,471
Net income 371,684 372,872 391,459
Earnings per share $ 2.71 $ 2.72 $ 2.85
The pro forma financial information consolidates the financial results
of Electric Energy, Inc. (EEI), which will be 60 percent owned by Ameren
subsequent to the merger as a result of the current ownership interest in
EEI by CIPS and UE.
Note 3. REGULATORY MATTERS
CIPS and UE filed joint applications for approval of the merger with the
Illinois commission and FERC. UE has filed an application for approval of
the transaction with the Missouri Public Service Commission (Missouri
commission). In those applications, CIPS and UE are requesting a sharing
between ratepayers and shareholders, over the 10-year period following the
merger, of merger savings, net of merger premium and merger expenses.
On July 12, 1996, UE, the Missouri commission staff, the Missouri
Office of Public Counsel, several customer groups and others filed a joint
agreement with the Missouri commission that recommends approval of the
merger. On September 25, 1996, the Missouri commission ordered that
additional information be filed in the proceeding.
On November 7, 1996, a Hearing Examiner for the Illinois commission
issued a proposed order in connection with the Company's and UE's merger
proceedings. In the proposed order, the Hearing Examiner recommended that
the merger be approved subject to conditions. In addition, the Hearing
Examiner recommended that a decision on the Company's and UE's proposals
for sharing the merger savings be made after the merger. Under the
proposed order, the Company and UE would be required to file a rate case or
alternative regulation plan within one year after closing the merger. At
that time, an appropriate sharing of net merger savings between
stockholders and customers would be determined. On January 27, 1997, the
Illinois commission reopened the proceedings to take additional evidence on
the issue of market power.
On October 16, 1996, the FERC set the proposed merger for hearing.
The FERC directed the presiding administrative law judge in the case to
issue a proposed order no later than April 30, 1997. On December 18, 1996,
the FERC issued Order 592 relating to its merger policy. The Company
believes its proposed merger with UE meets the criteria set forth in Order
592, but the effect of this order on the timing of the administrative law
judge's proposed order is uncertain.
In October 1996 the Company and UE filed an application with the
Securities and Exchange Commission for approval of the merger pursuant to
the Public Utility Holding Company Act of 1935.
At this time, the Company expects to receive all required regulatory
approvals and to complete the merger by the end of 1997.
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. The Company continually assesses the
recoverability of its regulatory assets and currently believes there would
be no adverse impact on results of operations, financial position, or
liquidity if CIPS were to discontinue SFAS No. 71.
SFAS No. 71 also provides for the recognition of regulatory
liabilities, which represent probable future reduction in revenues
associated with amounts that are to be credited to customers through the
regulatory process.
At December 31, 1996 and 1995 the Company had recorded the following
regulatory assets and regulatory liabilities:
1996 1995
(in thousands)
Regulatory Assets:
Undepreciated plant costs $ 40,876 $ -
Unamortized costs related to reacquired debt 12,208 13,397
Deferred environmental remediation costs 11,174 5,018
Take-or-pay costs 496 1,436
Regulatory Assets $ 64,754 $ 19,851
======== ========
Regulatory Liabilities:
SFAS 109 - Income taxes, net $ 57,957 $ 67,669
Clean Air Act allowances, net 358 454
Regulatory Liabilities, net $ 58,315 $ 68,123
======== ========
Note 4. COMMITMENTS AND CONTINGENCIES
Environmental Remediation Costs. The utility has identified 13 sites where
it and certain of its predecessors and other affiliates previously operated
facilities that manufactured gas from coal. This manufacturing produced
various potentially harmful by-products which may remain on some sites.
One site was added to the United States Environmental Protection Agency
Superfund list in 1990. A ground water pump-and-treat remediation program
being conducted by CIPS at the Superfund site has received applicable
approvals.
CIPS has received cash settlements from certain of its insurance
carriers for, among other things, costs incurred by CIPS in connection with
the manufactured gas plant sites. In addition, in 1993 CIPS collected $2.9
million for such costs under environmental adjustment clause rate riders
(riders) approved by the Illinois commission.
Costs relating to studies and remediation at the 13 sites and
associated legal and litigation expenses are being accrued and deferred
rather than expensed currently. This is being done pending recovery
through rates or from other parties. Through December 31, 1996, $49
million had been deferred representing costs incurred and estimates for
costs of completing studies at various sites and an estimate of future
remediation costs to be incurred at the Superfund and other sites. The
total of the costs deferred, net of recoveries from insurers and through
the riders, was $11 million at December 31, 1996.
The Illinois commission has initiated a reconciliation proceeding to
review CIPS' environmental remediation activities in 1993, 1994 and 1995
and to determine whether the revenues collected under the riders in 1993
were consistent with the amount of remediation costs prudently and properly
incurred. Amounts found to have been incorrectly included under the riders
would be subject to refund. This proceeding is expected to indicate what
incurred or accrued costs are appropriate to defer for future rider
recovery and how insurance recoveries should be allocated to such
environmental cost.
Management believes that costs properly incurred in connection with
the sites that are not recovered from others will be recovered through
environmental rate riders. Accordingly, management believes that costs
incurred in connection with these sites will not have a material adverse
effect on financial position, results of operations or liquidity of the
Company or CIPS.
Coal Contract Restructuring. In June, 1996, CIPS and a major coal supplier
for Newton and Grand Tower power stations signed a letter of intent calling
for a restructuring of their existing long-term contract. Under the
restructuring, CIPS would pay the supplier a $70 million restructuring
charge (plus interest from November 1, 1996); would be able to purchase at
market prices low-sulfur, out-of-state coal through the supplier
(in substitution for the high-sulfur Illinois coal CIPS is obligated to
purchase under the original contract); and would receive options for future
purchases of low-sulfur, out-of-state coal from the supplier in 1997
through 1999 at set negotiated prices.
By switching to low-sulfur coal, CIPS will be able to discontinue
operating the Newton Unit 1 scrubber. The benefits of the restructuring
include lower cost coal, avoidance of significant capital expenditures to
renovate the scrubber, and elimination of scrubber operating and
maintenance costs (offset by scrubber retirement expenses). The net
benefits of restructuring are expected to exceed $100 million over the next
10 years. In December 1996, the Illinois commission entered an order
approving the switch to out-of-state coal, recovery of the restructuring
charge plus associated carrying costs through the fuel adjustment clause
over six years, and continued recovery in rates of the undepreciated
scrubber investment plus costs of removal. CIPS has determined that the
order is satisfactory, and thus intends to pay the restructuring charge and
otherwise implement the restructuring. The order, however, will be subject
to possible appeal through mid-March 1997. Any appeal would likely result
in further lengthy proceedings.
Labor Issues. The International Union of Operating Engineers Local 148 and
the International Brotherhood of Electrical Workers Local 702 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. 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 $16
million. An administrative law judge of the NLRB has ruled that the
lockout was unlawful. On July 23, 1996, the Company appealed to the NLRB.
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.
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 5. LEVERAGED LEASES
CIC and its subsidiaries are the lessors in several leveraged lease
arrangements involving interests in a natural gas liquids plant, natural
gas processing equipment, a commercial jet aircraft, retail department
store properties and combustion turbine generating units. These leases
expire in various years from 1999 through 2013.
The aggregate residual values are estimated to be 42 percent of the
aggregate cost. CIC's aggregate equity investment represents 22 percent of
the aggregate purchase price of the properties. The remaining 78 percent
was financed by nonrecourse debt provided by lenders who have been granted,
as their sole remedy in the event of default by the lessees, an assignment
of rentals due under the leases and a security interest in the leased
properties.
The following is a summary of the components of CIC's net investment
in leveraged leases at December 31:
1996 1995 1994
(in thousands)
Rentals receivable
(net of nonrecourse debt) $ 22,247 $ 23,282 $ 24,894
Estimated residual value of
leased property 64,598 64,598 64,599
-------- -------- --------
Unearned and deferred income (30,422) (34,870) (39,560)
Investment in leveraged leases 56,423 53,010 49,933
Deferred taxes (35,432) (30,771) (25,817)
-------- -------- --------
Net investment $ 20,991 $ 22,239 $ 24,116
======== ======== ========
The following is a summary of the components of income from leveraged
leases for the years ended December 31:
1996 1995 1994
(in thousands)
Income before income taxes $ 4,415 $ 4,677 $ 4,664
Income tax expense (1,771) (1,868) (1,874)
-------- -------- --------
Income from leveraged leases $ 2,644 $ 2,809 $ 2,790
======== ======== ========
Note 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
CIPS sponsors a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and employees'
final average pay. Pension costs are accrued on a current basis in
accordance with actuarial determinations. The pension plan is funded in
compliance with income tax regulations and federal funding requirements.
CIPS uses a September 30 measurement date for its valuation of pension plan
assets and liabilities. The utility also provides certain employees with
pension benefits which exceed the qualified plan limits imposed by federal
tax law.
