UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended September 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
Exact Name of Registrant as specified in its charter;
Commission State of Incorporation; IRS Employer
File Number Address and Telephone Number Identification No.
----------- ---------------------------- ------------------
1-14756 Ameren Corporation 43-1723446
(Missouri Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
1-2967 Union Electric Company 43-0559760
(Missouri Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
1-3672 Central Illinois Public Service Company 37-0211380
(Illinois Corporation)
607 East Adams Street
Springfield, Illinois 62739
(217) 523-3600
333-56594 Ameren Energy Generating Company 37-1395586
(Illinois Corporation)
1901 Chouteau Avenue
St. Louis, Missouri 63103
(314) 621-3222
2-95569 CILCORP Inc. 37-1169387
(Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230
1-2732 Central Illinois Light Company 37-0211050
(Illinois Corporation)
300 Liberty Street
Peoria, Illinois 61602
(309) 677-5230
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
registrant was 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 whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Ameren Corporation Yes (X) No ( )
Union Electric Company Yes ( ) No (X)
Central Illinois Public Service Company Yes ( ) No (X)
Ameren Energy Generating Company Yes ( ) No (X)
CILCORP Inc. Yes ( ) No (X)
Central Illinois Light Company Yes ( ) No (X)
Number of shares outstanding of each of the registrant's classes of common stock
as of November 7, 2003:
Ameren Corporation Common stock, $.01 par value - 162,400,592
Union Electric Company Common stock, $5 par value, held by Ameren Corporation
(parent company of the registrant) -
102,123,834
Central Illinois Public Service Company Common stock, no par value, held by
Ameren Corporation (parent company of the registrant) -
25,452,373
Ameren Energy Generating Company Common stock, no par value, held by
Ameren Energy Development Company (parent company
of the registrant and indirect subsidiary of Ameren
Corporation) - 2,000
CILCORP Inc. Common stock, no par value, held by Ameren
Corporation (parent company of the registrant) -
1,000
Central Illinois Light Company Common stock, no par value, held by CILCORP
Inc. (parent company of the registrant and
subsidiary of Ameren Corporation) - 13,563,871
This combined Form 10-Q is separately filed by Ameren Corporation, Union
Electric Company, Central Illinois Public Service Company, Ameren Energy
Generating Company, CILCORP Inc. and Central Illinois Light Company. Each
registrant hereto is filing on its own behalf all of the information contained
in this quarterly report that relates to such registrant. Each registrant hereto
is not filing any information that does not relate to such registrant, and
therefore makes no representation as to any such information.
Prior to this quarterly report on Form 10-Q, separate filings were made by each
registrant, except CILCORP Inc. and Central Illinois Light Company, which made a
combined filing. Ameren Corporation and its subsidiaries switched to a combined
filing in order to improve disclosure and to simplify administrative processes.
OMISSION OF CERTAIN INFORMATION
Ameren Energy Generating Company meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with
the reduced disclosure format.
AMEREN CORPORATION
UNION ELECTRIC COMPANY
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
AMEREN ENERGY GENERATING COMPANY
CILCORP INC.
CENTRAL ILLINOIS LIGHT COMPANY
TABLE OF CONTENTS
Page
----
GLOSSARY OF TERMS AND ABBREVIATIONS...................................................................................... 3
PART I. Financial Information
ITEM 1. Financial Statements (Unaudited)
Ameren Corporation
Consolidated Balance Sheet.............................................................................. 6
Consolidated Statement of Income........................................................................ 7
Consolidated Statement of Cash Flows.................................................................... 8
Union Electric Company
Consolidated Balance Sheet.............................................................................. 9
Consolidated Statement of Income........................................................................ 10
Consolidated Statement of Cash Flows.................................................................... 11
Central Illinois Public Service Company
Balance Sheet........................................................................................... 12
Statement of Income..................................................................................... 13
Statement of Cash Flows................................................................................. 14
Ameren Energy Generating Company
Balance Sheet........................................................................................... 15
Statement of Income..................................................................................... 16
Statement of Cash Flows................................................................................. 17
CILCORP Inc.
Consolidated Balance Sheet.............................................................................. 18
Consolidated Statement of Income........................................................................ 19
Consolidated Statement of Cash Flows.................................................................... 20
1
Central Illinois Light Company
Consolidated Balance Sheet.............................................................................. 21
Consolidated Statement of Income........................................................................ 22
Consolidated Statement of Cash Flows.................................................................... 23
Combined Notes to Financial Statements.................................................................. 24
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 52
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 71
ITEM 4. Controls and Procedures................................................................................. 75
Forward-Looking Statements.............................................................................. 75
PART II. Other Information
ITEM 1. Legal Proceedings....................................................................................... 77
ITEM 6. Exhibits and Reports on Form 8-K........................................................................ 77
SIGNATURES................................................................................................................ 80
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
should be read with the cautionary statements and important factors included in
this Form 10-Q at Part I under the heading "Forward-Looking Statements."
Forward-looking statements are all statements other than statements of
historical fact, including those statements that are identified by the use of
the words "anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and similar expressions.
2
GLOSSARY OF TERMS AND ABBREVIATIONS
AERG - AmerenEnergy Resources Generating Company, a non rate-regulated
subsidiary of CILCO, which was formerly known as Central Illinois Generation,
Inc.
AES - The AES Corporation.
AFS - Ameren Energy Fuels and Services Company, a subsidiary of Resources
Company, which procures fuel and gas and manages the related risks for the
Ameren Companies.
Ameren - Ameren Corporation and its subsidiaries on a consolidated basis. When
referring to financing or acquisition activities, Ameren is defined as Ameren
Corporation, the parent.
Ameren Companies - The individual registrants within the Ameren consolidated
group.
Ameren Energy - Ameren Energy, Inc., a subsidiary of Ameren Corporation, which
serves as a power marketing and risk management agent for the Ameren Companies
for transactions of primarily less than one year.
Ameren Services - Ameren Services Company, a subsidiary of Ameren Corporation,
which provides a variety of support services to Ameren and its subsidiaries.
ARB - Accounting Research Bulletin.
CERCLA (Superfund) - Comprehensive Environmental Response Compensation Liability
Act of 1980, which is federal environmental legislation that addresses
remediation of contaminated sites.
CESI - CILCORP Energy Services, Inc., a subsidiary of CILCORP, which operates
gas management services that include commodity procurement and re-delivery to
retail customers.
CILCORP - CILCORP Inc., a subsidiary of Ameren Corporation, which operates as a
holding company for CILCO.
CILCO - Central Illinois Light Company, a subsidiary of CILCORP, which operates
a rate-regulated transmission and distribution business, an electric generation
business, and a rate-regulated natural gas distribution business in Illinois as
AmerenCILCO.
CIPS - Central Illinois Public Service Company, a subsidiary of Ameren
Corporation, which operates a rate-regulated electric and natural gas
transmission and distribution business in Illinois as AmerenCIPS.
Development Company - Ameren Energy Development Company, a subsidiary of
Resources Company, which develops and constructs generating facilities for
Genco.
DOJ - Department of Justice, a governmental agency of the United States of
America.
EEI - Electric Energy, Inc., a 60%-owned subsidiary of Ameren, which is 40%
owned by UE and 20% owned by Resources Company.
EITF - Emerging Issues Task Force, an organization that is designed to assist
the FASB in improving financial reporting through the identification, discussion
and resolution of financial issues within the framework of existing
authoritative literature.
EPA - Environmental Protection Agency, a governmental agency of the United
States of America.
ERISA - Employee Retirement Income Security Act of 1974.
3
Exchange Act - Securities Exchange Act of 1934, as amended.
FASB - Financial Accounting Standards Board, a rulemaking organization that
establishes financial accounting and reporting standards in the United States of
America.
FERC - Federal Energy Regulatory Commission, the governmental agency of the
United States of America that, among other things, regulates interstate
transmission and wholesale sales of electricity and gas and related matters.
FIN - FASB Interpretation, intended to clarify accounting pronouncements
previously issued by the FASB.
GAAP - Generally accepted accounting principles in the United States of America.
Genco - Ameren Energy Generating Company, a subsidiary of Development Company,
which operates a non rate-regulated electric generation business in Illinois and
Missouri.
GridAmerica Companies - UE, CIPS, American Transmission Systems Incorporated, a
subsidiary of FirstEnergy Corporation, and Northern Indiana Public Service
Company, a subsidiary of NiSource, Inc.
IBEW - International Brotherhood of Electrical Workers.
ICC - Illinois Commerce Commission, a state agency that regulates the Illinois
utility businesses and operations of UE, CIPS and CILCO.
ITC - Independent Transmission Company.
IUOE - International Union of Operating Engineers.
LIBOR - London Interbank Offered Rate.
MAIN - Mid-America Interconnected Network, one of the regional electric
reliability councils organized for coordinating the planning and operation of
the nation's bulk power supply.
Marketing Company - Ameren Energy Marketing Company, a subsidiary of Resources
Company, which markets power for periods primarily over one year.
Medina Valley - AmerenEnergy Medina Valley Cogen (No. 4), LLC and its
subsidiaries, subsidiaries of Resources Company, which indirectly owns a 40
megawatt, gas-fired electric generation plant.
Midwest ISO - Midwest Independent System Operator.
MoPSC - Missouri Public Service Commission, a state agency that regulates the
Missouri utility business and operations of UE.
NOPR - Notice of Proposed Rulemaking issued by the FERC.
NRG - NRG Energy, Inc.
NSR - New Source Review programs under the federal Clean Air Act.
NYMEX - New York Mercantile Exchange.
OATT - Open Access Transmission Tariff.
OCI - Other Comprehensive Income (Loss) as defined by GAAP.
4
PGA - Purchased Gas Adjustment tariff, which impacts UE, CIPS and CILCO natural
gas utility customers.
PUHCA - Public Utility Holding Company Act of 1935.
Resources Company - Ameren Energy Resources Company, a subsidiary of Ameren
Corporation, which consists of non rate-regulated operations, including Genco,
Development Company, Marketing Company and AFS.
RRO - Regional Reliability Organization.
RTO - Regional Transmission Organization.
SEC - Securities and Exchange Commission, a governmental agency of the United
States of America.
SFAS - Statement of Financial Accounting Standards, the accounting and financial
reporting rules issued by the FASB.
UE - Union Electric Company, a subsidiary of Ameren Corporation, which operates
a rate-regulated electric generation, transmission and distribution business,
and a rate-regulated natural gas distribution business in Missouri and Illinois
as AmerenUE.
5
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
AMEREN CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions, except per share amounts)
September 30, December 31,
2003 2002
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 100 $ 628
Accounts receivables - trade (less allowance for doubtful
accounts of $9 and $7, respectively) 362 266
Unbilled revenue 184 176
Miscellaneous accounts and notes receivable 131 44
Materials and supplies, at average cost 476 299
Other current assets 57 39
-------- --------
Total current assets 1,310 1,452
-------- --------
Property and Plant, Net 10,152 8,840
Investments and Other Non-Current Assets:
Investments 166 38
Nuclear decommissioning trust fund 195 172
Goodwill and other intangibles, net 630 -
Other assets 317 307
-------- --------
Total investments and other non-current assets 1,308 517
-------- --------
Regulatory Assets 767 690
-------- --------
TOTAL ASSETS $ 13,537 $ 11,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 499 $ 339
Short-term debt 3 271
Accounts and wages payable 275 369
Taxes accrued 231 45
Other current liabilities 241 177
-------- --------
Total current liabilities 1,249 1,201
-------- --------
Long-term Debt, Net 4,046 3,433
Preferred Stock of Subsidiary Subject to Mandatory Redemption 21 -
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 1,993 1,707
Accumulated deferred investment tax credits 153 149
Regulatory liabilities 133 136
Asset retirement obligations 408 174
Accrued pension liabilities 527 377
Other deferred credits and liabilities 439 272
-------- --------
Total deferred credits and other non-current liabilities 3,653 2,815
-------- --------
Preferred Stock of Subsidiaries Not Subject to Mandatory Redemption 213 193
Minority Interest in Consolidated Subsidiaries 21 15
Commitments and Contingencies (Note 8)
Stockholders' Equity:
Common stock, $.01 par value, 400.0 shares authorized -
shares outstanding of 162.3 and 154.1, respectively 2 2
Other paid-in capital, principally premium on common stock 2,528 2,203
Retained earnings 1,917 1,739
Accumulated other comprehensive income (loss) (103) (93)
Other (10) (9)
-------- --------
Total stockholders' equity 4,334 3,842
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,537 $ 11,499
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2003 2002 2003 2002
------------ ------------- ------------- ------------
Operating Revenues:
Electric $ 1,266 $ 1,135 $ 3,090 $ 2,812
Gas 82 30 450 202
Other 2 1 6 4
----------- ---------- ----------- -----------
Total operating revenues 1,350 1,166 3,546 3,018
----------- ---------- ----------- -----------
Operating Expenses:
Fuel and purchased power 330 248 793 655
Gas purchased for resale 54 17 326 129
Other operations and maintenance 302 278 901 835
Coal contract settlement (51) - (51) -
Depreciation and amortization 132 108 388 321
Taxes other than income taxes 83 74 238 211
----------- ---------- ----------- -----------
Total operating expenses 850 725 2,595 2,151
----------- ---------- ----------- -----------
Operating Income 500 441 951 867
Other Income and (Deductions):
Miscellaneous income 4 6 16 16
Miscellaneous expense (3) (3) (14) (46)
----------- ---------- ----------- -----------
Total other income and (deductions) 1 3 2 (30)
----------- ---------- ----------- -----------
Interest Charges and Preferred Dividends:
Interest 69 56 204 158
Preferred dividends of subsidiaries 3 3 8 9
----------- ---------- ----------- -----------
Net interest charges and preferred dividends 72 59 212 167
----------- ---------- ----------- -----------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle 429 385 741 670
Income Taxes 154 145 273 256
----------- ---------- ----------- -----------
Income Before Cumulative Effect of Change in Accounting
Principle 275 240 468 414
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes - - 18 -
----------- ---------- ----------- -----------
Net Income $ 275 $ 240 $ 486 $ 414
=========== ========== =========== ===========
Earnings per Common Share - Basic:
Income before cumulative effect of change
in accounting principle $ 1.70 $ 1.64 $ 2.91 $ 2.88
Cumulative effect of change in accounting
principle, net of income taxes - - 0.11 -
------------ ----------- ----------- -----------
Net income $ 1.70 $ 1.64 $ 3.02 $ 2.88
============ =========== =========== ===========
Earnings per Common Share - Diluted:
Income before cumulative effect of change
in accounting principle $ 1.70 $ 1.63 $ 2.91 $ 2.87
Cumulative effect of change in accounting
principle, net of income taxes - - 0.11 -
----------- ----------- ----------- -----------
Net income $ 1.70 $ 1.63 $ 3.02 $ 2.87
=========== =========== =========== ===========
Dividends per Common Share $ 0.635 $ 0.635 $ 1.905 $ 1.905
Average Common Shares Outstanding 161.8 146.7 160.7 143.6
The accompanying notes are an integral part of these consolidated financial
statements.
7
AMEREN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
---------------------
2003 2002
---------- ---------
Cash Flows From Operating Activities:
Net income $ 486 $ 414
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle (18) -
Depreciation and amortization 388 321
Amortization of nuclear fuel 25 25
Amortization of debt issuance costs and premium/discounts 8 6
Deferred income taxes, net 30 11
Deferred investment tax credits, net (9) (6)
Coal contract settlement (45) -
Other (8) 5
Changes in assets and liabilities, excluding the effects of the acquisitions:
Receivables, net 17 (49)
Materials and supplies (69) 15
Accounts and wages payable (171) (217)
Taxes accrued 167 214
Assets, other (8) (23)
Liabilities, other 59 17
------ ------
Net cash provided by operating activities 852 733
------ ------
Cash Flows From Investing Activities:
Construction expenditures (457) (565)
Acquisitions, net of cash acquired (489) -
Nuclear fuel expenditures (2) (25)
Other 10 8
------ ------
Net cash used in investing activities (938) (582)
------ ------
Cash Flows From Financing Activities:
Dividends on common stock (308) (279)
Capital issuance costs (13) (35)
Redemptions, repurchases, and maturities:
Nuclear fuel lease (38) -
Short-term debt (268) (635)
Long-term debt (648) (158)
Preferred stock (1) (41)
Issuances:
Common stock 336 635
Nuclear fuel lease - 31
Long-term debt 498 893
------ ------
Net cash provided by (used in) financing activities (442) 411
------ ------
Net change in cash and cash equivalents (528) 562
Cash and cash equivalents at beginning of year 628 67
------ ------
Cash and cash equivalents at end of period $ 100 $ 629
====== ======
Cash Paid During the Periods:
Interest $ 189 $ 142
Income taxes, net 156 111
The accompanying notes are an integral part of these consolidated financial
statements.