Funded Status of Pension Plan
(in thousands)
1996 1995 1994
Fair value of plan assets* $253,326 $221,013 $188,449
-------- -------- --------
Accumulated benefit obligations:**
Vested benefits 147,858 121,181 120,032
Nonvested benefits 22,976 20,989 3,644
Effect of projected future
compensation levels (based on 4.5%
annual increases in 1996 and 1995,
and 4.8% in 1994) 40,774 38,830 38,974
-------- -------- --------
Total projected benefit
obligation 211,608 181,000 162,650
-------- -------- --------
Plan assets in excess of projected
benefit obligation $ 41,718 $ 40,013 $ 25,799
======== ======== ========
________________________
* Plan assets are invested in common and preferred stocks, bonds, money
market instruments and real estate.
** The assumed weighted average discount rate was 7.50% for 1996 and 1995,
and 7.75% for 1994.
Pension Plan Assets in Excess of Projected Benefit Obligation
(in thousands)
1996 1995 1994
Plan assets in excess of projected
benefit obligation $ 41,718 $ 40,013 $ 25,799
Unrecognized transition asset (being
amortized over 18.2 years) (3,473) (3,936) (4,399)
Unrecognized net gain (39,824) (33,690) (23,146)
Unrecognized prior service cost 11,557 5,167 5,679
-------- -------- --------
Prepaid pension costs at September 30 9,978 7,554 3,933
Expense, net of funding October to
December 1,504 207 (80)
-------- -------- --------
Prepaid pension costs at December 31 $ 11,482 $ 7,761 $ 3,853
======== ======== ========
Components of Net Pension Expense
(in thousands)
1996 1995 1994
Service cost (present value of benefits
earned during the year) $ 7,282 $ 6,873 $ 8,053
Interest cost on projected benefit
obligation 13,433 12,497 10,846
Actual return on plan assets (expected
long-term rate of return was 8.5%
for 1996 and 8.0% for 1995 and 1994) (30,603) (34,364) (6,795)
Deferred investment gains (losses) 14,365 20,658 (6,242)
Amortization of the unrecognized prior
service cost 372 372 61
Amortization of the transition amount (463) (463) (463)
-------- -------- --------
Net pension expense $ 4,386 $ 5,573 $ 5,460
======== ======== ========
CIPS recognizes the cost of providing postretirement medical and life
insurance benefits over the employees' service periods. CIPS is funding
the medical benefits under two Voluntary Employee Beneficiary Association
trusts (VEBA), and a 401(h) account established within the CIPS retirement
income trust.
CIPS sponsors postretirement plans providing medical and life benefits
for certain of its retirees and their eligible dependents. The medical
plan pays percentages of eligible medical expenses incurred by covered
retirees, after a deductible has been met and after taking into account
payment by Medicare or other providers. Currently, participants become
eligible for coverage if they retire from CIPS after meeting age and years-
of-service eligibility requirements. The life insurance plan continues for
all retirees who have been in the plan as employees for 10 years or more.
CIPS uses a September 30 measurement date for its valuation of
postretirement assets and liabilities.
Funded Status of Postretirement Benefit Plans
(in thousands)
1996 1995 1994
Fair value of plan assets* $ 71,083 $ 49,385 $ 26,874
-------- -------- --------
Accumulated benefit obligations:
Retirees 51,535 50,030 47,494
Fully eligible active employees 19,039 17,577 15,407
Other active employees 64,302 75,595 64,188
-------- -------- --------
Total accumulated benefit obligations 134,876 143,202 127,089
-------- -------- --------
Accumulated benefit obligations in
excess of plan assets (63,793) (93,817) (100,215)
Unrecognized prior service costs - 191 -
Unrecognized transition obligation
(being amortized over 20 years) 87,103 98,878 104,695
Unrecognized net gain (including
changes in assumptions) (38,579) (23,855) (21,307)
-------- -------- --------
Accrued postretirement benefit cost
at September 30 (15,269) (18,603) (16,827)
Expense, net of funding, October to
December 13,557 14,711 14,906
-------- -------- --------
Accrued postretirement benefit cost
at December 31 $ (1,712) $ (3,892) $ (1,921)
======== ======== ========
* Plan assets are invested in common and preferred stocks, bonds, money
market instruments and real estate.
Components of Postretirement Benefit Cost
(in thousands)
1996 1995 1994
Service costs on benefits earned $ 4,461 $ 3,809 $ 4,108
Interest costs on accumulated benefit
obligations 10,564 10,307 8,918
Actual return on plan assets (8,620) (8,390) (212)
Deferred investment gains (losses) 3,510 5,304 (1,601)
Amortization of transition amounts 5,816 5,816 5,816
-------- -------- --------
Postretirement benefit cost $ 15,731 $ 16,846 $ 17,029
======== ======== ========
For purposes of calculating the postretirement benefit obligation it is
assumed that health-care costs will increase by 9.8 percent in 1997, and
that the rate of increase thereafter (the health-care cost trend rate) will
decline to 4.5 percent in 2005 and subsequent years. The health-care cost
trend rate has a significant effect on the amounts reported for costs each
year as well as on the accumulated postretirement benefit obligation. To
illustrate, increasing the assumed health-care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation as of September 30, 1996 by $22.6 million and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost $2.9 million annually. The weighted-average
discount rate used to determine the accumulated postretirement benefit
obligation was 7.5 percent in 1996 and 1995, and 8.25 percent in 1994. The
expected long-term rate of return on plan assets was 8.5 percent in 1996
and 8 percent in 1995 and 1994.
Note 7. PREFERRED STOCK
At December 31, 1996 and 1995 there were 4.6 million shares of CIPSCO
preferred stock authorized and unissued. There were 2 million shares of
CIPS cumulative preferred and 2.6 million shares of CIPS preferred without
par value (aggregate stated value not to exceed $65 million) authorized, of
which 800,000 shares of CIPS cumulative preferred stock are outstanding.
The Board of Directors has the authority to fix and determine the relative
rights and preferences of the authorized and unissued shares.
The CIPS cumulative preferred stock, par value of $100 per share, is
generally redeemable at the option of CIPS on 30 days notice at the
redemption prices shown below:
1996 1995
Current Amount Amount
Redemption (in (in
Series Price(a) Shares thousands) thousands)
4.00% $101.00 150,000 $ 15,000 $ 15,000
4.25% 102.00 50,000 5,000 5,000
4.90% 102.00 75,000 7,500 7,500
4.92% 103.50 50,000 5,000 5,000
5.16% 102.00 50,000 5,000 5,000
1993 Auction(b) 100.00 300,000 30,000 30,000
6.625% 100.00(c) 125,000 12,500 12,500
------- -------- --------
800,000 $ 80,000 $ 80,000
======= ======== ========
_________________________
(a) Plus accrued dividends, if any.
(b) Dividend rate for each dividend period (currently every 49 days) is
set at a then current market rate according to an auction procedure.
The rate at December 31, 1996 was 3.87%.
(c) Not redeemable prior to October 1, 1998.
Note 8. COMMON SHAREHOLDERS' EQUITY
Common Stock. In December 1994, CIPSCO purchased 38,164 shares from
shareholders who held less than 100 shares. The repurchase reduced common
stock and retained earnings.
Retained Earnings. CIPSCO is subject to restrictions on the use of
retained earnings for cash dividends on common stock applicable to all
corporations under the Illinois Business Corporation Act. CIPS is subject
to the same restrictions, as well as those contained in its mortgage
indenture and articles of incorporation. At December 31, 1996, 1995 and
1994, no amount of retained earnings was restricted.
Note 9. LINES OF CREDIT AND SHORT-TERM BORROWINGS
External financing needs may be met from the sale of commercial paper or
short-term borrowings from banks. CIPSCO and CIC have joint bank lines of
credit of $30 million. The banks are compensated for these lines of
credit.
CIPS has arrangements for bank lines of credit which totaled $77.5
million at December 31, 1996. CIPS compensates banks for these lines of
credit. The bank lines of credit are for corporate purposes including the
support of commercial paper borrowings. At December 31, 1996 there were no
short-term borrowings under the lines of credit by CIPSCO, CIC, or CIPS;
however, CIPS did have $57.8 million at December 31, 1996 and $47.9 million
at December 31, 1995 in commercial paper outstanding.
Note 10. LONG-TERM DEBT OF SUBSIDIARY
Sinking fund requirements were satisfied in 1996 and 1995 by the
application of net expenditures for bondable property in an amount equal to
166-2/3 percent of the annual requirement. There are no future sinking
fund requirements.
Long-term debt outstanding at December 31, was:
1996 1995
Amount Amount
(in thousands)
First Mortgage Bonds:
Series L, 5 7/8% due 5/1/1997 $ 15,000 $ 15,000
Series W, 7 1/8% due 5/15/1999 50,000 50,000
Series W, 8 1/2% due 5/15/2022 33,000 33,000
Series X, 6 1/8% due 7/1/1997 43,000 43,000
Series X, 7 1/2% due 7/1/2007 50,000 50,000
Series Y, 6 3/4% due 9/15/2002 23,000 23,000
Series Z, 6% due 4/1/2000 25,000 25,000
Series Z, 6 3/8% due 4/1/2003 40,000 40,000
Series 1995-1, 6.49% due 6/1/2005 20,000 20,000
-------- --------
$299,000 $299,000
-------- --------
Pollution Control Loan Obligations:
1990 Series A, 7.60% due 3/1/2014 $ 20,000 $ 20,000
1990 Series B, 7.60% due 9/1/2013 32,000 32,000
1993 Series A, 6 3/8% due 1/1/2028 35,000 35,000
1993 Series B-1, 4 3/8% due 6/1/2028 17,500 17,500
1993 Series B-2, 5.90% due 6/1/2028 17,500 17,500
1993 Series C-1, 4.20% due 8/15/2026 35,000 35,000
1993 Series C-2, 5.70% due 8/15/2026 25,000 25,000
-------- --------
$182,000 $182,000
Unamortized Net Debt Premium and Discount (1,773) (2,074)
Maturities Due Within One Year (58,000) -
-------- --------
$421,227 $478,926
======== ========
Interest rates on the 1993 Series B-1 and 1993 Series C-1 bonds will be
adjusted to a then current market rate on June 1, 1998 and August 15, 1998,
respectively. Interest rates on the 1993 Series B-2 and 1993 Series C-2
bonds are subject to redetermination at the option of CIPS commencing June
1, 2003 and August 15, 2003, respectively.