8
UNION ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions, except per share amounts)
September 30, December 31,
2003 2002
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 15 $ 9
Accounts receivable - trade (less allowance for doubtful
accounts of $6 and $6, respectively) 222 171
Unbilled revenue 98 101
Miscellaneous accounts and notes receivable 126 49
Materials and supplies, at average cost 182 162
Other current assets 29 26
-------- --------
Total current assets 672 518
-------- --------
Property and Plant, Net 6,070 5,991
Investments and Other Non-Current Assets:
Nuclear decommissioning trust fund 195 172
Other assets 241 235
-------- --------
Total investments and other non-current assets 436 407
-------- --------
Regulatory Assets 724 659
-------- --------
TOTAL ASSETS $ 7,902 $ 7,575
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 235 $ 130
Short-term debt - 250
Borrowings from money pool 230 15
Accounts and wages payable 164 348
Taxes accrued 213 118
Other current liabilities 97 96
-------- --------
Total current liabilities 939 957
-------- --------
Long-term Debt, Net 1,678 1,687
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 1,304 1,344
Accumulated deferred investment tax credits 116 121
Regulatory liabilities 102 121
Asset retirement obligations 403 174
Accrued pension liabilities 261 252
Other deferred credits and liabilities 185 174
-------- --------
Total deferred credits and other non-current liabilities 2,371 2,186
-------- --------
Commitments and Contingencies (Note 8)
Stockholder's Equity:
Common stock, $5 par value, 150.0 shares authorized - 102.1 shares outstanding 511 511
Preferred stock not subject to mandatory redemption 113 113
Other paid-in capital, principally premium on common stock 702 702
Retained earnings 1,649 1,477
Accumulated other comprehensive income (loss) (61) (58)
-------- --------
Total stockholder's equity 2,914 2,745
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 7,902 $ 7,575
======== ========
The accompanying notes as they relate to UE are an integral part of these
consolidated financial statements.
9
UNION ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2003 2002 2003 2002
------- ------- ------- ---------
Operating Revenues:
Electric $ 801 $ 841 $ 1,972 $ 2,029
Gas 15 12 100 80
------- ------- ------- -------
Total operating revenues 816 853 2,072 2,109
------- ------- ------- -------
Operating Expenses:
Fuel and purchased power 153 157 418 433
Gas purchased for resale 10 7 62 49
Other operations and maintenance 192 201 564 592
Coal contract settlement (51) - (51) -
Depreciation and amortization 71 70 212 211
Taxes other than income taxes 61 67 168 174
------- ------- ------- -------
Total operating expenses 436 502 1,373 1,459
------- ------- ------- -------
Operating Income 380 351 699 650
Other Income and (Deductions):
Miscellaneous income 5 2 14 27
Miscellaneous expense (2) (1) (5) (32)
------- ------- ------- -------
Total other income and (deductions) 3 1 9 (5)
------- ------- ------- -------
Interest Charges 23 26 74 78
------- ------- ------- -------
Income Before Income Taxes 360 326 634 567
Income Taxes 135 120 234 203
------- ------- ------- -------
Net Income 225 206 400 364
Preferred Stock Dividends 1 2 4 6
------- ------- ------- -------
Net Income Available to Common Stockholder $ 224 $ 204 $ 396 $ 358
======= ======= ======= =======
The accompanying notes as they relate to UE are an integral part of these
consolidated financial statements.
10
UNION ELECTRIC COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
---------------------
2003 2002
-------- ---------
Cash Flows From Operating Activities:
Net income $ 400 $ 364
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 212 211
Amortization of nuclear fuel 25 25
Amortization of debt issuance costs and premium/discounts 3 3
Deferred income taxes, net 16 7
Deferred investment tax credits, net (5) (5)
Coal contract settlement (45) -
Other (3) 3
Changes in assets and liabilities:
Receivables, net (38) (41)
Materials and supplies (20) (7)
Accounts and wages payable (147) (169)
Taxes accrued 95 207
Assets, other (46) (21)
Liabilities, other 39 (18)
------- -------
Net cash provided by operating activities 486 559
------- -------
Cash Flows From Investing Activities:
Construction expenditures (310) (357)
Nuclear fuel expenditures (2) (25)
Advances to money pool - 84
Other 4 7
------- -------
Net cash used in investing activities (308) (291)
------- -------
Cash Flows From Financing Activities:
Dividends on common stock (224) (224)
Dividends on preferred stock (4) (6)
Capital issuance costs (5) (1)
Redemptions, repurchases, and maturities:
Nuclear fuel lease (38) -
Short-term debt (250) (186)
Long-term debt (364) (125)
Preferred stock - (41)
Issuances:
Nuclear fuel lease - 31
Long-term debt 498 173
Borrowings from money pool 215 109
------- -------
Net cash used in financing activities (172) (270)
------- -------
Net change in cash and cash equivalents 6 (2)
Cash and cash equivalents at beginning of year 9 15
------- -------
Cash and cash equivalents at end of period $ 15 $ 13
======= =======
Cash Paid During the Periods:
Interest $ 78 $ 70
Income taxes, net 199 62
The accompanying notes as they relate to UE are an integral part of these
consolidated financial statements.
11
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
BALANCE SHEET
(Unaudited) (In millions)
September 30, December 31,
2003 2002
------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 17 $ 17
Accounts receivable - trade (less allowance for doubtful
accounts of $1 and $1, respectively) 50 53
Unbilled revenue 59 74
Advances to money pool - 16
Miscellaneous accounts and notes receivable 22 22
Current portion of intercompany note receivable - Genco 49 46
Current portion of intercompany tax receivable - Genco 13 13
Materials and supplies, at average cost 57 41
Other current assets 7 7
-------- -------
Total current assets 274 289
-------- -------
Property and Plant, Net 823 825
Investments and Other Non-Current Assets:
Intercompany note receivable - Genco 324 373
Intercompany tax receivable - Genco 153 162
Other assets 18 17
-------- -------
Total investments and other non-current assets 495 552
-------- -------
Regulatory Assets 28 31
-------- -------
TOTAL ASSETS $ 1,620 $ 1,697
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ - $ 45
Accounts and wages payable 110 87
Borrowings from money pool 23 -
Taxes accrued 34 32
Other current liabilities 29 26
-------- -------
Total current liabilities 196 190
-------- -------
Long-term Debt, Net 485 534
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 271 282
Accumulated deferred investment tax credits 12 13
Regulatory liabilities 14 15
Other deferred credits and liabilities 78 71
-------- -------
Total deferred credits and other non-current liabilities 375 381
-------- -------
Commitments and Contingencies (Note 8)
Stockholder's Equity:
Common stock, no par value, 45.0 shares authorized - 25.5 shares outstanding 120 120
Preferred stock not subject to mandatory redemption 80 80
Retained earnings 380 405
Accumulated other comprehensive income (loss) (16) (13)
-------- -------
Total stockholder's equity 564 592
-------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,620 $ 1,697
======== =======
The accompanying notes as they relate to CIPS are an integral part of these
financial statements.
12
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ------------------
2003 2002 2003 2002
------- ------- -------- --------
Operating Revenues:
Electric $ 176 $ 209 $ 445 $ 520
Gas 20 15 127 106
----- ----- ----- -----
Total operating revenues 196 224 572 626
----- ----- ----- -----
Operating Expenses:
Purchased power 96 117 264 323
Gas purchased for resale 9 6 80 62
Other operations and maintenance 41 39 121 120
Depreciation and amortization 13 13 39 38
Taxes other than income taxes 6 6 22 21
----- ----- ----- -----
Total operating expenses 165 181 526 564
----- ----- ----- -----
Operating Income 31 43 46 62
Other Income and (Deductions):
Miscellaneous income 7 8 21 25
Miscellaneous expense - - (2) (1)
----- ----- ----- -----
Total other income and (deductions) 7 8 19 24
----- ----- ----- -----
Interest Charges 8 11 26 31
----- ----- ----- -----
Income Before Income Taxes 30 40 39 55
Income Taxes 4 16 8 21
----- ----- ----- -----
Net Income 26 24 31 34
Preferred Stock Dividends 1 1 2 3
----- ----- ----- -----
Net Income Available to Common Stockholder $ 25 $ 23 $ 29 $ 31
===== ===== ===== =====
The accompanying notes as they relate to CIPS are an integral part of these
financial statements.
13
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
----------------------------
2003 2002
----------- -----------
Cash Flows From Operating Activities:
Net income $ 31 $ 34
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39 38
Amortization of debt issuance costs and premium/discounts 1 1
Deferred income taxes, net (11) (12)
Deferred investment tax credits, net (1) (1)
Other (3) -
Changes in assets and liabilities:
Receivables, net 18 (4)
Materials and supplies (16) (1)
Accounts and wages payable 23 (36)
Taxes accrued 2 28
Assets, other 9 25
Liabilities, other 10 (1)
-------- --------
Net cash provided by operating activities 102 71
-------- --------
Cash Flows From Investing Activities:
Construction expenditures (36) (41)
Advances to money pool 62 43
-------- --------
Net cash provided by investing activities 26 2
-------- --------
Cash Flows From Financing Activities:
Dividends on common stock (54) (47)
Dividends on preferred stock (2) (3)
Redemptions, repurchases, and maturities:
Long-term debt (95) (33)
Issuances:
Borrowings from money pool 23 -
-------- --------
Net cash used in financing activities (128) (83)
-------- --------
Net change in cash and cash equivalents - (10)
Cash and cash equivalents at beginning of year 17 26
-------- --------
Cash and cash equivalents at end of period $ 17 $ 16
======== ========
Cash Paid During the Periods:
Interest $ 23 $ 26
Income taxes, net 18 6
The accompanying notes as they relate to CIPS are an integral part of these
financial statements.
14
AMEREN ENERGY GENERATING COMPANY
BALANCE SHEET
(Unaudited) (In millions, except shares)
September 30, December 31,
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2 $ 3
Accounts receivable 143 78
Miscellaneous accounts and notes receivable - 71
Materials and supplies, at average cost 95 77
Other current assets 4 2
-------- --------
Total current assets 244 231
Property and Plant, Net 1,766 1,767
Other Non-Current Assets 13 12
-------- --------
TOTAL ASSETS $ 2,023 $ 2,010
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts and wages payable $ 70 $ 87
Borrowings from money pool 177 191
Current portion of intercompany notes payable - CIPS and Ameren 53 50
Current portion of intercompany tax payable - CIPS 13 13
Other current liabilities 41 17
-------- --------
Total current liabilities 354 358
-------- --------
Long-term Debt, Net 698 698
Intercompany Notes Payable - CIPS and Ameren 358 412
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 104 66
Accumulated deferred investment tax credits 14 15
Intercompany tax payable - CIPS 153 162
Other deferred credits and liabilities 20 19
-------- --------
Total deferred credits and other non-current liabilities 291 262
-------- --------
Commitments and Contingencies (Note 8)
Stockholder's Equity:
Common stock, no par value, 10,000 shares authorized - 2,000 shares outstanding - -
Other paid-in capital 150 150
Retained earnings 174 131
Accumulated other comprehensive income (loss) (2) (1)
-------- --------
Total stockholder's equity 322 280
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,023 $ 2,010
======== ========
The accompanying notes as they relate to Genco are an integral part of these
financial statements.
15
AMEREN ENERGY GENERATING COMPANY
STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ------------ ------------ ------------
Operating Revenues:
Electric $ 216 $ 207 $ 594 $ 560
Other 1 - 2 -
-------- ------- ------- -------
Total operating revenues 217 207 596 560
-------- ------- ------- -------
Operating Expenses:
Fuel and purchased power 102 101 263 259
Other operations and maintenance 38 38 108 122
Depreciation and amortization 19 17 56 50
Taxes other than income taxes 5 2 18 14
-------- ------- ------- -------
Total operating expenses 164 158 445 445
-------- ------- ------- -------
Operating Income 53 49 151 115
Other Income and (Deductions):
Miscellaneous income - - 2 -
Miscellaneous expense - (1) - (1)
-------- ------- ------- --------
Total other income and (deductions) - (1) 2 (1)
-------- ------- ------- --------
Interest Charges 25 23 76 63
-------- ------- ------- --------
Income Before Income Taxes and Cumulative Effect of
Change in Accounting Principle 28 25 77 51
Income Taxes 11 10 30 20
-------- ------- ------- -------
Income Before Cumulative Effect of Change in Accounting
Principle 17 15 47 31
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes - - 18 -
-------- ------- ------- -------
Net Income $ 17 $ 15 $ 65 $ 31
======== ======= ======= =======
The accompanying notes as they relate to Genco are an integral part of these
financial statements.
16
AMEREN ENERGY GENERATING COMPANY
STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
-----------------
2003 2002
------- -------
Cash Flows From Operating Activities:
Net income $ 65 $ 31
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle (18) -
Amortization of debt issuance costs and discounts 1 1
Depreciation and amortization 56 50
Deferred income taxes, net 37 20
Deferred investment tax credits, net (1) (1)
Other (1) -
Changes in assets and liabilities:
Accounts receivable (63) 43
Materials and supplies (18) 3
Taxes receivable, net 64 (12)
Accounts and wages payable (4) 15
Assets, other (1) (17)
Liabilities, other 8 17
----- -----
Net cash provided by operating activities 125 150
----- -----
Cash Flows From Investing Activities:
Construction expenditures (39) (268)
Advances to money pool - (32)
----- -----
Net cash used in investing activities (39) (300)
----- -----
Cash Flows From Financing Activities:
Dividends on common stock (22) (12)
Debt issuance costs - (4)
Redemptions, repurchases, and maturities:
Borrowings from money pool (14) (62)
Intercompany notes payable - CIPS and Ameren (51) (46)
Issuances:
Long-term debt - 275
----- -----
Net cash provided by (used in) financing activities (87) 151
----- -----
Net change in cash and cash equivalents (1) 1
Cash and cash equivalents at beginning of year 3 2
----- -----
Cash and cash equivalents at end of period $ 2 $ 3
===== =====
Cash Paid During the Periods:
Interest $ 60 $ 44
Income taxes (refunded) paid (66) 4
The accompanying notes as they relate to Genco are an integral part of these
financial statements.
17
CILCORP INC.
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
September 30, | December 31,
2003 | 2002
------------ | --------------
Successor | Predecessor
------------ | --------------
ASSETS |
|
Current Assets: |
Cash and cash equivalents $ 9 | $ 32
Accounts receivables - trade (less allowance for doubtful |
accounts of $3 and $2, respectively) 51 | 53
Unbilled revenue 23 | 37
Miscellaneous accounts and notes receivable 8 | 8
Materials and supplies, at average cost 123 | 61
Other current assets 7 | 24
------- | -------
Total current assets 221 | 215
------- | -------
Property and Plant, Net 1,188 | 914
Investments and Other Non-Current Assets: |
Investments 130 | 133
Goodwill and other intangibles, net 629 | 581
Other assets 23 | 50
------- | -------
Total investments and other non-current assets 782 | 764
------- | -------
Regulatory Assets 15 | 8
------- | -------
TOTAL ASSETS $ 2,206 | $ 1,901
======= | =======
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY |
Current Liabilities: |
Current maturities of long-term debt $ 100 | $ 27
Short-term debt - | 10
Borrowings from money pool 109 | -
Intercompany note payable - Ameren 31 | -
Accounts and wages payable 88 | 76
Taxes accrued 4 | 8
Other current liabilities 48 | 40
------- | -------
Total current liabilities 380 | 161
------- | -------
Long-term Debt, Net 671 | 791
Preferred Stock of Subsidiary Subject to Mandatory Redemption 21 | -
Deferred Credits and Other Non-Current Liabilities: |
Accumulated deferred income taxes, net 306 | 190
Accumulated deferred investment tax credits 12 | 13
Regulatory liabilities 17 | 19
Accrued pension liabilities 133 | 107
Other deferred credits and liabilities 158 | 84
------- | -------
Total deferred credits and other non-current liabilities 626 | 413
------- | -------
Preferred Stock of Subsidiary Subject to Mandatory Redemption - | 22
Preferred Stock of Subsidiary Not Subject to Mandatory Redemption 19 | 19
Commitments and Contingencies (Note 8) |
Stockholder's Equity: |
Other paid-in capital 489 | 519
Retained earnings 4 | 35
Accumulated other comprehensive income (loss) (4) | (59)
------- | -------
Total stockholder's equity 489 | 495
------- | -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,206 | $ 1,901
======= | =======
|
|
The accompanying notes as they relate to CILCORP are an integral part of these |
consolidated financial statements. |
18
CILCORP INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
----------Successor--------- | ----------------Predecessor----------------
Three Eight | Three Nine
Months Months | Months Months
Ended Ended | Ended Ended
September 30, September 30,| January September 30, September 30,
-------------- ------------ | ----------- --------------- -------------
2003 2003 | 2003 2002 2002
-------------- ------------ | ----------- -------------- -------------
|
Operating Revenues: |
Electric $ 168 $ 373 | $ 47 $ 167 $ 396
Gas 46 215 | 58 37 185
Other 1 3 | - 1 4
----------- ----------- | ----------- ----------- -----------
Total operating revenues 215 591 | 105 205 585
----------- ----------- | ----------- ----------- -----------
|
Operating Expenses: |
Fuel and purchased power 85 192 | 24 70 180
Gas purchased for resale 32 166 | 44 24 126
Other operations and maintenance 38 95 | 14 30 101
Depreciation and amortization 18 54 | 6 18 54
Taxes other than income taxes 9 26 | 4 10 31
----------- ----------- | ----------- ----------- -----------
Total operating expenses 182 533 | 92 152 492
----------- ----------- | ----------- ----------- -----------
|
Operating Income 33 58 | 13 53 93
|
Other Income and (Deductions): |
Miscellaneous income - - | - - 2
Miscellaneous expense (2) (3) | - - (2)
----------- ----------- | ----------- ----------- -----------
Total other income and (deductions) (2) (3) | - - -
----------- ----------- | ----------- ----------- -----------
Interest Charges and Preferred Dividends: |
Interest 15 35 | 5 16 48
Preferred dividends of subsidiaries - 1 | - 1 2
----------- ----------- | ----------- ----------- -----------
Net interest charges and preferred dividends 15 36 | 5 17 50
----------- ----------- | ----------- ----------- -----------
|
Income Before Income Taxes and Cumulative Effect of |
Change in Accounting Principle 16 19 | 8 36 43
|
Income Taxes 5 5 | 3 13 14
----------- ----------- | ----------- ----------- -----------
|
Income Before Cumulative Effect of Change in |
Accounting Principle 11 14 | 5 23 29
|
Cumulative Effect of Change in Accounting Principle, |
Net of Income Taxes - - | 4 - -
----------- ----------- | ----------- ----------- -----------
|
Net Income $ 11 $ 14 | $ 9 $ 23 $ 29
=========== =========== | =========== =========== ===========
|
|
The accompanying notes as they relate to CILCORP are an integral part of these |
consolidated financial statements. |
19
CILCORP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
---Successor-- | ---------Predecessor-------
Eight | Nine
Months | Months
Ended | Ended
September 30, | January September 30,
-------------- | ----------- --------------
2003 | 2003 2002
-------------- | ----------- --------------
|
Cash Flows From Operating Activities: |
Net income $ 14 | $ 9 $ 29
Adjustments to reconcile net income to net cash |
provided by operating activities: |
Cumulative effect of change in accounting principle - | (4) -
Depreciation and amortization 54 | 6 54
Amortization of debt issuance costs and premium/discounts 1 | - -
Deferred income taxes, net (5) | (5) 2
Deferred investment tax credits, net (1) | - (2)
Other (9) | - 6
Changes in assets and liabilities: |
Receivables, net 36 | (20) 4
Materials and supplies (18) | 13 4
Accounts and wages payable (37) | 20 (15)
Taxes accrued (3) | 11 8
Assets, other 5 | 6 4
Liabilities, other 7 | (5) 2
------- | ------- -------
Net cash provided by operating activities 44 | 31 96
------- | ------- -------
|
Cash Flows From Investing Activities: |
Construction expenditures (52) | (16) (96)
Other 3 | 1 3
------- | ------- -------
Net cash used in investing activities (49) | (15) (93)
------- | ------- -------
|
Cash Flows From Financing Activities: |
Dividends on common stock (10) | - -
Redemptions, repurchases, and maturities: |
Short-term debt - | (10) (63)
Long-term debt (153) | - (1)
Preferred stock (1) | - -
Issuances: |
Long-term debt - | - 100
Borrowings from money pool 109 | - -
Intercompany note payable - Ameren 31 | - -
------- | ------- -------
Net cash provided by (used in) financing activities (24) | (10) 36
------- | ------- -------
|
Net change in cash and cash equivalents (29) | 6 39
Cash and cash equivalents at beginning of year 38 | 32 18
------- | ------- -------
Cash and cash equivalents at end of period $ 9 | $ 38 $ 57
======= | ======= =======
|
Cash Paid During the Periods: |
Interest $ 14 | $ 5 $ 44
Income taxes, net 10 | - 5
|
|
The accompanying notes as they relate to CILCORP are an integral part of these |
consolidated financial statements. |
20
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited) (In millions)
September 30, December 31,
2003 2002
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3 $ 22
Accounts receivable - trade (less allowance for doubtful
accounts of $3 and $2, respectively) 51 47
Unbilled revenue 22 32
Miscellaneous accounts and notes receivable 6 7
Materials and supplies, at average cost 71 61
Other current assets 7 24
-------- -------
Total current assets 160 193
-------- -------
Property and Plant, Net 950 890
Other Non-Current Assets 21 18
Regulatory Assets 15 8
-------- -------
TOTAL ASSETS $ 1,146 $ 1,109
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt $ 100 $ 27
Short-term debt - 10
Borrowings from money pool 109 -
Accounts and wages payable 81 68
Taxes accrued 12 18
Other current liabilities 29 31
-------- -------
Total current liabilities 331 154
-------- -------
Long-term Debt, Net 138 316
Preferred Stock Subject to Mandatory Redemption 21 -
Deferred Credits and Other Non-Current Liabilities:
Accumulated deferred income taxes, net 105 95
Accumulated deferred investment tax credits 12 13
Regulatory liabilities 17 19
Accrued pension liabilities 98 85
Other deferred credits and liabilities 76 63
-------- -------
Total deferred credits and other non-current liabilities 308 275
-------- -------
Preferred Stock Subject to Mandatory Redemption - 22
Commitments and Contingencies (Note 8)
Stockholder's Equity:
Common stock, no par value, 20.0 shares authorized - 13.6 shares outstanding 186 186
Preferred stock not subject to mandatory redemption 19 19
Other paid-in capital 52 52
Retained earnings 124 114
Accumulated other comprehensive income (loss) (33) (29)
-------- -------
Total stockholder's equity 348 342
-------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,146 $ 1,109
======== =======
The accompanying notes as they relate to CILCO are an integral part of these
consolidated financial statements.
21
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Unaudited) (In millions)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------
2003 2002 2003 2002
------------ --------- ---------- ---------
Operating Revenues:
Electric $ 168 $ 167 $ 420 $ 396
Gas 35 28 201 150
----- ----- ----- -----
Total operating revenues 203 195 621 546
----- ----- ----- -----
Operating Expenses:
Fuel and purchased power 85 70 214 180
Gas purchased for resale 21 15 136 91
Other operations and maintenance 43 30 123 100
Depreciation and amortization 16 18 53 53
Taxes other than income taxes 9 10 30 31
----- ----- ----- -----
Total operating expenses 174 143 556 455
----- ----- ----- -----
Operating Income 29 52 65 91
Other Income and (Deductions):
Miscellaneous income - - 1 1
Miscellaneous expense (2) - (4) (2)
----- ----- ----- -----
Total other income and (deductions) (2) - (3) (1)
----- ----- ----- -----
Interest Charges 3 6 13 16
----- ----- ----- -----
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle 24 46 49 74
Income Taxes 9 17 18 27
----- ----- ----- -----
Income Before Cumulative Effect of Change in Accounting
Principle 15 29 31 47
Cumulative Effect of Change in Accounting Principle,
Net of Income Taxes - - 24 -
----- ----- ----- -----
Net Income 15 29 55 47
Preferred Stock Dividends - 1 1 2
----- ----- ----- -----
Net Income Available to Common Stockholder $ 15 $ 28 $ 54 $ 45
===== ===== ===== =====
The accompanying notes as they relate to CILCO are an integral part of these
consolidated financial statements.
22
CENTRAL ILLINOIS LIGHT COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited) (In millions)
Nine Months Ended
September 30,
-----------------------
2003 2002
----------- ---------
Cash Flows From Operating Activities:
Net income $ 55 $ 47
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle (24) -
Depreciation and amortization 53 53
Deferred income taxes, net (8) 2
Deferred investment tax credits, net (1) (2)
Other (4) 6
Changes in assets and liabilities:
Receivables, net 7 4
Materials and supplies (10) 3
Accounts and wages payable 13 (25)
Taxes accrued (6) 14
Assets, other 6 3
Liabilities, other 19 (8)
-------- --------
Net cash provided by operating activities 100 97
-------- --------
Cash Flows From Investing Activities:
Construction expenditures (68) (96)
Other 1 1
-------- --------
Net cash used in investing activities (67) (95)
-------- --------
Cash Flows From Financing Activities:
Dividends on common stock (44) (28)
Dividends on preferred stock (1) (2)
Redemptions, repurchases, and maturities:
Short-term debt (10) (43)
Long-term debt (105) (1)
Preferred stock (1) -
Issuances:
Long-term debt - 100
Borrowings from money pool 109 -
-------- --------
Net cash provided by (used in) financing activities (52) 26
-------- --------
Net change in cash and cash equivalents (19) 28
Cash and cash equivalents at beginning of year 22 12
-------- --------
Cash and cash equivalents at end of period $ 3 $ 40
======== ========
Cash Paid During the Periods:
Interest $ 17 $ 24
Income taxes, net 11 15
The accompanying notes as they relate to CILCO are an integral part of these
consolidated financial statements.
23
AMEREN CORPORATION (CONSOLIDATED)
UNION ELECTRIC COMPANY (CONSOLIDATED)
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
AMEREN ENERGY GENERATING COMPANY
CILCORP INC. (CONSOLIDATED)
CENTRAL ILLINOIS LIGHT COMPANY (CONSOLIDATED)
COMBINED NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2003
NOTE 1 - Summary of Significant Accounting Policies
General
Ameren is a public utility holding company registered with the SEC under
the PUHCA and is headquartered in St. Louis, Missouri. Our principal businesses
are involved in the generation, transmission and distribution of electricity,
and the distribution of natural gas, to residential, commercial, industrial and
wholesale users in the central United States. Ameren's principal subsidiaries
are as follows:
o UE, which operates a rate-regulated electric generation, transmission and
distribution business, and a rate-regulated natural gas distribution
business in Missouri and Illinois.
o CIPS, which operates a rate-regulated electric and natural gas transmission
and distribution business in Illinois.
o CILCO, a subsidiary of CILCORP (a holding company), which operates a
rate-regulated electric transmission and distribution business, a non
rate-regulated electric generation business (AERG), and a rate-regulated
natural gas distribution business in Illinois. Ameren completed its
acquisition of CILCORP on January 31, 2003. See Note 2 - Acquisitions for
further information.
o Resources Company, which consists of non rate-regulated operations.
Subsidiaries include Genco, which operates a non rate-regulated electric
generation business in Illinois and Missouri; Marketing Company, which
markets power for periods primarily over one year; AFS, which procures fuel
and manages the related risks for Ameren's affiliated companies; and Medina
Valley, which indirectly owns a 40 megawatt, gas-fired electric generation
plant. Ameren completed its acquisition of AES Medina Valley Cogen (No. 4)
LLC on February 4, 2003. See Note 2 - Acquisitions for further information.
o Ameren Energy, which serves as a power marketing and risk management agent
for Ameren and its subsidiaries for transactions of primarily less than one
year.
o EEI, which operates electric generation and transmission facilities in
Illinois. Ameren has a 60% ownership interest in EEI through UE, which owns
40%, and Resources Company, which owns 20%. Ameren consolidates EEI for
financial reporting purposes, while UE and Resources Company report EEI
under the equity method.
o Ameren Services, which provides a variety of shared support services to us.
In October 2003, CILCO transferred its Duck Creek and E. D. Edwards
coal-fired plants and its Sterling Avenue combustion turbine facilities
representing in the aggregate approximately 1,100 megawatts of electric
generating capacity to its wholly-owned subsidiary, AERG, in exchange for all of
the outstanding stock of AERG and AERG's assumption of certain liabilities. The
net book value of the transferred assets was approximately $378 million and no
gain or loss was recognized as the transaction was accounted for as a transfer
between entities under common control. Approximately 23% of CILCO's employees
were transferred to AERG as a part of the transaction.
When we refer to our, we or us, it indicates that the referenced
information is common to all Ameren Companies. When we refer to financing or
acquisition activities, we are defining Ameren as the parent holding company.
When appropriate, our subsidiaries are specifically referenced in order to
distinguish among their different business activities.
The financial statements of Ameren, UE, CILCORP and CILCO are prepared on a
consolidated basis and therefore include the accounts of their majority-owned
subsidiaries. Results of CILCORP and CILCO reflected in Ameren's consolidated
financial statements include the period from the acquisition date of January 31,
2003 through September 30, 2003. January 2003 and prior year data for CILCORP
and CILCO is not included in Ameren's consolidated totals. See
24
Note 2 - Acquisitions for further information. All significant intercompany
transactions have been eliminated. All tabular dollar amounts are in millions,
unless otherwise indicated.
In order to be more consistent with industry reporting trends, our
Statements of Income in this filing have been reclassified to present all income
taxes as one line item. Previously, we reported a portion of our income taxes in
Operating Expenses and a portion in Other Income and Deductions. This change
results in our calculation of Operating Income now being on a pre-tax basis with
no effect on net income. Additionally, our Balance Sheet presentations have been
reformatted to change the order in which current and non-current items appear,
with no effect on total assets, total liabilities or any sub-categories included
on our Balance Sheet.
Our accounting policies conform to GAAP, and our financial statements,
while unaudited, reflect all adjustments (which include normal, recurring
adjustments) necessary, in our opinion, for a fair presentation of our interim
results. Certain information and footnote disclosures normally included in
annual audited financial statements prepared in accordance with GAAP have been
omitted pursuant to the rules and regulations of the SEC. As the unaudited
interim financial statements included herein do not include all of the
information and footnote disclosures required by GAAP, they should be read in
conjunction with the financial statements and the notes thereto included in the
respective 2002 Annual Reports on Form 10-K of the Ameren Companies.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the dates of financial statements, and the
reported amounts of revenues and expenses during the reporting periods. As a
result, actual results could differ from those estimates. The results of
operations for an interim period may not give a true indication of results for a
full year.
As permitted by rules of the SEC, Ameren did not "push down" the effects of
purchase accounting to the financial statements of any of CILCORP's
subsidiaries. Accordingly, CILCORP's post-acquisition financial statements
reflect a new basis of accounting, and separate financial statement amounts are
presented for pre-acquisition (predecessor) and post-acquisition (successor)
periods, separated by a bold black line. CILCO's financial statements are
presented on a historical basis of accounting for all periods presented. As a
result of the acquisition of CILCORP on January 31, 2003, certain
reclassifications have been made to CILCORP's and CILCO's prior year financial
statements to conform to our current presentation.
Earnings Per Share
There was no material difference between Ameren's basic and diluted
earnings per share amounts for the three and nine month periods ended September
30, 2003 (2002 - $0.01 difference). The dilutive component in each of the
periods was comprised of assumed stock option conversions, which increased the
number of shares outstanding in the diluted earnings per share calculation by
283,769 shares for the three months ended September 30, 2003 (2002 - 340,210)
and 273,914 shares for the nine months ended September 30, 2003 (2002 -
345,650). Ameren's equity security units have no dilutive effect on our earnings
per share, except during periods when the average market price of Ameren's
common stock is above $46.61. The other Ameren Companies do not have any
publicly held common stock and accordingly earnings per share calculations are
not relevant and are not presented.
Accounting Changes and Other Matters
SFAS No.143 - "Accounting for Asset Retirement Obligations"
We adopted the provisions of SFAS 143, effective January 1, 2003. SFAS 143
provides the accounting requirements for asset retirement obligations associated
with tangible, long-lived assets. SFAS 143 requires us to record the estimated
fair value of legal obligations associated with the retirement of tangible
long-lived assets in the period in which the liabilities are incurred and to
capitalize a corresponding amount as part of the book value of the related
long-lived asset. In subsequent periods, we are required to adjust asset
retirement obligations based on changes in estimated fair value. Corresponding
increases in asset book values are depreciated over the remaining useful life of
the related asset. Uncertainties as to the probability, timing or amount of cash
flows associated with an asset retirement obligation affect our estimates of
fair value.
25
Upon adoption of this standard, Ameren and UE recognized additional asset
retirement obligations of approximately $213 million and a net increase in net
property and plant of approximately $77 million related primarily to UE's
Callaway nuclear plant decommissioning costs and retirement costs for a UE river
structure. The difference between the net asset and the liability recorded upon
adoption of SFAS 143 related to rate-regulated assets was recorded as an
additional regulatory asset of approximately $136 million because Ameren and UE
expect to continue to recover in electric rates the cost of Callaway nuclear
decommissioning and other costs of removal. These asset retirement obligations
and associated assets are in addition to assets and liabilities of $174 million
that UE had recorded prior to the adoption of SFAS 143, related to the future
obligations and funds accumulated to decommission the Callaway nuclear plant.
Also upon adoption of this standard, Ameren and Genco recognized an asset
retirement obligation of approximately $4 million and a net increase in net
property and plant of approximately $34 million. The asset retirement obligation
relates to retirement costs for a Genco power plant ash pond. The net increase
in property and plant, as well as the majority of the net after-tax gain of $18
million recognized upon adoption, resulted from the elimination of costs of
removal for non rate-regulated assets previously accrued as a component of
accumulated depreciation that were not a legal obligation ($20 million). Ameren
and Genco also recognized a loss for the difference between the net asset and
liability for the retirement obligation recorded upon adoption related to
Genco's assets ($2 million).