Maturities of CIPS' long-term debt through 2001 are as follows:
Principal
Amount
(in thousands)
1997 $58,000
1998 -
1999 50,000
2000 25,000
2001 -
Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
at December 31, 1996 and 1995 of each class of financial instruments for
which it is practicable to make such estimates.
Cash and Temporary Investments. The carrying amounts approximate fair
value because of the short-term maturity of these instruments.
Marketable Securities. The fair value is based on quoted market prices
obtained from dealers or investment managers.
Financial Derivatives. The fair value was estimated using market values of
options, calls and futures contracts on organized exchanges.
Short-term Borrowings. The carrying amounts approximate fair value due to
their short-term maturities.
Preferred Stock of Subsidiary. The fair value was estimated using market
values provided by independent pricing services.
Long-term Debt of Subsidiary. The fair value was estimated using market
values provided by independent pricing services.
The estimated fair values of the Company's financial instruments as of
December 31, are shown below:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Marketable securities $ 50,510 $ 50,510 $ 45,950 $ 45,950
Financial derivatives 783 783 17 17
Preferred stock 80,000 65,381 80,000 66,108
Long-term debt 421,227 430,375 478,926 501,826
Current portion long-term
debt 58,000 58,105 - -
Note 12. INCOME TAXES
The Company uses the liability method of accounting for deferred income
taxes. Income tax expense includes provisions for deferred taxes to
reflect the effect of temporary differences between the time certain costs
are recorded for financial reporting and when they are deducted for income
tax return purposes. As temporary differences reverse, the related
accumulated deferred income taxes and a portion of the regulatory assets
and liabilities are also reversed. Investment tax credits have been
deferred and will continue to be credited to income over the lives of the
related property.
The components of federal and state income tax provisions and
investment tax credits at December 31, were:
1996 1995 1994
(in thousands)
Current - federal $ 41,509 $ 31,676 $ 29,048
- state 8,905 6,020 4,534
-------- -------- --------
50,414 37,696 33,582
-------- -------- --------
Deferred - federal 1,138 8,500 14,738
- state 1,354 2,937 4,129
-------- -------- --------
2,492 11,437 18,867
-------- -------- --------
Amortization of investment tax credits (3,349) (3,361) (3,367)
-------- -------- --------
Total income tax expense $ 49,557 $ 45,772 $ 49,082
======== ======== ========
Reconciliations with statutory federal income tax rates at December
31, were:
1996 1995 1994
Effective income tax rate 37.2% 37.6% 35.9%
Amortization of investment tax credits 2.5 2.8 2.5
Tax exempt interest and dividends 1.5 1.6 1.6
State income tax rate, net of federal
income tax benefits (5.0) (4.8) (4.0)
Non-deductible merger expenses (0.6) (1.4) -
Other, net (0.6) (0.8) (1.0)
------ ------ ------
Statutory federal income tax rate 35.0% 35.0% 35.0%
====== ====== ======
The accumulated deferred income taxes as set forth below and in the
Consolidated Balance Sheets arise from the following temporary differences
at December 31:
1996 1995
(in thousands)
Accumulated deferred income tax
liabilities related to:
Depreciable property $330,577 $320,677
Investment tax credits (19,502) (20,831)
Regulatory liabilities, net (22,990) (26,843)
Leveraged leases 35,432 30,771
Other 17,856 21,407
-------- --------
Accumulated deferred income
taxes per consolidated balance
sheets $341,373 $325,181
======== ========
Deferred tax assets
(included in prepayments) $ 10,928 $ 6,787
======== ========
Note 13. DERIVATIVE FINANCIAL INSTRUMENTS
CIC has limited involvement with derivative financial instruments which
include futures contracts, purchased options and written options in
combination with purchased options. These instruments are used to hedge
the market risk associated with CIC's common and preferred stock
investments. (See Note 1 to Consolidated Financial Statements.) CIC does
not hold or issue these instruments for trading purposes.
Financial futures contracts are for U.S. Treasury obligations and
options contracts are for S & P Indexes and U.S. Treasury obligations.
Futures and options contracts have terms that are one year or less and have
little credit risk as these instruments are traded on organized exchanges.
CIC bears the risk of unfavorable price changes associated with
futures and options which are intended to hedge the opposite change in the
market value of the common and preferred stocks.
Note 14. 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" became effective on January 1, 1996. SFAS No. 121 requires
that regulatory assets which are no longer probable of recovery through
future revenues be charged to earnings. SFAS No. 121 did not have an
impact on the financial position, results of operations or liquidity of the
Company or CIPS upon adoption.
Note 15. SEGMENTS OF BUSINESS
CIPSCO's primary subsidiary, CIPS, is a public utility engaged in the sale
of electricity which it generates, transmits and distributes. CIPS also
sells natural gas, which it purchases from producers and suppliers and
distributes through its system, and transports customer-owned natural gas.
The investments of CIPSCO and subsidiaries include temporary investments
and long-term investments including marketable securities, leveraged leases
and energy investments.
The following is a summary of operations:
Years Ended December 31,
1996 1995 1994
(in thousands)
OPERATING INFORMATION
Electric operations:
Operating revenues $ 730,812 $ 703,483 $ 697,427
Operating expenses, excluding
provision for income taxes 582,427 566,130 550,386
---------- ---------- ----------
Pretax operating income 148,385 137,353 147,041
---------- ---------- ----------
Gas operations:
Operating revenues 155,348 129,606 138,418
Operating expenses, excluding
provision for income taxes 139,535 117,418 126,896
---------- ---------- ----------
Pretax operating income 15,813 12,188 11,522
---------- ---------- ----------
Investments:
Operating revenues 10,555 9,173 8,770
Operating expenses, excluding
provision for income taxes 1,744 1,972 1,988
---------- ---------- ----------
Pretax investment income 8,811 7,201 6,782
---------- ---------- ----------
Total $ 173,009 $ 156,742 $ 165,345
---------- ---------- ----------
Less interest and other charges 43,395 38,955 32,309
Less income taxes 49,557 45,772 49,082
---------- ---------- ----------
Net income per Consolidated
Statements of Income $ 80,057 $ 72,015 $ 83,954
========== ========== ==========
Depreciation and amortization
expense:
Electric $ 79,699 $ 75,869 $ 74,496
Gas 7,238 6,803 6,100
Corporate 460 591 503
---------- ---------- ----------
Total $ 87,397 $ 83,263 $ 81,099
========== ========== ==========
INVESTMENT INFORMATION
Identifiable assets:
Electric $1,505,767 $1,495,433 $1,469,601
Gas 203,901 181,677 176,788
Temporary investments 3,983 7,147 5,875
Marketable securities 51,293 45,967 43,929
Leveraged leases and
energy investments 62,017 59,114 49,933
Corporate 44,695 38,573 31,231
---------- ---------- ----------
Total $1,871,656 $1,827,911 $1,777,357
========== ========== ==========
Construction expenditures:
Electric $ 93,007 $ 90,151 $ 82,673
Gas 13,594 13,631 13,928
---------- ---------- ----------
Total $ 106,601 $ 103,782 $ 96,601
========== ========== ==========
Note 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The fluctuations in quarterly results is primarily due to the seasonal
nature of the utility business of CIPS.
Cash
Earnings Dividends Book
Total Total Per Per Value
Operating Operating Net Common Common (end of
Quarters Revenues Income Income Share Share period)
(in thousands, except per share data)
1996
First $237,879 $44,416 $21,118 (1) $0.62 (1) $0.51 $19.25
Second 193,772 30,216 11,982 (2) 0.35 (2) 0.52 19.08
Third 237,281 70,244 35,418 (3) 1.04 (3) 0.52 19.60
Fourth 227,783 28,133 11,539 (4) 0.34 (4) 0.52 19.42
1995
First $210,462 $28,252 $12,568 (5) $0.37 (5) $0.50 $18.90
Second 183,944 29,158 12,886 0.38 0.51 18.80
Third 243,863 77,089 41,731 1.22 0.51 19.52
Fourth 203,993 22,243 4,830 (6) 0.14 (6) 0.51 19.12
(1) Includes $.7 million of merger costs which reduced net income by $.7
million and earnings by 2 cents per share.
(2) Includes $1.3 million of merger costs which reduced net income by $1.1
million and earnings by 3 cents per share.