As a result of the acquisition of CILCORP on January 31, 2003, Ameren's
asset retirement obligations increased due to the assumption of asset retirement
obligations of approximately $6 million related to CILCO's power plant ash
ponds. Prior to the acquisition, predecessor CILCORP and CILCO recognized a net
after-tax gain upon adoption of SFAS 143 of $4 million and $24 million,
respectively, due to the elimination of costs of removal for non rate-regulated
assets previously accrued as a component of accumulated depreciation that were
not a legal obligation. Similar to the treatment applied by Ameren in the
acquisition of CILCORP, AES recorded purchase accounting at the CILCORP parent
level following its 1999 acquisition of CILCORP, but did not "push down" the
purchase accounting to any of CILCORP's subsidiaries, including CILCO.
Accordingly, accumulated depreciation, including the embedded cost of removal
liabilities, was reset to zero in purchase accounting for the CILCORP parent
while CILCO continued to carry property and plant and the related accumulated
depreciation on a historical basis. As a result, the gain upon adoption of SFAS
143 recognized by CILCO exceeded the gain recognized by CILCORP since the cost
of removal liabilities reversed by CILCORP upon adoption of SFAS 143 included
only those liabilities recorded since the 1999 AES acquisition.
Asset retirement obligations at Ameren and UE increased by $5 million
during the quarter ended September 30, 2003 and $16 million for the nine months
ended September 30, 2003, to reflect the accretion of obligations to their
present value. Increases to Genco, CILCORP and CILCO's asset retirement
obligations were immaterial during these periods. Substantially all of this
accretion was recorded as an increase to regulatory assets.
In addition to those obligations that were identified and valued, we
determined that certain other asset retirement obligations exist. However, we
were unable to estimate the fair value of those obligations because the
probability, timing or cash flows associated with the obligations were
indeterminable. We do not believe that these obligations, when incurred, will
have a material adverse impact on our financial position, results of operations
or liquidity.
The fair value of the nuclear decommissioning trust fund for UE's Callaway
nuclear plant is reported in Nuclear Decommissioning Trust Fund in Ameren and
UE's Consolidated Balance Sheets. This amount is legally restricted to fund the
costs of nuclear decommissioning. Changes in the fair value of the trust fund
are recorded as an increase or decrease to the regulatory asset recorded in
connection with the adoption of SFAS 143.
SFAS 143 required a change in the depreciation methodology we historically
utilized for our non rate-regulated operations. Historically, we included an
estimated cost of dismantling and removing plant from service upon retirement in
the basis upon which our depreciation rates were determined. SFAS 143 required
us to exclude costs of dismantling and removal upon retirement from the
depreciation rates applied to non rate-regulated plant balances. Further, we
were required to remove accumulated provisions for dismantling and removal costs
from accumulated depreciation, where they were embedded, and to reflect such
adjustment as a gain upon adoption of this standard, to the extent such
dismantling and removal activities were not considered legal asset retirement
obligations as defined by SFAS 143. The elimination of costs of removal from
accumulated depreciation resulted in a gain for a change in accounting principle
at Ameren and Genco, as noted above, of $20 million, net of taxes. At CILCO, the
elimination of costs of removal from accumulated depreciation resulted in a gain
of $24 million, net of taxes, for a change in accounting principle. As noted
above, the gain for
26
predecessor CILCORP on a consolidated basis was only $4 million, net of taxes,
due to the reset of accumulated depreciation at the time of AES' acquisition of
CILCORP in 1999. Beginning in January 2003, depreciation rates for non
rate-regulated assets were reduced to reflect the discontinuation of the accrual
of dismantling and removal costs. In addition, non rate-regulated asset removal
costs will prospectively be expensed as incurred. The impact of this change in
accounting will result in a decrease in depreciation expense and an increase in
operations and maintenance expense, the net impact of which is indeterminable,
but not expected to be material.
Like the methodology employed by our non rate-regulated operations, the
depreciation methodology historically utilized by our rate-regulated operations
has included an estimated cost of dismantling and removing plant from service
upon retirement. Because these estimated costs of removal have been included in
the cost of service upon which our present utility rates are based, and with the
expectation that this practice will continue in the jurisdictions in which we
operate, adoption of SFAS 143 did not result in any change in the depreciation
accounting practices of our rate-regulated operations. The following table
presents the estimated future removal costs embedded in accumulated depreciation
related to rate-regulated plant assets at September 30, 2003:
=============================================================================
Ameren(a)..................................................... $ 685
UE............................................................ 549
CIPS.......................................................... 129
Genco......................................................... -
CILCORP....................................................... 7
CILCO......................................................... 150
=============================================================================
(a) Excludes amount for CILCO, as the elimination of accumulated
depreciation in purchase accounting was recorded at the CILCORP parent
level.
The following table presents the asset retirement obligation as though SFAS
143 had been in effect for 2001 and 2002:
=======================================================================================================
Pro Forma Asset Retirement Obligation
-------------------------------------------------------------------------------------------------------
Ameren(a) UE CIPS Genco CILCORP(b) CILCO
--------------------------------------------------------------------
January 1, 2001.................. $ 350 $ 346 $ - $ 4 $ - $ -
December 31, 2001................ 370 366 - 4 - -
December 31, 2002................ 391 387 - 4 6 6
=======================================================================================================
(a) Excludes amounts for CILCORP and CILCO.
(b) Represents predecessor information.
Pro forma net income, as well as pro forma earnings per share for Ameren,
has not been presented for the three and nine months ended September 30, 2002
and for the years ended December 31, 2002, 2001 and 2000 because the pro forma
application of SFAS 143 to prior periods would result in pro forma net income
not materially different from the actual amounts reported for these periods.
EITF Issue No. 02-3 and EITF Issue No. 98-10
In the quarters ended September 30, 2002 and December 31, 2002, we adopted
the provisions of EITF 02-3, "Issues Involved in Accounting for Derivative
Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and
Risk Management Activities," that required revenues and costs associated with
certain energy contracts to be shown on a net basis in the Statement of Income.
Prior to adopting EITF 02-3 and the rescission of EITF 98-10, "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities," our
accounting practice was to present all settled energy purchase or sale contracts
within our power risk management program on a gross basis in Operating Revenues
- - Electric and Other and in Operating Expenses - Fuel and Purchased Power and
Other Operations and Maintenance. This meant that revenues were recorded for the
sum of the notional amounts of the power sales contracts with a corresponding
charge to income for the costs of the energy that was generated, or for the sum
of the notional amounts of a purchased power contract.
In October 2002, the EITF reached a consensus to rescind EITF 98-10. The
effective date for the full rescission of EITF 98-10 was for fiscal periods
beginning after December 15, 2002, with early adoption permitted. In addition,
the EITF
27
reached a consensus in October 2002 that all SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," trading derivatives (subsequent
to the rescission of EITF 98-10) should be shown net in the Statement of Income,
whether or not physically settled. This consensus applies to all energy and
non-energy related trading derivatives that meet the definition of a derivative
pursuant to SFAS 133. The following table presents the operating revenues and
costs that were netted for the three and nine months ended September 30, 2002,
which reduced Operating Revenues - Electric and Other, and Operating Expenses -
Fuel and Purchased Power and Other Operations and Maintenance by equal amounts:
=============================================================================
Three Months Nine Months
-----------------------------------------------------------------------------
Ameren(a)................................... $ 189 $ 563
UE.......................................... 117 345
CIPS........................................ - -
Genco....................................... 61 191
CILCORP(b).................................. - -
CILCO....................................... - -
=============================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) Represents predecessor information.
The adoption of EITF 02-3, the rescission of EITF 98-10 and the related
transition guidance resulted in the netting of energy contracts for financial
reporting purposes, which lowered our reported revenues and costs with no impact
on earnings.
SFAS No. 148 - "Accounting for Stock-Based Compensation - Transition and
Disclosure"
In December 2002, the FASB issued SFAS 148. SFAS 148 amended SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value-based method
of accounting for stock-based employee compensation. It also amended the
disclosure provisions to require disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation.
Prior to 2003, Ameren and CILCORP accounted for stock options granted under
long-term incentive plans under the recognition and measurement provisions of
APB Opinion 25, "Accounting for Stock Issued to Employees." No stock-based
employee compensation cost was reflected for options under either plan in 2002,
2001, and 2000 as all options granted under the plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The pretax cost of weighted-average grant-date fair value of options for Ameren
would have been approximately $2 million in 2002, 2001, and 2000 and $4 million,
$2 million and $1 million, respectively, for predecessor CILCORP, had the fair
value method under SFAS 123 been used for options granted. Effective January 1,
2003, we adopted the fair value recognition provisions of SFAS 123 by using the
prospective method of adoption under SFAS 148. Stock options have not been
granted since 2000 at Ameren and since 2001 at CILCORP, and therefore, SFAS 148
did not have any effect on Ameren's or CILCORP's financial position, results of
operations or liquidity since adoption.
SFAS No. 149 - "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities"
In April 2003, the FASB issued SFAS 149. SFAS 149 further clarifies and
amends accounting and reporting for derivative instruments. The statement amends
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," for
decisions made by the Derivative Implementation Group, as well as issues raised
in connection with other FASB projects and implementation issues. The statement
is effective for contracts entered into or modified after June 30, 2003 except
for implementation issues that have been effective for reporting periods
beginning before June 15, 2003, which continue to be applied based on their
original effective dates. SFAS 149 did not have any material impact on our
financial position, results of operations or liquidity upon adoption in the
third quarter of 2003.
28
SFAS No. 150 - "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity"
In May 2003, the FASB issued SFAS 150 that established standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS 150 requires financial
instruments that were issued in the form of shares with an unconditional
obligation to redeem the instrument by transferring assets on a specified date,
to be classified as liabilities. Accordingly, SFAS 150 requires issuers to
classify mandatorily redeemable financial instruments as liabilities. SFAS 150
also requires such financial instruments to be measured at fair value and a
cumulative effect adjustment to be recognized in the statement of income for any
difference between the carrying amount and fair value. SFAS 150 became effective
July 1, 2003. At July 1, 2003, CILCO had $21 million of preferred stock subject
to mandatory redemption, which was reclassified in the current period to the
liability section of Ameren's, CILCORP's and CILCO's Consolidated Balance
Sheets. In accordance with the requirements of SFAS 150, no reclassification was
made to the presentation on the December 31, 2002 Balance Sheets of Ameren,
CILCORP and CILCO. This preferred stock is redeemable at par at any time, and
therefore, it was estimated there was no difference between book value and fair
value.
FIN No. 46 - "Consolidation of Variable Interest Entities, an Interpretation of
ARB 51, Consolidated Financial Statements"
In January 2003, the FASB issued FIN 46 to address consolidation of
variable-interest entities (VIEs). The primary objective of FIN 46 was to
provide guidance on the identification of, and financial reporting for, entities
over which control is achieved through means other than voting rights. If an
entity absorbs the majority of the VIEs' expected losses or receives a majority
of the VIEs' expected residual returns, or both, it must consolidate the VIE. An
entity that is required to consolidate the VIE is called the primary
beneficiary. Additional disclosure requirements are also applicable when an
entity holds a significant variable interest in a VIE, but is not the primary
beneficiary.
Initially, FIN 46 was effective no later than the beginning of the first
interim period after June 15, 2003 for VIEs created before February 1, 2003. For
VIEs created after January 31, 2003, FIN 46 was effective immediately. In
September 2003, the FASB tentatively concluded to defer the effective date of
FIN 46 until the end of the first interim or annual period ending after December
15, 2003 for an interest held by a public company in a VIE or a possible VIE
that meets certain conditions.
We are in the process of reviewing the entities that have a reasonable
possibility of being classified as VIEs. At this time, we do not expect the
impact of FIN 46 on our financial position, results of operations, or liquidity
to be material upon adoption.
Interchange Revenues
The following table presents the interchange revenues included in Operating
Revenues - Electric for the three months and nine months ended September 30,
2003 and 2002:
================================================================================================
Three Months Nine Months
------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a)................................. $ 79 $ 55 $ 264 $ 203
UE........................................ 72 59 239 199
CIPS...................................... 10 10 28 28
Genco..................................... 34 27 107 77
CILCORP(b)................................ 7 3 15 7
CILCO..................................... 7 3 15 7
===============================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which was $3 million. CILCORP
consolidates CILCO and therefore includes CILCO amounts in its
balances.
29
Purchased Power
The following table presents the purchased power expenses included in
Operating Expenses - Fuel and Purchased Power for the three months and nine
months ended September 30, 2003 and 2002. See Note 7 - Related Party
Transactions for further information on affiliate transactions.
===============================================================================================================
Three Months Nine Months
---------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a).............................................. $ 97 $ 48 $ 220 $ 152
UE..................................................... 44 58 127 177
CIPS................................................... 96 117 264 323
Genco.................................................. 34 23 106 75
CILCORP(b)............................................. 57 41 142 105
CILCO.................................................. 57 41 139 105
=============================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which was $12 million. CILCORP
consolidates CILCO and therefore includes CILCO amounts in its
balances.
Excise Taxes
Excise taxes on Missouri electric and gas, and Illinois gas customer bills
are imposed on UE, CIPS and CILCO and are recorded gross in Operating Revenues
and Taxes Other than Income Taxes. Excise taxes applicable to Illinois electric
customer bills are imposed on the consumer and are recorded as tax collections
payable and included in Taxes Accrued on the Consolidated Balance Sheet. The
following table presents the excise taxes recorded in Operating Revenues and
Taxes Other than Income Taxes for the three and nine months ended September 30,
2003 and 2002:
================================================================================================================
Three Months Nine Months
- ----------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a).............................................. $ 40 $ 38 $ 102 $ 94
UE..................................................... 33 36 80 85
CIPS................................................... 2 2 10 9
Genco.................................................. - - - -
CILCORP(b)............................................. 5 3 14 12
CILCO.................................................. 5 3 14 12
=============================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003.
(b) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which was $2 million. CILCORP
consolidates CILCO and therefore includes CILCO amounts in its
balances.
Goodwill
Goodwill is the excess of the purchase price of an acquisition over the
fair value of the net assets acquired. Under the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets," we are not required to amortize
goodwill. SFAS 142 requires the evaluation of goodwill for impairment at least
annually or more frequently if events and circumstances indicate that the asset
might be impaired. Our goodwill primarily relates to the January 31, 2003
acquisition of CILCORP. See Note 2 - Acquisitions for additional information
regarding the acquisition.
30
Pension
A minimum pension liability was recorded at December 31, 2002 which
resulted in a charge to Accumulated OCI and a reduction in stockholders' equity.
The minimum pension liability has not changed as of September 30, 2003. The
following table presents the minimum pension liability amounts, after taxes, as
of September 30, 2003:
=============================================================================
September 30, 2003
-----------------------------------------------------------------------------
Ameren(a)................................................... $ 102
UE.......................................................... 62
CIPS........................................................ 13
Genco....................................................... 6
CILCORP(b).................................................. 61
CILCO....................................................... 30
=============================================================================
(a) Excludes amounts for CILCORP and CILCO, which were recorded prior to
the acquisition date of January 31, 2003.
(b) Represents predecessor information.
Based on changes in interest rates, we may be required to change our
actuarial assumptions for our pension plan valuation at December 31, 2003, which
could result in recognition of an additional minimum pension liability.
Coal Contract Settlement
Ameren and UE recorded a coal contract settlement gain of $51 million in
the third quarter of 2003. This gain primarily represented a return of coal
costs plus accrued interest accumulated by a coal supplier for reclamation of a
coal mine that principally supplied UE's power plant. This mine reclamation is
now substantially complete. In August 2003, UE entered into a settlement
agreement with the coal supplier to return the accumulated reclamation funds,
which will be paid to UE ratably through December 2004.
NOTE 2 - Acquisitions
On January 31, 2003, Ameren completed the acquisition of all of the
outstanding common stock of CILCORP from AES. CILCORP is the parent company of
Peoria, Illinois-based CILCO. With the acquisition, CILCO became an indirect
Ameren subsidiary, but remains a separate utility company, operating as
AmerenCILCO. On February 4, 2003, Ameren also completed the acquisition of
Medina Valley, which indirectly owns a 40 megawatt, gas-fired electric
generation plant. The results of operations for CILCORP and Medina Valley were
included in Ameren's consolidated financial statements effective with the
respective January and February 2003 acquisition dates. See Note 1 - Summary of
Significant Accounting Policies for further information on the presentation of
the results of CILCORP and CILCO in Ameren's consolidated financial statements.