(3) Includes $2.3 million of merger costs and system conversion costs
which reduced net income by $1.6 million and earnings by 5 cents per
share.
(4) Includes $2.8 million of merger costs and system conversion costs
which reduced net income by $1.7 million and earnings by 5 cents per
share.
(5) Includes $5.8 million of voluntary separation program expenses which
reduced net income by $3.5 million and earnings by 10 cents per share.
(6) Includes $10.4 million of merger-related transaction expenses and
write off of system development expenses which reduced net income by
$8.2 million and earnings by 24 cents per share.
Item 8. Financial Statements and Supplementary Data.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENTS OF INCOME
Years Ended December 31,
1996 1995 1994
(in thousands)
Operating Revenues:
Electric $ 730,834 $ 703,509 $ 697,458
Gas 155,352 129,610 138,424
---------- ---------- ----------
Total operating revenues 886,186 833,119 835,882
---------- ---------- ----------
Operating Expenses:
Fuel for electric generation 220,936 188,731 196,324
Purchased power 53,279 59,495 55,543
Gas costs 96,228 74,054 85,043
Other operation 145,332 154,014 138,622
Maintenance 61,458 67,994 65,172
Depreciation and amortization 86,937 82,672 80,596
Taxes other than income taxes 57,792 56,588 55,984
Income taxes 47,693 43,542 47,920
---------- ---------- ----------
Total operating expenses 769,655 727,090 725,204
---------- ---------- ----------
Operating Income 116,531 106,029 110,678
---------- ---------- ----------
Other Income and Deductions:
Allowance for equity funds
used during construction 378 889 630
Nonoperating income taxes 407 (941) (603)
Miscellaneous, net (2,652) (1,695) 4,119
---------- ---------- ----------
Total other income and
deductions (1,867) (1,747) 4,146
---------- ---------- ----------
Income Before Interest Charges 114,664 104,282 114,824
---------- ---------- ----------
Interest Charges:
Interest on long-term debt 33,118 32,871 32,842
Other interest charges 4,636 853 358
Allowance for borrowed funds
used during construction (483) (73) (289)
---------- ---------- ----------
Total interest charges 37,271 33,651 32,911
Net Income 77,393 70,631 81,913
Preferred stock dividends 3,721 3,850 3,510
---------- ---------- ----------
Earnings for Common Stock $ 73,672 $ 66,781 $ 78,403
========== ========== ==========
The accompanying notes to financial statements are an integral part of
these statements.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
1996 1995 1994
(in thousands)
Balance, beginning of year $ 449,137 $ 453,463 $ 443,741
Add (deduct):
Net income 77,393 70,631 81,913
Dividends:
Preferred stock (3,721) (3,850) (3,510)
Common Stock (62,950) (71,000) (68,600)
Other 83 (107) (81)
--------- --------- ---------
Balance, end of year $ 459,942 $ 449,137 $ 453,463
The accompanying notes to financial statements are an integral part of these
statements.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEETS
December 31,
1996 1995
(in thousands)
ASSETS
Utility Plant, at original cost:
Electric $2,244,571 $2,296,402
Gas 242,664 229,118
---------- ----------
2,487,235 2,525,520
Less--Accumulated depreciation 1,099,261 1,132,355
---------- ----------
1,387,974 1,393,165
Construction work in progress 70,150 72,490
---------- ----------
1,458,124 1,465,655
---------- ----------
Current Assets:
Cash 2,261 1,006
Accounts receivable, net 74,761 65,574
Accrued unbilled revenues 30,126 27,234
Materials and supplies, at
average cost 38,806 40,246
Fuel for electric generation, at
average cost 21,610 42,634
Gas stored underground, at average cost 13,361 9,774
Prepayments 14,323 10,268
Other current assets 7,704 8,226
---------- ----------
202,952 204,962
---------- ----------
Other Assets:
Regulatory Assets 64,754 19,851
Other Assets 27,488 24,337
---------- ----------
92,242 44,188
---------- ----------
$1,753,318 $1,714,805
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shareholder's equity:
Common stock, no par value,
authorized 45,000,000 shares;
outstanding 25,452,373 shares $ 121,282 $ 121,282
Retained earnings 459,942 449,137
---------- ----------
581,224 570,419
Preferred stock 80,000 80,000
Long-term debt 421,228 478,926
---------- ----------
1,082,452 1,129,345
---------- ----------
Current Liabilities:
Long-term debt due within one year 58,000 -
Short-term borrowings 57,768 47,921
Accounts payable 62,243 60,791
Accrued wages 10,279 9,320
Accrued taxes 13,943 11,155
Accrued interest 8,432 9,525
Other 49,301 33,264
---------- ----------
259,966 171,976
---------- ----------
Deferred Credits:
Accumulated deferred income taxes 303,700 293,127
Investment tax credits 48,885 52,234
Regulatory liabilities, net 58,315 68,123
---------- ----------
410,900 413,484
---------- ----------
$1,753,318 $1,714,805
========= =========
The accompanying notes to financial statements are an integral part of
these statements.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995 1994
(in thousands)
OPERATING ACTIVITIES:
Net income $ 77,393 $ 70,631 $ 81,913
Adjustments to reconcile net income
to net cash provided:
Depreciation and amortization 86,937 82,672 80,596
Allowance for equity funds used
during construction (AFUDC) (378) (889) (630)
Deferred income taxes, net 1,600 4,575 14,146
Investment tax credit amortization (3,349) (3,361) (3,367)
Cash flows impacted by changes in
assets and liabilities:
Accounts receivable, net and
accrued unbilled revenues (12,079) 5,362 2,195
Fuel for electric generation 21,024 (12,329) (4,259)
Other inventories (2,147) 2,964 2,175
Prepayments (4,055) 571 (992)
Other assets (6,656) (6,942) 6,061
Accounts payable and other 5,489 8,667 (5,438)
Accrued wages, taxes and interest 2,654 (2,204) (3,111)
Other (1,909) (8,884) 1,129
-------- -------- --------
Net cash provided by operating
activities 164,524 140,833 170,418
-------- -------- --------
INVESTING ACTIVITIES:
Construction expenditures,
excluding AFUDC (105,740) (102,820) (95,682)
Allowance for borrowed funds
used during construction (483) (73) (289)
-------- -------- --------
Net cash used in investing
activities (106,223) (102,893) (95,971)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of
long-term debt - 20,000 -
Repayment of long-term debt - (16,000) (20,000)
Proceeds from short-term borrowings 9,847 32,936 14,985
Dividends paid:
Preferred stock (3,637) (3,956) (3,510)
Common stock (62,950) (71,000) (68,600)
Issuance expense, discount and premium (306) (234) (40)
------- ------- -------
Net cash used in financing activities (57,046) (38,254) (77,165)
------- ------- -------
Net increase (decrease) in cash 1,255 (314) (2,718)
Cash at beginning of year 1,006 1,320 4,038
------- ------- -------
Cash at end of year $ 2,261 $ 1,006 $ 1,320
======= ======= =======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 36,512 $ 31,490 $ 30,693
Income taxes $ 50,960 $ 45,550 $ 39,829
The accompanying notes to financial statements are an integral part of
these statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Illinois Public
Service Company:
We have audited the accompanying balance sheets of Central Illinois Public
Service Company (an Illinois corporation and a wholly owned subsidiary of
CIPSCO Incorporated) as of December 31, 1996 and 1995, and the related
statements of income, retained earnings and cash flows for each of the
three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Central Illinois Public
Service Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 31, 1997
Notes to Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The information contained in Note 1 of Notes to Consolidated Financial
Statements beginning on page 43 is incorporated herein by reference (except
for the caption "Principles of Consolidation", the second paragraph under
the caption "Concentration of Credit Risk", the second paragraph under the
caption "Operating Revenues" and the caption "Marketable Securities" which
are not included herein).
Note 2. MERGER AGREEMENT
The information contained in Note 2 of Notes to Consolidated Financial
Statements beginning on page 46 is incorporated herein by reference.
Note 3. REGULATORY MATTERS
The information contained in Note 3 of Notes to Consolidated Financial
Statements beginning on page 47 is incorporated herein by reference.
Note 4. COMMITMENTS AND CONTINGENCIES
The information contained in Note 4 of Notes to Consolidated Financial
Statements beginning on page 49 is incorporated herein by reference.
Note 5. LEVERAGED LEASES
Not applicable.
Note 6. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The information contained in Note 6 of Notes to Consolidated Financial
Statements beginning on page 52 is incorporated herein by reference.
Note 7. PREFERRED STOCK
The information contained in Note 7 of Notes to Consolidated Financial
Statements beginning on page 56 is incorporated herein by reference.
Note 8. COMMON SHAREHOLDERS' EQUITY
Common Stock. The authorized common stock, no par value, for CIPS was
45,000,000 shares as of December 31, 1996, 1995 and 1994. All outstanding
shares were exchanged with CIPS shareholders for CIPSCO Incorporated stock
on October 1, 1990. Common shares were neither retired nor issued during
the three year period ended December 31, 1996. CIPSCO Incorporated holds
all CIPS common shares.