Ameren acquired CILCORP to complement its existing Illinois gas and
electric operations. The purchase included CILCO's rate-regulated electric and
natural gas businesses in Illinois serving approximately 200,000 and 205,000
customers, respectively, of which approximately 150,000 are combination electric
and gas customers. CILCO's service territory is contiguous to our service
territory. CILCO also has a non rate-regulated electric and gas marketing
business principally focused in the Chicago, Illinois region. Finally, the
purchase included approximately 1,200 megawatts of largely coal-fired generating
capacity, most of which became non rate-regulated on October 3, 2003 due to
CILCO's transfer of 1,100 megawatts of generating capacity to AERG. See Note 1 -
Summary of Significant Accounting Policies for further information on the
transfer to AERG.
The total acquisition cost was approximately $1.4 billion and included the
assumption by Ameren of CILCORP and Medina Valley debt and preferred stock at
closing of $895 million and consideration of $489 million in cash, net of cash
acquired. The cash component of the purchase price came from Ameren's issuance
in September 2002 of 8.05 million common shares and its issuance in early 2003
of an additional 6.325 million common shares, which together generated aggregate
net proceeds of $575 million.
The following unaudited pro forma financial information presents a summary
of Ameren's consolidated results of operations assuming the acquisitions of
CILCORP and Medina Valley had been completed at the beginning of fiscal year
31
2002, including pro forma adjustments, which are based upon preliminary
estimates, to reflect the allocation of the purchase price to the acquired net
assets. Ameren and CILCORP are in the process of completing a third party
valuation of acquired property and plant and intangible assets. Therefore, the
allocation of the purchase price is subject to change. The excess of the
purchase price over tangible net assets acquired has been allocated
preliminarily to goodwill in the amount of $615 million.
================================================================================================================
For the periods ended September 30, Three Months Nine Months
----------------------------------------------------------------------------------------------------------------
2003(a) 2002 2003 2002
---- ---- ---- ----
Operating revenues............................................... $ 1,350 $ 1,363 $ 3,647 $ 3,583
Income before cumulative effect of change in accounting 275 263 472 443
principle......................................................
Cumulative effect of change in accounting principle, net of taxes - - 22 -
Net income....................................................... $ 275 $ 263 $ 494 $ 443
Earnings per share - basic....................................... $ 1.70 $ 1.64 $ 3.07 $ 2.82
- diluted..................................... 1.70 1.64 3.06 2.81
==============================================================================================================
(a) Represents actual Ameren results of operations.
This pro forma information is not necessarily indicative of the results of
operations as they would have been had the transactions been effected on the
assumed date, nor is it an indication of trends in future results.
NOTE 3 - Rate and Regulatory Matters
Intercompany Transfer of Electric Generating Facilities and Illinois Service
Territory
As a part of the settlement of the Missouri electric rate case in 2002, UE
committed to making certain infrastructure investments from January 1, 2002
through June 30, 2006, including the addition of 700 megawatts of generation
capacity. The new capacity requirement is expected to be satisfied, in part, by
the proposed transfer from Genco to UE, at net book value (approximately $250
million), of approximately 550 megawatts of combustion turbine generating units
at Pinckneyville and Kinmundy, Illinois. The transfer is subject to receipt of
FERC and SEC approval. Approval by the MoPSC is not required in order for this
transfer to occur. However, the MoPSC has jurisdiction over UE's ability to
recover the cost of the transferred generating facilities from its electric
customers in its rates. As part of the settlement of the Missouri electric rate
case in 2002, UE is subject to a rate moratorium providing for no changes in its
electric rates before June 30, 2006, subject to certain statutory and other
exceptions. Approval of the ICC is not required contingent upon prior approval
and execution of UE's transfer of its Illinois public utility operations to CIPS
as discussed below.
In February 2003, UE sought approval from the FERC to transfer the 550
megawatts of generating assets from Genco to UE. Certain independent power
producers objected to UE's request based on a claim that the transfer may harm
competition for the sale of electricity at wholesale. In May 2003, the FERC
issued an order which set for hearing the effect of the proposed transfer on
competition in wholesale electric markets, which UE appealed. Subsequently, the
FERC Staff filed testimony which supported the proposed transfer and recommended
that the FERC accept it. A hearing was held in October 2003 and an initial order
by the Administrative Law Judge is expected to be issued in the first quarter of
2004. After the parties to the proceeding have an opportunity to review and
comment on the initial order, the matter will be submitted to the FERC for
issuance of a final order.
In May 2003, UE announced its plan to limit its public utility operations
to the state of Missouri and to discontinue operating as a public utility
subject to ICC regulation. UE intends to accomplish this plan by transferring
its Illinois-based electric and natural gas businesses, including its
Illinois-based distribution assets and certain of its transmission assets, to
CIPS. In 2002, UE's Illinois electric and gas service territory generated
revenues of $166 million and is expected to have a net book value of $138
million at December 31, 2003. UE's electric generating facilities and certain of
its electric transmission facilities in Illinois would not be part of the
transfer. The transfer of UE's Illinois-based utility businesses will require
the approval of the ICC, the FERC, the MoPSC and the SEC under the provisions of
the PUHCA. In August 2003, UE filed with the MoPSC, and in October and November
2003 filed with the ICC, the FERC and the SEC for authority to
32
transfer UE's Illinois-based utility businesses, at net book value, to CIPS. The
filing with the ICC seeks approval to transfer only UE's Illinois-based natural
gas utility business since the ICC authorized the transfer of UE's
Illinois-based electric utility business to CIPS in 2000. UE proposes to
transfer approximately one-half of the assets directly to CIPS in consideration
for a CIPS promissory note, and approximately one-half of the assets by means of
a dividend in kind to Ameren followed by a capital contribution by Ameren to
CIPS.
A filing seeking approval of both the transfer of UE's Illinois-based
utility business and Genco's combustion turbine generating units was made with
the SEC in October 2003. If completed, the transfers will be accounted for at
book value with no gain or loss recognition which is appropriate treatment for
transactions of this type by two entities under common control.
We are unable to predict the ultimate outcome of these regulatory
proceedings or the timing of the final decisions of the various agencies.
Regional Transmission Organization
In April 2003, the FERC authorized the request of the GridAmerica Companies
to transfer functional control of their transmission assets to GridAmerica LLC.
The FERC also accepted the amendments to the Midwest ISO OATT, suspended the
proposed rates for a nominal period, subject to refund, and established hearing
and settlement procedures to determine the justness and reasonableness of the
proposed rate amendments to the Midwest ISO OATT. At this time the parties are
pursuing settlement of the disputed rate issues, which, absent settlement, will
go into effect subject to refund effective upon the commencement of service over
the GridAmerica Companies transmission facilities under the Midwest ISO OATT. In
May 2003, the FERC accepted the revised agreements filed by the GridAmerica
Companies to reflect the changes requested by the FERC.
In August 2003, the GridAmerica Companies filed acknowledgements with the
FERC that permitted GridAmerica LLC to commence operations on October 1, 2003,
on a phased basis, by assuming, with the Midwest ISO, functional control of the
American Transmission Systems, Incorporated, a subsidiary of FirstEnergy
Corporation and Northern Indiana Public Service Company, a subsidiary of
NiSource, Inc. transmission systems. UE and CIPS transmission systems are not
currently included in GridAmerica LLC's operations due to UE's need for MoPSC
approval, which is pending.
In September 2003, in response to a FERC order requesting various
transmission asset owners that are not yet participating in a RTO to file
testimony describing the impediments to their participation in a RTO, Exelon
Corporation announced it was in exclusive negotiations with Dynegy Inc. to
purchase Illinois Power Company, and if successful in the acquisition, Exelon
Corporation would seek to transfer functional control of the Illinois Power
Company transmission assets to the PJM Interconnection LLC RTO. In response to
this announcement, UE and CIPS announced to the FERC that the change in RTO
participation by Illinois Power Company from the Midwest ISO to the PJM
Interconnection LLC RTO would cause UE and CIPS to reassess their commitment to
participate in the Midwest ISO through GridAmerica LLC.
If UE secures approval to participate in GridAmerica LLC from the MoPSC,
and UE and CIPS transfer functional control of their transmission systems to
GridAmerica LLC, the FERC has ordered the return, with interest, of the $13
million exit fee paid by UE and the $5 million exit fee paid by CIPS when they
previously left the Midwest ISO.
CILCO is already a transmission member of the Midwest ISO and has
transferred functional control of its transmission system to the Midwest ISO.
Transmission service on the CILCO transmission system is provided pursuant to
the terms and conditions of the Midwest ISO OATT on file with the FERC.
Genco does not own transmission assets, but pays UE and CIPS for the use of
their transmission systems to transmit power from the Genco generating plants.
Until the tariffs and other material terms of CIPS' and UE's participation in
the GridAmerica Companies, and the GridAmerica Companies' participation in the
Midwest ISO, are finalized and approved by the FERC and other regulatory
authorities, the ultimate impact that on-going RTO developments will have on
UE's, CIPS' and Genco's financial position, results of operations or liquidity
is unpredictable.
On November 13, 2003, the FERC said that it will issue an order upholding
an earlier order issued in July 2003 (July Order) that will reduce UE's and
CIPS', as well as other utilities, "throught and out" transmission revenues
effective April
33
1, 2004. We are in the process of obtaining and reviewing the final written
order. The revenues subject to elimination by these orders are those revenues
from transmission that travel through or out of UE's and CIPS' transmission
system and are also used to provide electricity to load within the Midwest ISO
or PJM Interconnection LLC systems. The magnitude of the potential net revenue
reduction resulting from these orders could be up to $20 to $25 million annually
if UE and CIPS are not in a RTO. UE and CIPS would incur approximately 60% and
40%, respectively, of the potential net revenue reduction. While it is
anticipated that UE's and CIPS' transmission revenues could be reduced by these
orders, transmission expenses for Genco could be reduced. Morever, we believe
the FERC's final Order will explicitly permit companies participating in a RTO
to collect the lost "through and out" revenues through other rate mechanisms.
Until it is determined when, or if, UE and CIPS will join a RTO, UE and CIPS are
unable to predict the ultimate impact of these orders.
Standard Market Design Notice of Proposed Rulemaking
In July 2002, the FERC issued a Standard Market Design NOPR. The NOPR
proposes a number of changes to the way the current wholesale transmission
service and energy markets are operated. Specifically, the NOPR calls for all
jurisdictional transmission facilities to be placed under the control of an
independent transmission provider (similar to a RTO), proposes a new
transmission service tariff that provides a single form of transmission service
for all users of the transmission system including bundled retail load, and
proposes a new energy market and congestion management system that uses
locational marginal pricing as its basis.
Although issuance of the Standard Market Design final rule is uncertain and
the implementation schedule is unknown, the Midwest ISO is already in the
process of implementing a separate market design similar to the proposed market
design in the NOPR. In July 2003, the Midwest ISO filed with the FERC a revised
OATT codifying the terms and conditions under which it would implement the new
market design. The Midwest ISO targeted March 2004 as the start date for staged
implementation. In October 2003, the Midwest ISO filed a pleading with the FERC
to withdraw its revised OATT to ensure that effective reliability tools are in
place and operating correctly before moving forward with the new market design.
UE and CIPS will continue monitoring the status of the Midwest ISO's market
design and the potential impact of the market design on the cost and reliability
of service to retail customers. At this time, we are unable to predict the
ultimate impact the new market design will have on their future financial
position, results of operations or liquidity.
Illinois Electric
In 2002, all of the Illinois residential, commercial and industrial
customers of UE, CIPS and CILCO had a choice in electric suppliers under the
provisions of 1997 Illinois legislation related to the restructuring of the
Illinois electric industry (the Illinois Law). Under the Illinois Law, UE, CIPS
and CILCO rates initially were frozen through January 1, 2005, subject to
residential electric rate decreases of up to 5% in 2002 to the extent rates
exceeded the Midwest utility average. In 2002, the Illinois electric rates of
UE, CIPS and CILCO were below the Midwest utility average.
As the result of an amendment to the Illinois Law, the rate freeze was
extended through January 1, 2007. As a result of this extension through January
1, 2007, CIPS and Marketing Company expect to seek to renew or extend their
power supply agreement and CILCO and AERG expect to seek to renew or extend
their power supply agreement through January 1, 2007. A renewal or extension of
the power supply agreements depend on compliance with regulatory requirements in
effect at the time.
The Illinois Law allows a utility to collect transition charges from
customers that elect to move from bundled retail rates to market-based power and
energy. Utilities have the right to collect applicable transition charges
throughout the transition period that ends January 1, 2007 from customers that
elect market-based power and energy. In the order authorizing the acquisition of
CILCO by Ameren, the ICC required UE, CIPS and CILCO to eliminate transition
charges in the period commencing June 2003, through at least May 2005. The
non-recovery of transition charges is not expected to have a material impact on
UE, CIPS or CILCO.
The Illinois Law also contains a provision requiring that one-half of
excess earnings from the Illinois jurisdiction for the years 1998 through 2006
be refunded to UE, CIPS and CILCO's Illinois customers. Excess earnings are
defined as the portion of the two-year average annual rate of return on common
equity in excess of 1.5% of the two-year average of the Index, as defined in the
Illinois Law. The Index is defined as the sum of the average for the twelve
months ended
34
September 30 of the average monthly yields of the Treasury long-term average (25
years and above), plus 7% for both UE and CIPS and 11% for CILCO. CILCO, CIPS
and UE's average rates of return on common equity for the two-year average at
December 31, 2002 were 9%, 6% and 13%, respectively, as compared to the average
Index of 18% for CILCO and 14% for CIPS and UE. No refunds to UE, CIPS or
CILCO's Illinois customers are expected to be required for the period from April
1, 2002 through March 31, 2003. During the twelve months ended December 31,
1999, UE made excess earnings refunds of $2.1 million resulting from excess
earnings during the period April 1, 2000 through March 31, 2001. During the
twelve months ended December 31, 2000, UE made excess earnings refunds of $1.5
million from April 1, 2001 through March 31, 2002. These refunds were recorded
as a reduction to Operating Revenues - Electric.
Illinois Gas
In October 2003, the ICC issued an order awarding CILCO an increase in
annual gas rates of $9 million and awarding CIPS and UE increases in annual gas
rates of $7 million and $2 million, respectively. These new rates were effective
in November 2003.
Missouri Gas
In May 2003, UE filed a request with the MoPSC to increase annual rates for
natural gas service by approximately $27 million. UE proposed to phase in the
rate increases over two years, with one half of the increase taking effect
December 1, 2003 and the other half taking effect November 1, 2004. UE also
proposed not to seek additional increases in gas rates through November 1, 2006,
subject to certain exceptions. The proposal also called for UE to contribute
$1.75 million to an energy assistance program to help low-income customers. In
October 2003, the MoPSC Staff and other parties to this proceeding filed direct
testimony. The MoPSC Staff in its testimony recommended an increase in annual
rates of approximately $11 million. In late October and early November 2003, the
parties participated in a prehearing settlement conference and settlement
discussions are continuing. A hearing in this proceeding is scheduled for
January 2004 in the event a settlemnet is not reached and the MoPSC has until
April 2004 to render a decision in this case.
NOTE 4 - Debt and Equity Financings
Ameren
In August 2002, the SEC declared effective a shelf registration statement
filed by Ameren covering the offering from time to time of up to $1.473 billion
of various forms of securities including long-term debt and trust preferred and
equity securities. In 2002, Ameren issued approximately $338 million of
securities pursuant to the shelf registration statement.
In the first quarter of 2003, Ameren issued, pursuant to the shelf
registration statement, 6.325 million shares of its common stock at $40.50 per
share. Ameren received net proceeds, after fees, of $248 million, which were
used to fund the remaining cash portion of the purchase price for its
acquisition of CILCORP. See Note 2 - Acquisitions for further information. At
September 30, 2003, the amount of securities remaining available for issuance
pursuant to the shelf registration statement was $879 million. Ameren may sell
all, or a portion of, the remaining securities registered under the shelf
registration statement if warranted by market conditions and capital
requirements. Any offer and sale will be made only by means of a prospectus
meeting the requirements of the Securities Act of 1933 and the rules and
regulations thereunder.
The acquisitions of CILCORP on January 31, 2003 and Medina Valley on
February 4, 2003 included the assumption by Ameren of CILCORP and Medina Valley
debt and preferred stock at closing of $895 million. The assumed debt primarily
consisted of $250 million 9.375% senior notes due 2029, $225 million 8.7% senior
notes due 2009, a $100 million secured floating rate term loan due 2004, other
secured indebtedness totaling $279 million and preferred stock of $41 million.
In July 2003, Ameren entered into two new revolving credit facilities
aggregating $470 million to be used for general corporate purposes including
support of our commercial paper programs. The $470 million in new facilities
includes a $235 million 364-day revolving credit facility and a $235 million
three-year revolving credit facility. These new credit
35
facilities replaced Ameren's existing $270 million 364-day revolving credit
facility, which matured in July 2003, and a $200 million facility, which would
have matured in December 2003. The new credit facilities contain provisions
which require us to meet minimum ERISA funding requirements for our pension
plan. The prior credit facilities included more restrictive provisions related
to the funded status of our pension plan, which are not present in the new
facilities. Ameren also has a $130 million multi-year credit facility which
includes the ERISA-related provisions that have been modified to conform to the
provisions in the two new revolving credit facilities. As a result, for any of
our credit facilities that contain provisions related to pension funding, we are
now only required to meet all of the minimum ERISA funding rules. At September
30, 2003, all of such borrowing capacity under these facilities was available.