Retained Earnings. CIPS is subject to restrictions on the use of retained
earnings for cash dividends on common stock applicable to all corporations
under the Illinois Business Corporation Act, as well as those contained in
its mortgage indenture and articles of incorporation. At December 31,
1996, 1995 and 1994, no amount of retained earnings was restricted.
Note 9. LINES OF CREDIT AND SHORT-TERM BORROWINGS
CIPS has arrangements for bank lines of credit which totaled $77.5 million
at December 31, 1996. CIPS compensates banks for these lines of credit.
The bank lines of credit are for corporate purposes including the support
of certain commercial paper borrowings. At December 31, 1996 there were no
short-term borrowings from the lines of credit at CIPS, however, CIPS did
have $57.8 million at December 31, 1996 and $47.9 million at December 31,
1995 in commercial paper outstanding.
Note 10. LONG-TERM DEBT
The information contained in Note 10 of Notes to Consolidated Financial
Statements beginning on page 57 is incorporated herein by reference.
Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
at December 31, 1996 and 1995 of each class of financial instruments for
which it is practicable to make such estimates.
Short-Term Borrowings. The carrying amounts approximate fair value due to
their short-term maturities.
Preferred Stock. The fair value was estimated using market values provided
by independent pricing services.
Long-Term Debt. The fair value was estimated using market values provided
by independent pricing services.
The estimated fair values of CIPS' financial instruments as of
December 31, are shown below:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Preferred stock $ 80,000 $ 65,381 $ 80,000 $ 66,108
Long-term debt 421,227 430,375 478,926 501,826
Current portion
long-term debt 58,000 58,105 - -
Note 12. INCOME TAXES
CIPS uses the liability method of accounting for deferred income taxes.
Income tax expense includes provisions for deferred taxes to reflect the
effect of temporary differences between the time certain costs are recorded
for financial reporting and when they are deducted for income tax return
purposes. As temporary differences reverse, the related accumulated
deferred income taxes and a portion of the regulatory assets and
liabilities are also reversed. Investment tax credits have been deferred
and will continue to be credited to income over the lives of the related
property.
The components of federal and state income tax provisions and
investment tax credits at December 31, were:
1996 1995 1994
(in thousands)
Current - federal $ 44,139 $ 34,384 $ 32,826
- state 9,708 6,892 5,271
-------- -------- --------
53,847 41,276 38,097
Deferred - federal (3,201) 3,813 10,084
- state 396 1,814 3,106
-------- -------- --------
(2,805) 5,627 13,190
-------- -------- --------
Amortization of investment tax credits (3,349) (3,361) (3,367)
-------- -------- --------
Total 47,693 43,542 47,920
Nonoperating income taxes:
Current (382) 1,420 687
Deferred (25) (479) (84)
-------- -------- --------
(407) 941 603
-------- -------- -------
Total income taxes $ 47,286 $ 44,483 $ 48,523
======== ======== ========
Reconciliations with statutory federal income tax rates at December
31, were:
1996 1995 1994
Effective income tax rate 37.9% 38.6% 37.2%
Amortization of investment tax credits 2.7 2.9 2.6
Tax exempt interest and dividends .7 .7 .7
State income tax rate, net of federal
income tax benefits (5.2) (4.9) (4.2)
Non-deductible merger expense (0.6) (1.5) -
Other, net (0.5) (0.8) (1.3)
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
==== ==== ====
The accumulated deferred income taxes as set forth below and in the
Balance Sheets arise from the following temporary differences at December
31:
1996 1995
(in thousands)
Accumulated deferred income tax
liabilities related to:
Depreciable property $330,577 $320,677
Investment tax credits (19,502) (20,831)
Regulatory liabilities, net (22,990) (26,843)
Other 15,615 20,124
-------- --------
Accumulated deferred income taxes
per Balance Sheets $303,700 $293,127
======== ========
Deferred tax assets (included in
prepayments) $ 10,874 $ 6,444
======== ========
Note 13. DERIVATIVE FINANCIAL INSTRUMENTS
Not applicable.
Note 14. SFAS NO. 121
The information contained in Note 14 of Notes to Consolidated Financial
Statements beginning on page 61 is incorporated herein by reference.
Note 15. SEGMENTS OF BUSINESS
CIPS is a public utility engaged in the sale of electricity which it
generates, transmits and distributes. CIPS also sells natural gas, which
it purchases from producers and suppliers and distributes through its
system, and transports customer-owned natural gas. The following is a
summary of operations:
Years Ended December 31,
1996 1995 1994
(in thousands)
OPERATING INFORMATION
Electric operations:
Operating revenues $ 730,834 $ 703,509 $ 697,458
Operating expenses, excluding
provision for income taxes 582,427 566,130 550,388
---------- ---------- ----------
Pretax operating income 148,407 137,379 147,070
---------- ---------- ----------
Gas operations:
Operating revenues 155,352 129,610 138,424
Operating expenses, excluding
provision for income taxes 139,535 117,418 126,896
---------- ---------- ----------
Pretax operating income 15,817 12,192 11,528
---------- ---------- ----------
Total 164,224 149,571 158,598
---------- ---------- ----------
Plus other income and deductions (1,867) (1,747) 4,146
Less interest charges 37,271 33,651 32,911
Less income taxes 47,693 43,542 47,920
Less preferred stock dividends 3,721 3,850 3,510
---------- ---------- ----------
Earnings for common stock $ 73,672 $ 66,781 $ 78,403
========== ========== ==========
Depreciation expense:
Electric $ 79,699 $ 75,869 $ 74,496
Gas 7,238 6,803 6,100
---------- ---------- ----------
Total $ 86,937 $ 82,672 $ 80,596
========== ========== ==========
INVESTMENT INFORMATION
Identifiable assets:
Electric $1,505,767 $1,495,433 $1,469,601
Gas 203,901 181,677 176,788
Corporate 43,650 37,695 32,261
---------- ---------- ----------
Total $1,753,318 $1,714,805 $1,678,650
========== ========== ==========
Construction expenditures:
Electric $ 93,007 $ 90,151 $ 82,673
Gas 13,594 13,631 13,928
---------- ---------- ----------
Total $ 106,601 $ 103,782 $ 96,601
========== ========== ==========
Note 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The fluctuation in the quarterly results is primarily due to the
seasonal nature of the electric and gas utility business.
Total Total Common
Operating Operating Earnings for Stock
Quarters Revenues (a) Income (a) Common Stock (a) Dividends
(in thousands)
1996
First $235,714 $29,758 $19,653 (1) $16,500
Second 190,871 20,680 10,271 (2) 17,500
Third 234,904 45,282 34,029 (3) 16,250
Fourth 224,698 20,812 9,720 (4) 12,700
1995
First $208,883 $20,869 $11,803 (5) $17,500
Second 182,110 19,873 11,653 17,500
Third 241,449 49,227 40,368 17,500
Fourth 200,677 16,060 2,957 (6) 18,500
(a) The quarterly amounts for total operating revenues, total operating
income and earnings for common stock may not add to the total for the
year due to rounding.
(1) Includes $.7 million of merger costs which reduced earnings for common
stock by $.7 million.
(2) Includes $1.3 million of merger costs which reduced earnings for
common stock by $1.1 million.
(3) Includes $2.3 million of merger costs and system conversion costs
which reduced earnings for common stock by $1.6 million.
(4) Includes $2.8 million of merger costs and system conversion costs
which reduced earnings for common stock by $1.7 million.
(5) Includes $5.8 million of voluntary separation program expenses which
reduced earnings for common stock by $3.5 million.
(6) Includes $10.4 million of merger-related transaction expenses and
write off of system development expenses which reduced earnings for
common stock by $8.2 million.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None for CIPSCO or CIPS.
PART III
Item 10. Directors and Executive Officers of the Registrants.
CIPSCO
The information required by Item 10 relating to each person who is a
nominee for election as director at CIPSCO's 1997 Annual Meeting of
Shareholders is to be set forth in CIPSCO's definitive proxy statement (the
"CIPSCO Proxy Statement") to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934 in connection with CIPSCO's 1997 Annual Meeting of Shareholders. Such
information is incorporated herein by reference to the material appearing
under the caption "Election of Directors -- Director Information" in the
CIPSCO Proxy Statement. Information required by Item 10 relating to
executive officers of CIPSCO is set forth under a separate caption
"Executive Officers of CIPSCO" in Part I hereof.
CIPS
The information required by Item 10 relating to each person who is a
nominee for election as director at CIPS' 1997 Annual Meeting of
Shareholders is to be set forth in CIPS' definitive proxy statement (the
"CIPS Proxy Statement") to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934 in connection with CIPS' 1997 Annual Meeting of Shareholders. Such
information is incorporated herein by reference to the material appearing
under the caption "Election of Directors -- Director Information" in the
CIPS Proxy Statement. Information required by Item 10 relating to
executive officers of CIPS is set forth under a separate caption "Executive
Officers of CIPS" in Part I hereof.
Item 11. Executive Compensation.
CIPSCO
The information required by Item 11 is to be set forth in the CIPSCO
Proxy Statement. Such information is incorporated herein by reference to
the material appearing under the caption "Election of Directors --
Executive Compensation" and -- "Directors' Compensation" appearing in the
CIPSCO Proxy Statement; provided, however, that no part of the information
appearing under the portion of the CIPSCO Proxy Statement entitled
"Election of Directors -- Compensation Committee Report on Executive
Compensation" or -- "Total Return Summary Based on Initial Investment of
$100 on December 31, 1991" is deemed to be filed as part of this Form 10-K
Annual Report.
CIPS
The information required by Item 11 is to be set forth in the CIPS
Proxy Statement. Such information is incorporated herein by reference to
the material appearing under the caption "Election of Directors --
Executive Compensation" and -- "Directors' Compensation" appearing in the
CIPS Proxy Statement; provided, however, that no part of the information
appearing under the portion of the CIPS Proxy Statement entitled "Election
of Directors -- Compensation Committee Report on Executive Compensation" or
- -- "Total Return Summary Based on Initial Investment of $100 on December 31,
1991" is deemed to be filed as part of this Form 10-K
Annual Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
CIPSCO
The information required by Item 12 is to be set forth in the CIPSCO
Proxy Statement. Such information is incorporated herein by reference to
the material appearing under the captions "Voting Securities Beneficially
Owned by Principal Holders, Directors, Nominees and Executive Officers" and
"Election of Directors -- Director Information" appearing in the CIPSCO
Proxy Statement.
CIPS
The information required by Item 12 is to be set forth in the CIPS
Proxy Statement. Such information is incorporated herein by reference to
the material appearing under the captions "Voting Securities Beneficially
Owned by Principal Holders, Directors, Nominees and Executive Officers" and
"Election of Directors -- Director Information" appearing in the CIPS Proxy
Statement.
Item 13. Certain Relationships and Related Transactions.
CIPSCO AND CIPS
CIPSCO is the parent company of CIPS. At December 31, 1996, CIPSCO
owned 100% of the common stock of CIPS (representing 96% of the voting
shares of CIPS). There are situations where CIPS interacts with its
affiliated companies through the use of shared facilities, common employees
and other business relationships. In these situations, CIPS receives
payment in accordance with regulatory requirements for the services
provided to affiliated companies.
Each individual who is a member of the Board of Directors of CIPSCO is
also a member of the Board of Directors of CIPS. Each of the officers of
CIPSCO is also an officer of CIPS.
PART IV
CIPSCO AND CIPS
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page of this report
on Form 10-K
Pro
CIPSCO CIPS Forma
(a) 1. Financial statements
Statements of Income for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . 38 64 -
Statements of Retained Earnings for the years
ended December 31, 1996, 1995 and 1994 . . . . 38 64 -
Balance Sheets - December 31, 1996 and 1995 . . 39 65 -
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . 40 66 -
Report of Independent Public Accountants. . . . 42 68 -
Notes to Financial Statements . . . . . . . . . 43 69 -
The CIPSCO consolidated financial statements,
including notes, are not included in the CIPS
Annual Report on Form 10-K.
(a) 2. Schedules supporting financial statements. . . . - - -
All Financial Statement Schedules have been
omitted as not applicable or not required
or because the information required to be
shown therein is included in the financial
statements or notes thereto.
(a) 3. Unaudited Pro Forma Combined Condensed Financial
Information of CIPSCO And Union Electric
Balance Sheet - December 31, 1996 . . . . . . - - 84
Statements of Income for the years ended
December 31, 1996, 1995 and 1994. . . . . . - - 85
Notes to Unaudited Pro Forma Combined
Condensed Financial Statements. . . . . . . - - 88
Applicable to
Form 10-K of
CIPSCO CIPS
(a) 4. Exhibits
2.01 Agreement and Plan of Merger, dated as
of August 11, 1995, by and among CIPSCO
Incorporated, Union Electric Company, Ameren
Corporation and Arch Merger Inc. (Exhibit 2(a)
filed with CIPSCO's and CIPS' Form 10-Q/A
(Amendment No. 1) for the quarter ended June 30,
1995.) Incorporated by Reference. . . . . . . X X
3.01 Amended and Restated Articles of Incorporation
of CIPSCO. (Exhibit 3.01 filed with CIPSCO's
1990 Annual Report on Form 10-K.) Incorporated
by Reference . . . . . . . . . . . . . . . . . . . X
3.02 Restated Articles of Incorporation of CIPS.
(Exhibit 3(b) filed with CIPS' Form 10-Q for
the quarter ended March 31, 1994.) Incorporated
by Reference . . . . . . . . . . . . . . . . . . . X
3.03 Bylaws of CIPSCO (Exhibit 3.02 filed with CIPSCO's
1993 Annual Report on Form 10-K.) Incorporated by
Reference. . . . . . . . . . . . . . . . . . . . . X
3.04 Bylaws of CIPS (Exhibit 3(c) filed with CIPS'
Form 10-Q for the quarter ended March 31, 1994.)
Incorporated by Reference. . . . . . . . . . . . . X
Applicable to
Form 10-K of
Exhibits (Continued) CIPSCO CIPS
4 Indenture of Mortgage or Deed of Trust dated October
1, 1941, from CIPS to Continental Illinois National Bank and
Trust Company of Chicago and Edmond B. Stofft, as Trustees.
(Exhibit 2.01 in File No. 2-60232.) Supplemental Indentures
dated, respectively September 1, 1947, January 1, 1949,
February 1, 1952, September 1, 1952, June 1, 1954,February 1,
1958, January 1, 1959, May 1, 1963, May 1, 1964, June 1, 1965,
May 1, 1967, April 1, 1970, April 1, 1971, September 1, 1971,
May 1, 1972, December 1, 1973, March 1, 1974, April 1, 1975,
October 1, 1976, November 1, 1976, October 1, 1978, August 1,
1979, February 1, 1980, February 1, 1986, May 15, 1992,
July 1, 1992, September 15, 1992, April 1, 1993, and June 1,
1995 between CIPS and the Trustees under the Indenture of
Mortgage or Deed of Trust referred to above (Amended Exhibit
7(b) in File No. 2-7341; Second Amended Exhibit 7.03 in File
No. 2-7795; Second Amended Exhibit 4.07 in File No. 2-9353;
Amended Exhibit 4.05 in file No. 2-9802; Amended Exhibit 4.02
in File No. 2-10944; Amended Exhibit 2.02 in File No. 2-13866;
Amended Exhibit 2.02 in File No. 2-14656; Amended Exhibit 2.02
in File No. 2-21345; Amended Exhibit 2.02 in File No. 2-22326;
Amended Exhibit 2.02 in File No. 2-23569; Amended Exhibit 2.02
in File No. 2-26284; Amended Exhibit 2.02 in File No. 2-36388;
Amended Exhibit 2.02 in File No. 2-39587; Amended Exhibit 2.02
in File No. 2-41468; Amended Exhibit 2.02 in File No. 2-43912;
Exhibit 2.03 in File No. 2-60232; Amended Exhibit 2.02 in
File No. 2-50146; Amended Exhibit 2.02 in File No. 2-52886;
Second Amended Exhibit 2.04 in File No. 2-57141; Amended Exhibit
2.04 in File No. 2-57557; Amended Exhibit 2.06 in File No.
2-62564; Exhibit 2.02(a) in File No. 2-65914; Amended Exhibit
2.02(a) in File No. 2-66380; and Amended Exhibit 4.02 in File No.
33-3188; Exhibit 4.02 to Form 8-K dated May 15, 1992; Exhibit
4.02 to Form 8-K dated July 1, 1992; Exhibit 4.02 to Form 8-K
dated September 15, 1992; Exhibit 4.02 to Form 8-K dated March 30,
1993; Exhibit 4.03 to Form 8-K dated June 5, 1995.) Incorporated
by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . X X
Applicable to
Form 10-K of
CIPSCO CIPS Page(s)
Exhibits (Continued)
10.01 Form of Deferred Compensation Agreement for
Directors (Exhibit 10.01 filed with
CIPSCO's and CIPS' 1990 Annual Report on
Form 10-K) Incorporated by Reference. . . . . . X X -
10.02 Amended Form of Deferred Compensation
Agreement for Directors (Exhibit 10.02
filed with CIPSCO's and CIPS' 1993
Annual Report on Form 10-K) Incorporated
by Reference. . . . . . . . . . . . . . . . . . X X -
10.03 Form of Management Continuity Agreement
(Exhibit 10.05 filed with CIPSCO's and
CIPS' 1994 Annual Report on Form 10-K.)
Incorporated by Reference . . . . . . . . . . . X X -
10.04 Form of Director's Retirement Income Plan
(Exhibit 10.06 filed with CIPSCO's and
CIPS' 1990 Annual Report on Form 10-K)
Incorporated by Reference . . . . . . . . . . . X X -
10.05 Form of Management Incentive Plan (Exhibit
10.09 filed with CIPSCO's and CIPS' 1990
Annual Report on Form 10-K) Incorporated
by Reference . . . . . . . . . . . . . . . . . . X X -
10.06 Form of Excess Benefit Plan
(Exhibit 10.10 filed with CIPSCO's and
CIPS' 1994 Annual Report on Form 10-K.)
Incorporated by Reference . . . . . . . . . . . X X -
10.07 Amendment to Form of Excess Benefit Plan
(Exhibit 10.07 filed with CIPSCO's and
CIPS' 1995 Annual Report on Form 10-K.)