The following table presents the amortization of debt issuance costs and
any premium or discounts included in interest expense in the Statement of Income
for the three and nine months ended September 30, 2003 and 2002:
=================================================================================================================
Three Months Nine Months
-----------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a)............................................... $ 3 $ 2 $ 8 $ 6
UE...................................................... 1 1 3 3
CIPS.................................................... 1 - 1 1
Genco................................................... - - 1 1
CILCORP(b) ............................................. 1 - 1 -
CILCO................................................... - - - -
================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which were zero. CILCORP
consolidates CILCO and therefore includes CILCO amounts in its
balances.
At September 30, 2003, neither Ameren, nor any of its subsidiaries, had any
off-balance sheet financing arrangements, other than operating leases entered
into in the ordinary course of business.
At September 30, 2003, the Ameren Companies were in compliance with all
material financial agreement provisions and covenants.
UE
In August 2002, the SEC declared effective a shelf registration statement
filed by UE covering the offering from time to time of up to $750 million of
various forms of long-term debt and trust preferred securities.
In March 2003, UE issued, pursuant to the August 2002 shelf registration
statement, $184 million of 5.50% Senior Secured Notes due March 15, 2034. UE
received net proceeds, after fees, of $180 million, which along with other
funds, were used in April 2003 to redeem $104 million principal amount of
outstanding 8.25% first mortgage bonds due October 15, 2022, at a redemption
price of 103.61% of par, plus accrued interest, and to repay short-term debt
incurred to pay at maturity $75 million principal amount of 8.33% first mortgage
bonds that matured in December 2002.
In April 2003, UE issued, pursuant to the August 2002 shelf registration
statement, $114 million of 4.75% Senior Secured Notes due April 1, 2015. UE
received net proceeds, after fees, of $113 million, which along with other funds
were used in May 2003 to redeem $85 million principal amount of outstanding
8.00% first mortgage bonds due December 15, 2022, at a redemption price of
103.38% of par, plus accrued interest, and to reduce short-term debt.
In July 2003, UE issued, pursuant to the August 2002 shelf registration
statement, $200 million of 5.10% Senior Secured Notes due August 1, 2018. UE
received net proceeds, after fees, of $198 million, which along with other funds
were used to repay short-term debt incurred to fund the maturity of $100 million
principal amount 7.65% first mortgage bonds due July 15, 2003 and to repay $21
million of other short-term debt. The remaining proceeds were used in August
2003 to redeem $75 million principal amount of outstanding 7.15% first mortgage
bonds due August 1, 2023 at a redemption price of 103.01% of par, plus accrued
interest.
36
In September 2003, the SEC declared effective another shelf registration
statement filed by UE in August 2003, covering the offering from time to time of
up to $1 billion of various forms of long-term debt and trust preferred
securities. The $79 million of securities which remained available for issuance
under the August 2002 shelf registration is included in the $1 billion of
securities available to be issued under this shelf registration statement.
In October 2003, UE issued, pursuant to the September 2003 shelf
registration statement, $200 million of 4.65% Senior Secured Notes due October
1, 2013. UE received net proceeds, after fees, of $198 million, which were used
to repay outstanding short-term debt.
UE may sell all, or a portion of, the remaining securities registered under
the September 2003 shelf registration statement if warranted by market
conditions and capital requirements. Any offer and sale will be made only by
means of a prospectus meeting the requirements of the Securities Act of 1933 and
the rules and regulations thereunder. At October 31, 2003, the amount remaining
under the September 2003 shelf registration statement was $800 million.
In April 2003, UE entered into an additional 364-day committed credit
facility totaling $75 million to be used for general corporate purposes
including support of its commercial paper program. This facility makes
borrowings available at various interest rates based on LIBOR, agreed rates and
other options. CIPS and CILCO can access this facility through the utility money
pool.
CIPS
In March 2003, CIPS repaid $5 million principal amount of its 6.99% Series
97-1 first mortgage bonds on their maturity date. In April 2003, CIPS repaid $40
million principal amount of its 6.375% Series Z first mortgage bonds on their
maturity date and also redeemed at par, its $50 million 7.50% Series X first
mortgage bonds due July 1, 2007. All redemptions and repayments were made with
available cash and borrowings from the money pool.
CILCORP
In conjunction with Ameren's acquisition of CILCORP, CILCORP's long-term
debt amounts have been adjusted to fair value. The recording of fair value
related adjustments resulted in an increase of $71 million related to CILCORP's
9.375% senior notes due 2029 and $40 million to its 8.7% senior notes due 2009.
Amortization related to these fair value adjustments was approximately $2
million for the three months and $5 million for the eight months ended September
30, 2003. The amortization was included in interest expense in the Statement of
Income for Ameren and CILCORP.
In September 2003, CILCORP repurchased, prior to maturity, $13 million
principal amount of its 9.375% senior notes and $27 million principal amount of
its 8.7% senior notes. These repurchases resulted in a reduction of the fair
value write-up of $8 million in aggregate. CILCORP repurchased these notes
through a direct loan from Ameren.
CILCO
In February 2003, CILCO repaid $25 million principal amount of its 6.82%
series medium-term notes on their maturity date. In April 2003, three series of
CILCO's first mortgage bonds were redeemed prior to maturity. These redemptions
included CILCO's $65 million principal amount 8.20% series due January 15, 2022
at a redemption price of 103.29%, and two 7.8% series totaling $10 million
principal amount due February 9, 2023 at a redemption price of 103.90%. In
August 2003, CILCO repaid two bank loans totaling $5 million prior to their
scheduled maturity dates. In July 2003, preferred stock was reduced by $1
million as a result of a mandatory sinking fund provision. All redemptions and
repayments were made with available cash and borrowings from the money pool.
Medina Valley
In June 2003, Medina Valley repaid, prior to maturity, with funds borrowed
from the non-state regulated money pool, a $36 million secured term loan with an
effective interest rate of 7.65% and terminated two related interest rate swaps.
This repayment eliminated the outstanding bank debt at Medina Valley.
37
NOTE 5 - Other Income and Deductions
The following table presents Other Income and Deductions for the three and
nine months ended September 30, 2003 and 2002:
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a)
Miscellaneous income:
Interest and dividend income................ $ 1 $ 4 $ 2 $ 6
Gain on disposition of property ............ - - - 3
Allowance for equity funds used during
construction.............................. 1 1 2 3
Other....................................... 2 1 12 4
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ 4 $ 6 $ 16 $ 16
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Minority interest in subsidiary............. $ (1) $ (2) $ (6) $ (13)
Donations, including 2002 rate settlement... - - - (26)
Other....................................... (2) (1) (8) (7)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ (3) $ (3) $ (14) $ (46)
===================================================================================================================
===================================================================================================================
UE
Miscellaneous income:
Interest and dividend income................ $ 1 $ - $ 1 $ 2
Equity in earnings of subsidiary............ 1 1 6 13
Gain on disposition of property............. - - - 3
Allowance for equity funds used during
construction.............................. 1 1 1 3
Other....................................... 2 - 6 6
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ 5 $ 2 $ 14 $ 27
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Donations, including 2002 rate settlement... $ - $ - $ - $ (26)
Other....................................... (2) (1) (5) (6)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ (2) $ (1) $ (5) $ (32)
===================================================================================================================
===================================================================================================================
CIPS
Miscellaneous income:
Interest and dividend income................ $ 7 $ 8 $ 21 $ 24
Other....................................... - - - 1
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ 7 $ 8 $ 21 $ 25
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Other....................................... $ - $ - $ (2) $ (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ - $ - $ (2) $ (1)
-------------------------------------------------------------------------------------------------------------------
Genco
Miscellaneous income:
Other....................................... $ - $ - $ 2 $ -
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ - $ - $ 2 $ -
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Other....................................... $ - $ (1) $ - $ (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ - $ (1) $ - $ (1)
-------------------------------------------------------------------------------------------------------------------
38
-------------------------------------------------------------------------------------------------------------------
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
CILCORP(b)
Miscellaneous income:
Other....................................... $ - $ - $ - $ 2
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ - $ - $ - $ 2
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Company-owned life insurance................ $ (1) $ - $ (1) $ (1)
Other....................................... (1) - (2) (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ (2) $ - $ (3) $ (2)
===================================================================================================================
===================================================================================================================
CILCO
Miscellaneous income:
Other ...................................... $ - $ - $ 1 $ 1
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous income..................... $ - $ - $ 1 $ 1
-------------------------------------------------------------------------------------------------------------------
Miscellaneous expense:
Company-owned life insurance................ $ (1) $ - $ (1) $ (1)
Other....................................... (1) - (3) (1)
-------------------------------------------------------------------------------------------------------------------
Total miscellaneous expense.................... $ (2) $ - $ (4) $ (2)
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2002 amounts represent predecessor information. January 2003
predecessor amounts were zero. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
NOTE 6 - Derivative Financial Instruments
Cash Flow Hedges
The following table presents balances in certain accounts for cash flow
hedges as of September 30, 2003:
===================================================================================================================
Ameren(a) UE CIPS Genco CILCORP CILCO
-------------------------------------------------------------------------------------------------------------------
Balance Sheet:
Other assets............................. $ 15 $ 7 $ - $ 1 $ - $ 6
Other deferred credits and liabilities... 11 4 4 - - 3
Accumulated OCI:
Power forwards(b)........................ 1 - - - - -
Interest rate swaps(c)................... 5 - - 5 - -
Gas swaps and future contracts(d)........ (14) (3) (3) - (4) (4)
Call options(e).......................... 6 6 - - - -
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) Represents the mark-to-market value for the hedged portion of
electricity price exposure for periods generally less than one year.
Certain contracts designated as hedges of electricity price exposure
have terms up to five years.
(c) Represents a gain associated with interest rate swaps at Genco that
were a partial hedge of the interest rate on debt issued in June 2002.
The swaps cover the first ten years of debt that has a 30-year
maturity and the gain in OCI is amortized over a ten-year period that
began in June 2002.
(d) Represents a loss associated with natural gas swaps and future
contracts. The swaps are a partial hedge of our natural gas
requirements through October 2006.
(e) Represents the mark-to-market gain of two call options accounted for
as cash flow hedges for coal held with two suppliers. These options to
purchase coal expire in October 2003 and July 2005. The final value of
the options will be recognized as a reduction in fuel costs as the
hedged coal is burned.
The pretax net gain or loss on power forward derivative instruments
included in Other Income and Deductions, at UE and Genco, which represented the
impact of discontinued cash flow hedges, the ineffective portion of cash flow
hedges, as well as the reversal of amounts previously recorded in OCI due to
transactions going to delivery or settlement, totaled less
39
than a $1 million gain for the three months ended September 30, 2003 (2002 - $4
million loss) and less than a $1 million loss for the nine months ended
September 30, 2003 (2002 - $4 million loss).
Other Derivatives
The following table represents the net change in market value of option
transactions, which are used to manage our positions in sulfur dioxide
allowances, coal, heating oil and electricity. Certain of these transactions are
treated as non-hedge transactions under SFAS 133. The net change in the market
value of sulfur dioxide options is recorded in Operating Revenues - Electric,
while the net change in the market value of coal, heating oil and electricity
options is recorded as Operating Expenses - Fuel and Purchased Power in the
Statement of Income.
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
Gains (Losses)(a): 2003 2002 2003 2002
---- ---- ---- ----
Sulfur dioxide options -
Ameren(b)........................................ $ - $ 1 $ 1 $ 2
UE............................................... (1) 1 (1) 2
CIPS............................................. - - - -
Genco............................................ 1 - 2 -
CILCORP(c)....................................... - - - -
CILCO............................................ - - - -
Coal options -
Ameren(b)........................................ - - 1 1
UE............................................... 1 - 1 1
CIPS............................................. - - - -
Genco............................................ - - - -
CILCORP(c)....................................... - - - -
CILCO............................................ - - - -
===================================================================================================================
(a) Heating oil and electricity options gains and losses were less than $1
million for all periods shown above.
(b) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(c) 2002 amounts represent predecessor information. January 2003
predecessor amounts were zero. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
NOTE 7 - Related Party Transactions
The Ameren Companies have engaged in, and may in the future engage in,
affiliate transactions in the normal course of business. These transactions
primarily consist of gas and power purchases and sales, services received or
rendered, borrowings and lendings. Transactions between affiliates are reported
as intercompany transactions on their financial statements, but are eliminated
in consolidation for Ameren's financial statements and include the material
agreements below.
Electric Power Supply Agreements
Under two electric power supply agreements, Genco is obligated to supply to
Marketing Company, and Marketing Company, in turn, is obligated to supply to
CIPS, all of the energy and capacity needed by CIPS to offer service for resale
to its native load customers at rates specified by the ICC and to fulfill CIPS'
other obligations under all applicable federal and state tariffs or contracts.
Any power not used by CIPS is sold by Marketing Company under various long-term
wholesale and retail contracts. For native load, CIPS pays an annual capacity
charge per megawatt (the greater of its forecasted peak demand or actual
demand), plus an energy charge per megawatt-hour to Marketing Company. For
fixed-price retail customers outside of the tariff, CIPS pays Marketing Company
the price it receives under these contracts. The fees paid by CIPS to Marketing
Company for native load and fixed-price retail customers and any other sales by
Marketing Company under various long-term wholesale and retail contracts are
passed through to Genco. In addition, under the power supply agreement between
Genco and Marketing Company, Genco bears all generation related operating risks,
including
40
plant performance, operations, maintenance, efficiency, employee retention and
other matters. There are no guarantees, bargain purchase options or other terms
that may convey to CIPS the right to use the property and plant of Genco. The
agreement between CIPS and Marketing Company expires on December 31, 2004. The
agreement between Genco and Marketing Company can be terminated by either party
upon at least one year's notice, but may not be terminated prior to December 31,
2004. CIPS and Marketing Company plan to pursue a renewal or extension of their
agreement through December 31, 2006. A renewal or extension of this agreement
will depend on compliance with regulatory requirements in effect at the time.
This extension has been authorized by the ICC in its order approving Ameren's
acquisition of CILCORP and CILCO.
On October 3, 2003, in conjunction with CILCO's transfer to AERG of
substantially all of its generating assets, AERG entered into an electric power
supply agreement with CILCO to supply it sufficient power to meet its native
load requirements. CILCO pays a monthly capacity charge per megawatt based on
CILCO's system capacity requirements, plus an energy charge per megawatt-hour.
This agreement expires on December 31, 2004. AERG and CILCO plan to pursue an
extension of the power supply agreement through December 31, 2006. A renewal or
extension of this agreement will depend on compliance with regulatory
requirements in effect at the time. The ICC authorized this extension in its
order approving Ameren's acquisition of CILCORP and CILCO. Also in conjunction
with CILCO's generating asset transfer, a bilateral power supply agreement was
entered into between AERG and Marketing Company. This agreement provides for
AERG to sell excess power to Marketing Company for sales outside the CILCO
control area, and also allows Marketing Company to sell power to AERG to fulfill
CILCO's native load requirements.
CILCO had a power purchase agreement with CIPS for the purchase of 100
megawatts of capacity and firm energy for the months of January and June through
September 2003 and 2002. This power was supplied by Genco through Marketing
Company, CIPS and Genco electric power supply agreements discussed above.
UE and CIPS are parties to a power supply agreement with EEI to purchase
and sell capacity and energy. This agreement expires on December 31, 2005. Under
a separate agreement which expires on December 31, 2005, CIPS resold its
entitlements under the power supply agreement with EEI to Marketing Company.
UE has a 150 megawatt power supply agreement with Marketing Company which
expires December 31, 2005. UE also had a one year 450 megawatt power supply
agreement with Marketing Company which expired in May 2002 and another one year
200 megawatt power supply agreement with Marketing Company which expired in May
2003. Power supplied by Marketing Company to UE through these agreements was
obtained from Genco.
Joint Dispatch Agreement
UE and Genco jointly dispatch electric generation under an amended joint
dispatch agreement. Under the agreement, each affiliate is required to serve
their load requirements from their own generation first, and then allowed access
to any available generation from their affiliate. The joint dispatch agreement
can be terminated by either party by giving one year's notice beginning January
1, 2004.
Agency Agreements
Any excess generation not used by UE or Genco through the joint dispatch
agreement is sold to third parties through Ameren Energy, serving as each
affiliate's agent. Ameren Energy also acts as agent on behalf of UE and Genco to
purchase power when they require it.
Pending SEC approval, there will be an agency agreement between AERG and
Marketing Company that authorizes Marketing Company, on behalf of AERG, to sell
AERG's excess generation, or purchase power when needed to supply AERG
customers.
Executory Tolling, Gas Sales and Transportation Agreements
Under an executory tolling agreement, CILCO purchases steam, chilled water
and electricity from Medina Valley. In connection with this agreement, Medina
Valley purchases gas from AFS under a fuel supply and services agreement. Prior
to September 2003, Medina Valley purchased gas from CESI and gas transportation
from CILCO.
41
Under a special contract rate, gas transportation agreement, Genco acquires
gas transportation service from UE for its Columbia, Missouri generating
facility. This agreement expires in February 2016.
Support Services Agreements
Costs of support services provided by Ameren Services, Ameren Energy and
AFS to their affiliates, including wages, employee benefits, professional
services and other expenses are based on, or are an allocation of, actual costs
incurred.
Money Pools
Utility
UE, CIPS and CILCO have the ability to borrow from Ameren and each other
through a utility money pool agreement. In September 2003, CILCO received the
final required regulatory approval necessary for its participation in the
utility money pool. In October 2003, AERG also received the required regulatory
approval necessary to participate in the utility money pool. Ameren Services
administers the utility money pool and tracks internal and external funds
separately. Ameren Services also participates in the utility money pool. Ameren
and AERG may only participate in the utility money pool as a lender. Internal
funds are surplus funds contributed to the utility money pool from participants.
The primary source of external funds for the utility money pool is the UE
commercial paper program. Through the utility money pool, the pool participants
can access committed credit facilities at Ameren which totaled $600 million at
September 30, 2003. These facilities are in addition to UE's $157 million, CIPS'
$15 million and CILCO's $60 million in committed credit facilities. The total
amount available to the pool participants from the utility money pool at any
given time is reduced by the amount of borrowings by their affiliates, but
increased to the extent the pool participants have surplus funds or other
external sources are used to increase the available amounts. The availability of
funds is also determined by funding requirement limits established by the SEC
under PUHCA. UE, CIPS, CILCO and Ameren Services rely on the utility money pool
to coordinate and provide for certain short-term cash and working capital
requirements. Borrowers receiving a loan under the utility money pool agreement
must repay the principal amount of such loan, together with accrued interest.
The rate of interest depends on the composition of internal and external funds
in the utility money pool. The average interest rate for borrowing under the
utility money pool for the three months ended September 30, 2003 was 1.02% (2002
- - 1.73%) and for the nine months ended September 30, 2003 was 1.17% (2002 -
1.75%).
Non-State Regulated
Genco and other non-state regulated Ameren subsidiaries have the ability to
borrow up to $600 million in total from Ameren through a non-state regulated
subsidiary money pool agreement. However, the total amount available to the pool
participants at any time is reduced by the amount of borrowings from Ameren by
its subsidiaries and is increased to the extent other pool participants advance
surplus funds to the non-state regulated subsidiary money pool, or external
sources are used to increase the available amounts. At September 30, 2003, $600
million was available through the non-state regulated subsidiary money pool,
excluding additional funds available through excess cash balances. The non-state
regulated subsidiary money pool was established to coordinate and provide for
short-term cash and working capital requirements of Ameren's non-state regulated
activities and is administered by Ameren Services. Borrowers receiving a loan
under the non-state regulated subsidiary money pool agreement must repay the
principal amount of such loan, together with accrued interest. The rate of
interest depends on the composition of internal and external funds in the
non-state regulated subsidiary money pool. These rates are based on the cost of
funds used to fund money pool advances. Ameren and CILCORP are authorized to act
only as lenders to the non-state regulated subsidiary money pool. In October
2003, AERG received the required regulatory approval necessary to participate in
the non-state regulated subsidiary money pool. The average interest rate for
borrowing under the non-state regulated subsidiary money pool for the three
months ended September 30, 2003 was 8.84% (2002 - 8.84%) and for the nine months
ended September 30, 2003 was 8.84% (2002 - 7.18%).
CILCORP has been granted authority by the SEC under PUHCA to borrow up to
$250 million directly from Ameren in a separate arrangement unrelated to the
money pools.
42
Operating Lease
Under an operating lease agreement, Genco is leasing certain combustion
turbine generating units at a Joppa, Illinois site to its parent, Development
Company. Under an electric power supply agreement with Marketing Company,
Development Company supplies the capacity and energy from these leased units to
Marketing Company, which in turn supplies the energy to Genco.
UE
The following tables present the impact of related party transactions on
UE's Statement of Income and Balance Sheet based primarily on the agreements
discussed above:
===================================================================================================================
Statement of Income: Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreement with EEI.......... $ 4 $ 6 $ 5 $ 9
Joint dispatch agreement with Genco......... 23 15 79 49
Agency agreement with Ameren Energy......... 44 37 155 131
Gas transportation agreement with Genco..... - - 1 1
-------------------------------------------------------------------------------------------------------------------
Total operating revenues................... $ 71 $ 58 $ 240 $ 190
Fuel and purchased power expenses from affiliates:
Power supply agreements:
EEI....................................... $ 15 $ 14 $ 43 $ 40
Marketing Company......................... 2 7 7 14
Joint dispatch agreement with Genco......... 13 15 31 33
Agency agreement with Ameren Energy......... 14 21 42 88
------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses..... $ 44 $ 57 $ 123 $ 175
Other operating expenses:
Support service agreements:
Ameren Services........................... $ 40 $ 43 $ 126 $ 123
Ameren Energy............................. 8 9 18 27
AFS....................................... 1 1 5 3
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses............ $ 49 $ 53 $ 149 $ 153
Interest expense:
Borrowings related to money pool................. $ - $ - $ 2 $ 1
===================================================================================================================
===================================================================================================================
Balance Sheet: September 30, 2003 December 31,2002
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable...... $ 25 $ 25
Liabilities:
Accounts payable and wages payable............... $ 57 $ 103
Borrowings from money pool....................... 230 15
===================================================================================================================
43
CIPS
The following tables present the impact of related party transactions on
CIPS' Statement of Income and Balance Sheet based primarily on the agreements
discussed above:
===================================================================================================================
Statement of Income: Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreements:
Marketing Company......................... $ 7 $ 7 $ 22 $ 20
CILCO..................................... 6 5 8 7
------------------------------------------------------------------------------------------------------------------
Total revenues.............................. $ 13 $ 12 $ 30 $ 27
Fuel and purchased power expenses from affiliates:
Power supply agreements:
Marketing Company......................... $ 90 $ 111 $ 243 $ 304
EEI....................................... 7 6 22 19
------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses..... $ 97 $ 117 $ 265 $ 323
Other operating expenses:
Support service agreements:
Ameren Services........................... $ 13 $ 15 $ 42 $ 46
AFS....................................... - - 1 1
-----------------------------------------------------------------------------------------------------------------
Total other operating expenses............. $ 13 $ 15 $ 43 $ 47
Interest expense (income):
Note receivable from Genco.................. $ 7 $ 7 $ 21 $ 23
Borrowings (advances) related to money
pool...................................... $ - $ - $ - $ (1)
===================================================================================================================
===================================================================================================================
Balance Sheet: September 30, 2003 December 31,2002
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable......... $ 11 $ 12
Advances to money pool............................... - 16
Promissory note receivable from Genco(a)............. 373 419
Tax receivable from Genco............................ 166 175
Liabilities:
Accounts payable and wages payable................... $ 76 $ 63
Borrowings from money pool........................... 23 -
===================================================================================================================
(a) Amount includes current portion of $49 million as of September 30,
2003 (December 31, 2002 - $46 million).
44
Genco
The following tables present the impact of related party transactions on
Genco's Statement of Income and Balance Sheet based primarily on the agreements
discussed above:
===================================================================================================================
Statement of Income: Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Operating revenues from affiliates:
Power supply agreements:
Marketing Company......................... $ 177 $ 177 $ 477 $ 472
EEI....................................... 3 3 4 4
Joint dispatch agreement with UE............ 13 15 31 33
Agency agreement with Ameren Energy......... 19 10 73 43
Operating lease with Development Company.... 3 3 8 8
-------------------------------------------------------------------------------------------------------------------
Total operating revenues ................... $ 215 $ 208 $ 593 $ 560
Fuel and purchased power expenses from affiliates:
Joint dispatch agreement with UE............ $ 23 $ 15 $ 79 $ 50
Agency agreement with Ameren Energy......... 7 7 22 24
Power purchase agreement with Marketing
Company................................... 1 1 1 1
Gas transportation agreement with UE........ - - 1 1
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses..... $ 31 $ 23 $ 103 $ 76
Other operating expenses:
Support service agreements:
Ameren Services........................... $ 5 $ 4 $ 14 $ 14
Ameren Energy............................. 4 4 9 13
AFS....................................... 1 - 2 1
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses.............. $ 10 $ 8 $ 25 $ 28
Interest expense:
Borrowings related to money pool............ $ 4 $ - $ 12 $ 5
Note payable to CIPS........................ $ 7 $ 7 $ 21 $ 23
Note payable to Ameren...................... $ 1 $ 1 $ 2 $ 2
===================================================================================================================
===================================================================================================================
Balance Sheet: September 30, 2003 December 31, 2002
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable.......... $ 134 $ 68
Liabilities:
Accounts payable and wages payable................... $ 42 $ 32
Interest payable..................................... 7 7
Promissory note payable to CIPS(a)................... 373 419
Promissory note payable to Ameren(b)................. 38 42
Tax payable to CIPS.................................. 166 175
Borrowings from money pool........................... 177 191
===================================================================================================================
(a) Amount includes current portion of $49 million as of September 30,
2003 (December 31, 2002 - $46 million).
(b) Amount includes current portion of $4 million as of September 30, 2003
(December 31, 2002 - $4 million).
45
CILCORP
The following tables present the impact of related party transactions on
CILCORP's Statement of Income and Balance Sheet based primarily on the
agreements discussed above:
===================================================================================================================
Statement of Income(a)(b): Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Operating revenues from affiliates:
Fuel supply and services agreement with
Medina Valley............................. $ 3 $ 3 $ 12 $ 11
-------------------------------------------------------------------------------------------------------------------
Total revenues.............................. $ 3 $ 3 $ 12 $ 11
Fuel and purchased power expenses from affiliates:
Executory tolling agreement with Medina
Valley.................................... $ 7 $ 6 $ 22 $ 18
Power purchase agreement with CIPS.......... 1 - 1 -
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses..... $ 8 $ 6 $ 23 $ 18
Other operating expenses:
Support services agreements:
Ameren Services........................... $ 6 $ - $ 7 $ -
AFS....................................... - - 1 -
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses.............. $ 6 $ - $ 8 $ -
Interest expense:
Note payable to Ameren...................... $ - $ - $ - $ -
Borrowings related to money pool............ $ - $ - $ - $ -
===================================================================================================================
(a) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which included $2 million in
operating revenues and $3 million in purchased power associated with
the agreement with Medina Valley.
(b) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
===================================================================================================================
Balance Sheet(a): September 30, 2003 December 31, 2002
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable ........ $ 3 $ 2
Liabilities:
Accounts payable..................................... $ 19 $ 3
Note payable to Ameren............................... 31 -
Borrowings from money pool........................... 109 -
===================================================================================================================
(a) CILCORP consolidates CILCO and therefore includes CILCO amounts in its
balances.
46
CILCO
The following tables present the impact of related party transactions on
CILCO's Statement of Income and Balance Sheet based primarily on the various
agreements discussed above:
===================================================================================================================
Statement of Income(a): Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Fuel and purchased power expenses from affiliates:
Executory tolling agreement with Medina
Valley.................................... $ 7 $ 6 $ 22 $ 18
Power purchase agreement with CIPS.......... 1 - 1 -
-------------------------------------------------------------------------------------------------------------------
Total fuel and purchased power expenses..... $ 8 $ 6 $ 23 $ 18
Other operating expenses:
Support services agreements:
Ameren Services........................... $ 6 $ - $ 7 $ -
AFS....................................... - - 1 -
-------------------------------------------------------------------------------------------------------------------
Total other operating expenses.............. $ 6 $ - $ 8 $ -
-------------------------------------------------------------------------------------------------------------------
Interest expense:
Borrowings related to money pool............ $ - $ - $ - $ -
===================================================================================================================
(a) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information which included $2 million in
operating revenues and $3 million in purchased power associated with
the agreement with Medina Valley.
===================================================================================================================
Balance Sheet: September 30, 2003 December 31, 2002
-------------------------------------------------------------------------------------------------------------------
Assets:
Miscellaneous accounts and notes receivable......... $ 1 $ -
Liabilities:
Accounts payable .................................... $ 26 $ 3
Borrowings from money pool........................... 109 -
===================================================================================================================
NOTE 8 - Commitments and Contingencies
Environmental Matters
In June 2000, the EPA notified UE and numerous other companies that former
landfills and lagoons in Sauget, Illinois, may contain soil and groundwater
contamination. One of these sites is known as Sauget Area 1. In September 2000,
the DOJ was granted leave by the United States District Court - Southern
District of Illinois to add numerous additional parties, including UE, to a
pre-existing lawsuit between the government and others relating to Sauget Area
1. The government seeks recovery of response costs under the CERCLA (Superfund)
incurred in connection with the remediation of Sauget Area 1. In September 2003,
UE and the DOJ agreed to the terms of a stipulation that calls for the dismissal
of UE from the litigation. As a part of the stipulation, the government reserves
the right to refile its claim in the event that evidence is discovered that UE
contributed to the environmental conditions at issue. UE does not believe that
it is responsible for the environmental contamination at Sauget Area 1.
In October 2003, the EPA finalized regulations revising the NSR programs
under the Clean Air Act, including the routine maintenance, repair and
replacement exclusions to those programs. The regulations define categories of
construction projects that are exempt from stringent permitting requirements and
provide greater regulatory certainty as to when pollution control technologies
must be installed at a facility. The regulations are controversial and a number
of states, including Illinois where many of our generating facilities are
located, and environmental groups have challenged the regulations. Unless a stay
is issued, the regulations will become effective as of December 26, 2003. During
the Clinton Administration, the EPA and the DOJ initiated enforcement actions
against various utilities for alleged violations of the
47
NSR programs. None of the Ameren Companies have been named in those enforcement
actions. It is uncertain whether additional enforcement actions will be filed
following the effective date of the NSR regulations.
In April 2002, the EPA proposed rules under the Clean Water Act that
require that cooling water intake structures reflect the best technology
available for minimizing adverse environmental impacts. These rules pertain to
existing generating facilities that currently employ a cooling water intake
structure whose flow exceeds 50 million gallons per day. Originally, final
action on the proposed rules was expected by August 2003. Final action is now
expected by February 2004. The proposed rule may require us to install
additional intake screens or other protective measures, as well as extensive
site specific study and monitoring requirements. There is also the possibility
that the proposed rules may lead to the installation of cooling towers on some
of our facilities. Our compliance costs associated with the final rules are
unknown, but could be material.
Asbestos-Related Litigation
Ameren, UE, CIPS, Genco and CILCO have been named, along with numerous
other parties, in a number of lawsuits which have been filed by certain
plaintiffs claiming varying degrees of injury from asbestos exposure. Most have
been filed in the Circuit Court of Madison County, Illinois. The number of total
defendants named in each case is significant with as many as 110 parties named
in a case to as few as six. However, the average number of parties is 60 in the
cases that are currently pending.
The claims filed against Ameren, UE, CIPS, Genco and CILCO allege injury
from asbestos exposure during the plaintiffs' activities at our electric
generating plants. In the case of CIPS, its former plants are now owned by
Genco, and in the case of CILCO, most of its former plants are now owned by
AERG. Each lawsuit seeks unspecified damages in excess of $50,000, which, if
proved, typically would be shared among the named defendants.
Since the filing of the Ameren Companies' Form 10-Qs for the quarterly
period ended June 30, 2003, nine additional lawsuits have been filed against
Ameren, UE and CIPS, mostly in the Circuit Court of Madison County, Illinois and
two cases have been settled. The following table presents the status of the
asbestos-related lawsuits that have been filed against the Ameren Companies as
of October 31, 2003:
===================================================================================================================
Specifically Named as Defendant
-----------------------------------------------------------------------
Total(a) Ameren UE CIPS Genco CILCO
-------------------------------------------------------------------------------------------------------------------
Filed.......................... 173 | 14 116 66 2 13
Settled........................ 19 | - 13 8 - 1
Dismissed...................... 63 | - 48 20 - 1
Pending........................ 91 | 14 55 38 2 11
===================================================================================================================
(a) Addition of the numbers in the individual columns does not equal the
total column because some of the lawsuits name multiple Ameren
entities as defendants.
Ameren, UE, CIPS, Genco and CILCO believe that the final disposition of
these proceedings will not have a material adverse effect on their financial
position, results of operations or liquidity.
NOTE 9 - Stockholders' Equity
Paid-In Capital
Ameren's paid-in capital increased by $325 million at September 30, 2003,
as compared to December 31, 2002, as a result of the issuance of 6.325 million
common shares in the first quarter of 2003 and common shares issued during the
first nine months of 2003 related to its benefit plan and its dividend
reinvestment and stock purchase plan.