Incorporated by Reference . . . . . . . . . . . X X -
10.08 Form of Special Executive Retirement Plan
(Exhibit 10.11 filed with CIPSCO's and
CIPS' 1994 Annual Report on Form 10-K.)
Incorporated by Reference . . . . . . . . . . . X X -
10.09 Amendment to Form of Special Executive
Retirement Plan (Exhibit 10.09 filed with
CIPSCO's and CIPS' 1995 Annual Report
on Form 10-K.) Incorporated by Reference . . . X X -
10.10 Stock Option Agreement, dated as of August
11, 1995, by and between CIPSCO Incorporated
and Union Electric Company. (Exhibit
10(a) filed with CIPSCO's and CIPS' Form
10-Q for the quarter ended June 30, 1995.)
Incorporated by Reference . . . . . . . . . . . X X -
Applicable to
Form 10-K of
CIPSCO CIPS Page(s)
Exhibits (Continued)
10.11 Stock Option Agreement, dated as of August
11, 1995, by and between Union Electric
Company and CIPSCO Incorporated. (Exhibit
10(b) filed with CIPSCO's and CIPS' Form
10-Q for the quarter ended June 30, 1995.)
Incorporated by Reference . . . . . . . . . . . X X -
12.01 Computation of Ratio of Earnings to Fixed
Charges - CIPSCO. . . . . . . . . . . . . . . . X 92
12.02 Computation of Ratio of Earnings to Fixed
Charges - CIPS. . . . . . . . . . . . . . . . . X 93
21 Subsidiaries of CIPSCO and CIPS . . . . . . . . X X 94
23.01 Consent of Independent Public Accountants -
CIPSCO. . . . . . . . . . . . . . . . . . . . . X 95
23.02 Consent of Independent Public Accountants -
CIPS. . . . . . . . . . . . . . . . . . . . . . X 96
24.01 Powers of Attorney - CIPSCO . . . . . . . . . . X 97-103
24.02 Powers of Attorney - CIPS . . . . . . . . . . . X 104-110
27.1 Financial Data Schedule of CIPSCO*. . . . . . . X -
27.2 Financial Data Schedule of CIPS*. . . . . . . . X -
99.01 Description of Capital Stock - CIPSCO . . . . . X 111-113
99.02 Description of Capital Stock - CIPS . . . . . . X 114-115
99.03 Cautionary Factors regarding Forward Looking
Statements. . . . . . . . . . . . . . . . . . . X X 116-117
Exhibits 10.01 through 10.11 are management contracts or compensatory
plans or arrangements required to be filed as exhibits pursuant to Item
14(c) hereof.
* Included in electronic filing only.
The following instruments defining the rights of holders of certain
unregistered long-term debt of CIPS have not been filed with the Securities
and Exchange Commission but will be furnished upon request.
1. Loan Agreement dated as of March 1, 1990, between CIPS and the
Illinois Development Finance Authority (IDFA) in connection with the
IDFA's $20,000,000 Pollution Control Revenue Refunding Bonds, 1990
Series A due March 1, 2014 and $32,000,000 Pollution Control Revenue
Refunding Bonds, 1990 Series B due September 1, 2013.
2. Loan Agreement dated January 1, 1993, between CIPS and IDFA in
connection with IDFA's $35,000,000, 6-3/8% Pollution Control
Revenue Refunding Bonds (Central Illinois Public Service Company
Project) 1993 Series A, due January 1, 2028.
3. Loan Agreement dated June 1, 1993, between CIPS and IDFA in
connection with IDFA's $17,500,000 Pollution Control Revenue
Refunding Bonds, 1993 Series B-1 due June 1, 2028 and $17,500,000
Pollution Control Revenue Refunding Bonds, 1993 Series B-2 due June
1, 2028.
4. Loan Agreement dated August 15, 1993, between CIPS and IDFA in
connection with IDFA's $35,000,000 Pollution Control Revenue
Refunding Bonds, 1993 Series C-1 due August 15, 2026 and $25,000,000
Pollution Control Revenue Refunding Bonds, 1993 Series C-2 due
August 15, 2026.
5. CIPS Credit Agreements (effective February 12, 1997) with
various banks providing $75,000,000 of unsecured long-term lines of
credit.
(b) Reports on Form 8-K
Registrant CIPSCO and CIPS
Date of Report Item Reported
December 23, 1996 Item 5. Other Events.
Reports information regarding CIPS' coal
contract restructuring, legislative issues
related to utility restructuring in Illinois,
competitive pressure affecting energy sales, and
cautionary statements, assumptions and other
factors related to forward-looking statements
within the meaning of the Private Securities
Litigation Act of 1995.
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
OF CIPSCO AND UNION ELECTRIC
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 merger. The unaudited pro forma combined condensed balance sheet at
December 31, 1996 gives effect to the merger as if it had occurred at
December 31, 1996. The unaudited pro forma combined condensed statements
of income for each of the three years ended December 31, 1996, 1995 and
1994 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 CIPSCO and Union Electric. 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.
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
AT DECEMBER 31, 1996
(Thousands of Dollars)
Pro Forma
As Reported (Note 1) Adjustments Pro Forma
ASSETS UE CIPSCO (Notes 2, 9) Combined
Property and plant
Electric $ 8,630,628 $ 2,244,571 $ 376,896 $ 11,252,095
Gas 185,867 242,664 - 428,531
Other 35,965 - - 35,965
____________ ____________ __________ _____________
8,852,460 2,487,235 376,896 11,716,591
Less accumulated
depreciation and
amortization 3,656,890 1,099,261 267,895 5,024,046
____________ ____________ __________ _____________
5,195,570 1,387,974 109,001 6,692,545
Construction work
in progress:
Nuclear fuel in
process 96,147 - - 96,147
Other 90,953 70,150 1,311 162,414
____________ ____________ __________ _____________
Total
property and
plant, net 5,382,670 1,458,124 110,312 6,951,106
Regulatory assets:
Deferred income
taxes (Note 6) 692,171 42,035 - 734,206
Other 178,760 64,754 - 243,514
____________ ____________ __________ _____________
Total
regulatory
assets 870,931 106,789 - 977,720
Other assets:
Unamortized debt
expense 10,591 2,871 591 14,053
Nuclear
decommissioning
trust fund 96,601 - - 96,601
Investments in
nonregulated
activities - 113,310 - 113,310
Other 27,377 25,624 (2,399) 50,602
_____________ ___________ ___________ ____________
Total other
assets 134,569 141,805 (1,808) 274,566
Current assets:
Cash and temporary
investments 4,897 6,270 4,715 15,882
Accounts receivable, net 192,868 56,473 19,344 268,685
Unbilled revenue 76,190 30,126 - 106,316
Materials and supplies,
at average cost -
Fossil fuel 63,651 34,971 7,531 106,153
Other 94,517 38,806 4,630 137,953
Other 50,516 40,327 3,343 94,186
____________ ___________ __________ _____________
Total current
assets 482,639 206,973 39,563 729,175
____________ ___________ __________ _____________
Total Assets $ 6,870,809 $ 1,913,691 $ 148,067 $ 8,932,567
============ =========== ========== =============
CAPITAL AND LIABILITIES
Capitalization:
Common stock (Note 2) $ 510,619 $ 356,812 $ (866,059) $ 1,372
Other stockholders'
equity (Note 2) 1,844,182 304,782 866,059 3,015,023
____________ ___________ __________ _____________
Total common
stockholders'
equity 2,354,801 661,594 - 3,016,395
Preferred stock of
subsidiary 219,121 80,000 - 299,121
Long-term debt 1,798,671 421,227 130,000 2,349,898
____________ ___________ __________ _____________
Total
capitalization 4,372,593 1,162,821 130,000 5,665,414
Minority interest in
consolidated subsidiary - - 3,534 3,534
Accumulated deferred
income taxes 1,318,404 341,373 (6,682) 1,653,095
Accumulated deferred
investment tax credits 160,342 48,885 - 209,227
Regulatory liability 203,822 100,350 - 304,172
Accumulated provision
for nuclear
decommissioning 98,274 - - 98,274
Other deferred credits
and liabilities 156,913 35,737 4,733 197,383
Current liabilities:
Current maturity of
long-term debt 73,966 58,000 - 131,966
Short-term debt 11,300 57,768 - 69,068
Accounts payable 170,383 62,774 13,600 246,757
Wages payable 39,966 10,294 - 50,260
Taxes accrued 95,478 13,692 8 109,178
Interest accrued 45,173 8,432 416 54,021
Other 124,195 13,565 2,458 140,218
____________ ___________ __________ _____________
Total current
liabilities 560,461 224,525 16,482 801,468
____________ ___________ __________ _____________
Total Capital and
Liabilities $ 6,870,809 $ 1,913,691 $ 148,067 $ 8,932,567
============ =========== ========== =============
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars Except Shares and Per Share Amounts)
CIPSCO
(As
UE Reported) Pro Forma
(As Reported) (Notes Adjustments Pro Forma
(Notes 1,4,10) 1,4) (Notes 2,9) Combined
_____________ _________ _________ ___________
OPERATING REVENUES:
Electric $ 2,160,815 $ 730,812 $ 175,313 $ 3,066,940
Gas 99,064 155,348 - 254,412
Other 485 10,555 1,113 12,153
_____________ _________ _________ ___________
Total operating
revenues 2,260,364 896,715 176,426 3,333,505
OPERATING EXPENSES:
Operations
Fuel and purchased power 512,832 274,215 93,158 880,204
Gas Costs 64,548 96,228 - 160,776
Other 379,106 146,588 18,304 543,998
_____________ _________ _________ ___________
956,485 517,031 111,462 1,584,978
Maintenance 223,632 61,461 17,110 302,203
Depreciation and
amortization 241,298 87,397 15,665 344,360
Income taxes (Note 7) 197,369 49,557 7,943 254,869
Other taxes 213,266 57,817 1,951 273,034
_____________ _________ _________ ___________
Total operating
expenses 1,832,050 773,263 154,131 2,759,444
OPERATING INCOME 428,314 123,452 22,295 574,061
OTHER INCOME AND DEDUCTIONS:
Allowance for equity
funds used during
construction 6,492 378 - 6,870
Minority interest in
consolidated subsidiary - - (4,875) (4,875)
Miscellaneous, net (4,293) (2,784) (7,413) (14,490)
_____________ __________ ________ __________
Total other income
and deductions,
net 2,199 (2,406) (12,288) (12,495)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 430,513 121,046 10,007 561,566
INTEREST CHARGES AND
PREFERRED DIVIDENDS:
Interest 132,644 37,751 10,007 180,402
Allowance for borrowed
funds used during
construction (7,007) (483) - (7,490)
Preferred dividends
of subsidiaries (Note 8) 13,249 3,721 - 16,970
_____________ _________ _________ ___________
Net interest charges
and preferred
dividends 138,886 40,989 10,007 189,882
NET INCOME $ 291,627 $ 80,057 $ - $ 371,684
============== ========= ========== ===========
EARNINGS PER SHARE OF
COMMON STOCK
(BASED ON AVERAGE SHARES
OUTSTANDING) $2.86 $2.35 $2.71
===== ===== =====
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.
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 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 1,3,4) (Notes 2,9) Combined
_____________ __________ __________ ____________
OPERATING REVENUES:
Electric $ 2,154,109 $ 703,483 $ 155,935 $ 3,013,527
Gas 87,814 129,606 - 217,420
Other 441 9,173 362 9,976
_____________ __________ __________ ____________
Total operating
revenues 2,242,364 842,262 156,297 3,240,923
OPERATING EXPENSES:
Operations
Fuel and purchased power 504,815 248,226 70,910 823,951
Gas Costs 51,251 74,054 - 125,305
Other 367,870 155,368 19,148 542,386
_____________ __________ __________ ____________
923,936 477,648 90,058 1,491,642
Maintenance 221,609 67,996 17,941 307,546
Depreciation and
amortization 233,237 83,263 15,747 332,247
Income taxes (Note 7) 209,541 45,772 7,857 263,170
Other taxes 212,145 56,613 1,912 270,670
_____________ __________ __________ ____________
Total operating
expenses 1,800,468 731,292 133,515 2,665,275
OPERATING INCOME 441,896 110,970 22,782 575,648
OTHER INCOME AND DEDUCTIONS:
Allowance for equity
funds used during
construction 6,827 889 - 7,716
Minority interest in
consolidated subsidiary - - (4,558) (4,558)
Miscellaneous, net (5,981) (2,298) (7,908) (16,187)
_____________ ___________ _________ ____________
Total other income and
deductions, net 846 (1,409) (12,466) 13,029
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 442,742 109,561 10,316 562,619
INTEREST CHARGES AND
PREFERRED DIVIDENDS:
Interest 134,741 33,769 10,316 178,826
Allowance for borrowed
funds used during
construction (6,106) (73) - (6,179)
Preferred dividends
of subsidiaries (Note 8) 13,250 3,850 - 17,100
_____________ ___________ _________ ___________
Net interest charges
and preferred
dividends 141,885 37,546 10,316 189,747
NET INCOME $ 300,857 $ 72,015 $ - $ 372,872
============= =========== ========= ===========
EARNINGS PER SHARE
OF COMMON STOCK
(BASED ON AVERAGE
SHARES OUTSTANDING) $2.95 $2.11 $2.72
===== ===== =====
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.
AMEREN CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 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 $ 2,137,355 $ 697,427 $ 200,730 $ 3,035,512
Gas 86,109 138,418 - 224,527
Other 474 8,770 188 9,432
_____________ _____________ __________ ___________
Total operating
revenues 2,223,938 844,615 200,918 3,269,471
OPERATING EXPENSES:
Operations
Fuel and purchased power 497,384 251,867 113,166 862,417
Gas Costs 60,096 85,043 - 145,139
Other 375,570 140,068 19,952 535,590
_____________ _____________ __________ ___________
933,050 476,978 133,118 1,543,146
Maintenance 197,760 65,176 19,076 282,012
Depreciation and
amortization 226,045 81,099 13,776 320,920
Income taxes (Note 7) 206,421 49,082 9,739 265,242
Other taxes 210,476 56,017 1,929 268,422
_____________ _____________ __________ ___________
Total operating
expenses 1,773,752 728,352 177,638 2,679,742
OPERATING INCOME 450,186 116,263 23,280 589,729
OTHER INCOME AND DEDUCTIONS:
Allowance for equity
funds used during
construction 5,767 630 - 6,397
Minority interest in
consolidated subsidiary - - (5,554) (5,554)
Miscellaneous, net 403 3,502 (8,297) (4,392)
____________ _____________ ___________ ___________
Total other income
and deductions, net 6,170 4,132 (13,851) (3,549)
INCOME BEFORE INTEREST CHARGES
AND PREFERRED DIVIDENDS 456,356 120,395 9,429 586,180
INTEREST CHARGES AND
PREFERRED DIVIDENDS:
Interest 141,112 33,220 9,429 183,761
Allowance for borrowed
funds used during
construction (5,513) (289) - (5,802)
Preferred dividends of
subsidiaries (Note 8) 13,252 3,510 - 16,762
_____________ _____________ ___________ _________
Net interest charges
and preferred
dividends 148,851 36,441 9,429 194,721
NET INCOME $ 307,505 $ 83,954 $ - $ 391,459
============= ============= =========== =========
EARNINGS PER SHARE
OF COMMON STOCK
(BASED ON AVERAGE SHARES
OUTSTANDING) $3.01 $2.46 $2.85
===== ===== =====
AVERAGE COMMON SHARES
OUTSTANDING (Note 2) 102,123,834 34,106,585 1,023,198 137,253,617
============ =============== =========== ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
AMEREN CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. Reclassifications were 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 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 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. CIPSCO's net income for the year ended December 31, 1995 included pre-
tax charges of $5.8 million for the voluntary separation program, and
a pretax charge of $5.7 million for merger-related write-offs
involving previously deferred system development costs.
4. The allocation between Union Electric 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 fees for financial advisors,
attorneys, accountants, consultants, filings, printing, system
integration, relocation, etc.). 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 twelve months ended December 31, 1996 and 1995, included
merger-related costs of $7.9 million and $9 million, net of income
taxes, for Union Electric, and $4.9 million and $4.7 million, net of
income taxes, for CIPSCO, respectively.
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.
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. Union
Electric 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
Union Electric, CIPSCO and EEI have been eliminated.
10. Net income for the twelve months ended December 31, 1996 and 1995
included credits for Missouri electric customers which reduced
revenues and pre-tax income of Union Electric by $47 and $30 million,
respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CIPSCO Incorporated
(Registrant)
By /s/ C. L. GREENWALT
_____________________________________
C. L. Greenwalt
President and Chief Executive Officer
Date: March 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
Signature Title
Principal Executive Officer:
/s/ C. L. GREENWALT
C. L. GREENWALT President and Chief Executive Officer
and Director
Principal Financial Officer:
/s/ W. A. KOERTNER
W. A. KOERTNER Vice President, Chief Financial Officer,
Secretary, and as Attorney-in-Fact*
Principal Accounting Officer:
/s/ F. J. KINSINGER
F. J. KINSINGER Controller and Chief Accounting Officer
JOHN L. HEATH* Director
ROBERT W. JACKSON* Director
GORDON R. LOHMAN* Director
RICHARD A. LUMPKIN* Director
HANNE M. MERRIMAN* Director
THOMAS L. SHADE* Director
JAMES W. WOGSLAND* Director
Date: March 10, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Registrant)
By /s/ C. L. GREENWALT
_____________________________________
C. L. Greenwalt
President and Chief Executive Officer
Date: March 10, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
Signature Title
Principal Executive Officer:
/s/ C. L. GREENWALT
C. L. GREENWALT President and Chief Executive Officer
and Director
Principal Financial Officer:
/s/ W. A. KOERTNER
W. A. KOERTNER Vice President and Secretary, and as
Attorney-in-Fact*
Principal Accounting Officer:
/s/ F. J. KINSINGER
F. J. KINSINGER Controller
JOHN L. HEATH* Director
ROBERT W. JACKSON* Director
GORDON R. LOHMAN* Director
RICHARD A. LUMPKIN* Director
HANNE M. MERRIMAN* Director
THOMAS L. SHADE* Director
JAMES W. WOGSLAND* Director
Date: March 10, 1997