CILCORP's paid-in capital decreased by $30 million as a result of Ameren's
acquisition of CILCORP in January 2003 in order to reflect Ameren's equity in
CILCORP. See Note 2 - Acquisitions for further information.
48
Other Comprehensive Income
Comprehensive income includes net income as reported on the Consolidated
Statements of Income and all other changes in common stockholders' equity,
except those resulting from transactions with common stockholders. A
reconciliation of net income to comprehensive income for the three months and
nine months ended September 30, 2003 and 2002 is shown below for the Ameren
Companies:
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Ameren(a)
Net income........................................... $ 275 $ 240 $ 486 $ 414
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ (1), $ 3, $ (3), $ 4... (3) 3 (8) 4
Reclassification adjustments for gains (losses)
included in net income, net of taxes of $ -, $ -, $(1),
$ (2)................................................. - 1 (2) (2)
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 272 $ 244 $ 476 $ 416
===================================================================================================================
===================================================================================================================
UE
Net income.............................................. $ 225 $ 206 $ 400 $ 364
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ (1), $ 2, $ (2), $ 3... - 2 (2) 4
Reclassification adjustments for gains (losses) included
in net income, net of taxes of $ -, $ -, $ -, $ (1)... - 1 (1) (1)
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 225 $ 209 $ 397 $ 367
===================================================================================================================
===================================================================================================================
CIPS
Net income.............................................. $ 26 $ 24 $ 31 $ 34
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ -, $ -, $ (1), $ -..... (1) - (3) -
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 25 $ 24 $ 28 $ 34
===================================================================================================================
===================================================================================================================
Genco
Net income.............................................. $ 17 $ 15 $ 65 $ 31
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ -, $ 1, $ -, $ -....... (1) 1 (1) -
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 16 $ 16 $ 64 $ 31
===================================================================================================================
===================================================================================================================
CILCORP(b)
Net income.............................................. $ 11 $ 23 $ 23 $ 29
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ -, $ -, $ (1), $ 3..... (3) 1 (4) 6
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 8 $ 24 $ 19 $ 35
===================================================================================================================
===================================================================================================================
CILCO
Net income.............................................. $ 15 $ 29 $ 55 $ 47
Unrealized gain (loss) on derivative hedging
instruments, net of taxes of $ -, $ -, $ (1), $ 3..... (3) 1 (4) 6
-------------------------------------------------------------------------------------------------------------------
Total comprehensive income, net of taxes........... $ 12 $ 30 $ 51 $ 53
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) 2002 amounts represent predecessor information and 2003 amounts
include January 2003 predecessor information, which was zero. See Note
2 - Acquisitions for January data. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
49
Outstanding Shares of Common Stock
The following table reconciles the outstanding Ameren common stock shares
for the three months and nine months ended September 30, 2003 and 2002:
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Shares outstanding at beginning of period............. 161.7 144.8 154.1 138.0
Shares issued......................................... 0.6 8.7 8.2 15.5
-------------------------------------------------------------------------------------------------------------------
Shares outstanding at end of period.............. 162.3 153.5 162.3 153.5
===================================================================================================================
NOTE 10 - Segment Information
Ameren's principal business segment, Utility Operations, is comprised of
UE, CIPS, Genco, CILCO and Ameren's 60% interest in EEI, along with several
other utility entities. These businesses provide electric and gas service in
portions of Missouri and Illinois. The Other reportable segment principally
includes unallocated corporate expenses and certain other non-utility
operations.
The accounting policies of the segments are the same as those described in
Note 1 - Summary of Significant Accounting Policies. Segment data includes
intersegment revenues, as well as a charge for allocating costs of
administrative support services to each of the operating companies, which, in
each case, is eliminated upon consolidation. Ameren Services allocates
administrative support services to each segment based on various factors, such
as headcount, number of customers and total assets.
The following table presents segment information for Ameren for the three
and nine months ended September 30, 2003 and 2002:
===================================================================================================================
Intercompany
Utility Revenue
Operations Other Subtotal Eliminations Total
-------------------------------------------------------------------------------------------------------------------
Three months 2003:
Revenues............................... $ 1,535 $ 27 $ 1,562 $ (212) $ 1,350
Net income............................. 280 (5) 275 - 275
-------------------------------------------------------------------------------------------------------------------
Three months 2002:
Revenues............................... $ 1,373 $ 16 $ 1,389 $ (223) $ 1,166
Net income............................. 240 - 240 - 240
-------------------------------------------------------------------------------------------------------------------
Nine months 2003(a):
Revenues............................... $ 4,025 $ 95 $ 4,120 $ (574) $ 3,546
Net income............................. 497 (11) 486 - 486
-------------------------------------------------------------------------------------------------------------------
Nine months 2002:
Revenues............................... $ 3,561 $ 44 $ 3,605 $ (587) $ 3,018
Net income............................. 415 (1) 414 - 414
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003.
50
As a result of the acquisition of CILCORP as discussed in Note 2 -
Acquisitions, segment data for CILCORP is now being presented in the same manner
as Ameren's. The following table presents segment information for CILCORP for
the three and nine months ended September 30, 2003 and 2002:
===================================================================================================================
Utility Operations Other Total
-------------------------------------------------------------------------------------------------------------------
Three months 2003:
Revenues.................................................... $ 203 $ 12 $ 215
Net income.................................................. 15 (4) 11
-------------------------------------------------------------------------------------------------------------------
Eight months 2003:
Revenues.................................................... $ 528 $ 63 $ 591
Net income.................................................. 23 (9) 14
-------------------------------------------------------------------------------------------------------------------
January 2003(a):
Revenues.................................................... $ 93 $ 12 $ 105
Net income.................................................. 31 (22) 9
-------------------------------------------------------------------------------------------------------------------
Three months 2002(a):
Revenues.................................................... $ 195 $ 10 $ 205
Net income.................................................. 28 (5) 23
-------------------------------------------------------------------------------------------------------------------
Nine months 2002(a):
Revenues.................................................... $ 546 $ 39 $ 585
Net income.................................................. 45 (16) 29
===================================================================================================================
(a) 2002 amounts represent predecessor information and 2003 amounts
include January 2003 predecessor information. See Note 2 -
Acquisitions for January data. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
The operations of UE, CIPS, Genco and CILCO are classified entirely as
Utility Operations and, therefore, segment presentations for these companies are
not applicable.
51
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
OVERVIEW
Ameren is a public utility holding company registered with the SEC under
the PUHCA and is headquartered in St. Louis, Missouri. Our principal businesses
are involved in the generation, transmission and distribution of electricity,
and the distribution of natural gas, to residential, commercial, industrial and
wholesale users in the central United States. Ameren's principal subsidiaries
are as follows:
o UE, which operates a rate-regulated electric generation, transmission and
distribution business, and a rate-regulated natural gas distribution
business in Missouri and Illinois.
o CIPS, which operates a rate-regulated electric and natural gas transmission
and distribution business in Illinois.
o CILCO, a subsidiary of CILCORP (a holding company), which operates a
rate-regulated electric transmission and distribution business, a non
rate-regulated electric generation business (AERG), and a rate-regulated
natural gas distribution business in Illinois. Ameren completed its
acquisition of CILCORP on January 31, 2003. See Note 2 - Acquisitions to
our financial statements under Item 1 of Part 1 of this report for further
information.
o Resources Company, which consists of non rate-regulated operations.
Subsidiaries include Genco, which operates a non rate-regulated electric
generation business in Illinois and Missouri; Marketing Company, which
markets power for periods primarily over one year; AFS, which procures fuel
and manages the related risks for Ameren's affiliated companies; and Medina
Valley, which indirectly owns a 40 megawatt, gas-fired electric generation
plant. Ameren completed its acquisition of AES Medina Valley Cogen (No. 4)
LLC on February 4, 2003. See Note 2 - Acquisitions to our financial
statements under Item 1 of Part 1 of this report for further information.
o Ameren Energy, which serves as a power marketing and risk management agent
for Ameren and its subsidiaries for transactions of primarily less than one
year.
o EEI, which operates electric generation and transmission facilities in
Illinois. Ameren has a 60% ownership interest in EEI through UE, which owns
40%, and Resources Company, which owns 20%. Ameren consolidates EEI for
financial reporting purposes, while UE and Resources Company report EEI
under the equity method.
o Ameren Services, which provides a variety of shared support services to us.
In October 2003, CILCO transferred its Duck Creek and E. D. Edwards
coal-fired plants and its Sterling Avenue combustion turbine facilities
representing in the aggregate approximately 1,100 megawatts of electric
generating capacity to its wholly-owned subsidiary, AERG, in exchange for all of
the outstanding stock of AERG and AERG's assumption of certain liabilities. The
net book value of the transferred assets was approximately $378 million and no
gain or loss was recognized as the transaction was accounted for as a transfer
between entities under common control. Approximately 23% of CILCO's employees
were transferred to AERG as a part of the transaction.
When we refer to our, we or us, it indicates that the referenced
information is common to all Ameren Companies. When we refer to financing or
acquisition activities, we are defining Ameren as the parent holding company.
When appropriate, our subsidiaries are specifically referenced in order to
distinguish among their different business activities.
The financial statements of Ameren, UE, CILCORP and CILCO are prepared on a
consolidated basis and therefore include the accounts of their majority-owned
subsidiaries. Results of CILCORP and CILCO reflected in Ameren's consolidated
financial statements include the period from the acquisition date of January 31,
2003 through September 30, 2003. January 2003 and prior year data for CILCORP
and CILCO is not included in Ameren's consolidated totals. See Note 2 -
Acquisitions for further information. All significant intercompany transactions
have been eliminated. All tabular dollar amounts are in millions, unless
otherwise indicated.
In order to be more consistent with industry reporting trends, our
Statements of Income in this filing have been reclassified to present all income
taxes as one line item. Previously, we reported a portion of our income taxes in
Operating Expenses and a portion in Other Income and Deductions. This change
results in our calculation of Operating Income now being on a pre-tax basis with
no effect on net income. Additionally, our Balance Sheet presentations have been
reformatted to change the order in which current and non-current items appear,
with no effect on total assets, total liabilities or any sub-categories included
on our Balance Sheet.
52
Our accounting policies conform to GAAP, and our financial statements,
while unaudited, reflect all adjustments (which include normal, recurring
adjustments) necessary, in our opinion, for a fair presentation of our interim
results. Certain information and footnote disclosures normally included in
annual audited financial statements prepared in accordance with GAAP have been
omitted pursuant to the rules and regulations of the SEC. As the unaudited
interim financial statements included herein do not include all of the
information and footnote disclosures required by GAAP, they should be read in
conjunction with the financial statements and the notes thereto included in the
respective 2002 Annual Reports on Form 10-K of the Ameren Companies.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the dates of financial statements, and the
reported amounts of revenues and expenses during the reporting periods. As a
result, actual results could differ from those estimates. The results of
operations for an interim period may not give a true indication of results for a
full year.
As permitted by rules of the SEC, Ameren did not "push down" the effects of
purchase accounting to the financial statements of any of CILCORP's
subsidiaries. Accordingly, CILCORP's post-acquisition financial statement
amounts reflect a new basis of accounting, and separate financial statements are
presented for pre-acquisition (predecessor) and post-acquisition (successor)
periods, separated by a bold black line. CILCO's financial statements are
presented on a historical basis of accounting for all periods presented. As a
result of the acquisition of CILCORP on January 31, 2003, certain
reclassifications have been made to CILCORP's and CILCO's prior year financial
statements to conform to our current presentation.
Our results of operations and financial position are affected by many
factors. Weather, economic conditions and the actions of key customers or
competitors can significantly impact the demand for our services. Our results
are also affected by seasonal fluctuations caused by winter heating and summer
cooling demand. With approximately 90% of Ameren's revenues directly subject to
regulation by various state and federal agencies, decisions by regulators can
have a material impact on the price we charge for our services. We principally
utilize coal, nuclear fuel, natural gas and oil in our operations. The prices
for these commodities can fluctuate significantly due to the world economic and
political environment, weather, production levels and many other factors. We do
not have fuel cost recovery mechanisms in Missouri or Illinois for our electric
utility businesses, but we do have gas cost recovery mechanisms in each state
for our gas utility businesses. In addition, our electric rates in Missouri and
Illinois are largely set through 2006. Fluctuations in interest rates impact our
cost of borrowings, and pension and post-retirement benefits. We employ various
risk management strategies in order to try to reduce our exposure to commodity
risks and other risks inherent in our business. The reliability of our power
plants, and transmission and distribution systems, and the level of operating
and administrative costs, and capital investment are key factors that we seek to
control in order to optimize our results of operations, cash flows and financial
position.
Acquisitions
On January 31, 2003, Ameren completed the acquisition of all of the
outstanding common stock of CILCORP from AES. CILCORP is the parent company of
Peoria, Illinois-based CILCO. With the acquisition, CILCO became an indirect
Ameren subsidiary, but remains a separate utility company, operating as
AmerenCILCO. On February 4, 2003, Ameren also completed the acquisition of
Medina Valley, which indirectly owns a 40 megawatt, gas-fired electric
generation plant. The results of operations for CILCORP and Medina Valley were
included in Ameren's consolidated financial statements effective with the
respective January and February 2003 acquisition dates. See Overview section
above of Ameren's Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Ameren acquired CILCORP to complement its existing Illinois gas and
electric operations. The purchase included CILCO's rate-regulated electric and
natural gas businesses in Illinois serving approximately 200,000 and 205,000
customers, respectively, of which approximately 150,000 are combination electric
and gas customers. CILCO's service territory is contiguous to our service
territory. CILCO also has a non rate-regulated electric and gas marketing
business principally focused in the Chicago, Illinois region. Finally, the
purchase included approximately 1,200 megawatts of largely coal-fired generating
capacity, most of which became non rate-regulated on October 3, 2003 due to
CILCO's transfer of 1,100 megawatts of generating capacity to AERG. See Note 1 -
Summary of Significant Accounting Policies to our financial statements under
Item 1 of Part 1 of this report for further information on the transfer to AERG.
53
The total acquisition cost was approximately $1.4 billion and included the
assumption by Ameren of CILCORP and Medina Valley debt and preferred stock at
closing of $895 million and consideration of $489 million in cash, net of cash
acquired. The cash component of the purchase price came from Ameren's issuance
in September 2002 of 8.05 million common shares and its issuance in early 2003
of an additional 6.325 million common shares, which together generated aggregate
net proceeds of $575 million.
RESULTS OF OPERATIONS
Earnings Summary
Ameren's net income increased $35 million to $275 million, or $1.70 per
share, in the third quarter of 2003 from $240 million, or $1.64 per share ($1.63
per share diluted), in the third quarter of 2002. Net income in the third
quarter of 2003 included an after-tax gain of $31 million or 19 cents per share
related to the settlement of a dispute over mine reclamation issues with a coal
supplier. This gain primarily represented a return of coal costs plus accrued
interest previously paid to a coal supplier for future reclamation of a coal
mine that principally supplied UE's Rush Island power plant.
Excluding this after-tax gain, Ameren's third quarter 2003 net income
increased $4 million to $244 million or $1.51 per share. The $4 million increase
resulted principally from the acquisition of CILCORP, favorable interchange
margins due to improved power prices in the energy markets and better low-cost
generation available for sale, lower labor costs due to the voluntary retirement
program implemented in early 2003 and lower maintenance expenses in our
pre-CILCORP acquisition operations. These benefits to net income were partially
offset by cooler summer weather, a rate reduction in UE's Missouri service
territory that went into effect in April 2003, higher employee benefit costs,
and increased shares outstanding.
Ameren's net income increased $72 million to $486 million, or $3.02 per
share for the nine months ended September 30, 2003 compared to the year-ago
earnings of $414 million, or $2.88 per share ($2.87 per share diluted). In the
first nine months of 2003, our net income included the after-tax gain from the
settlement of the coal mine reclamation issues of $31 million or 19 cents per
share mentioned above and a net cumulative effect gain of $18 million or 11
cents per share associated with the adoption of SFAS 143, "Accounting for Asset
Retirement Obligations." The SFAS 143 net gain resulted principally from the
elimination of non-legal obligation costs of removal for non rate-regulated
assets from accumulated depreciation. The following table presents the net
cumulative effect gain recorded at each of the Ameren Companies upon adoption of
SFAS 143:
===================================================================================================================
Net cumulative effect after-tax gain:
-------------------------------------------------------------------------------------------------------------------
Ameren(a)............................................................................... $ 18
UE...................................................................................... -
CIPS.................................................................................... -
Genco................................................................................... 18
CILCORP(b).............................................................................. 4
CILCO................................................................................... 24
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO, which were prior to the
acquisition date of January 31, 2003.
(b) Represents predecessor information.
Excluding the gains on the adoption of SFAS 143 and the settlement of the
coal mine reclamation dispute, Ameren's net income for the first nine months of
2003 was $437 million or $2.72 per share. In addition to the items discussed
above, net income for the first nine months of 2003 benefited as compared to
from net increase in Other Income and Deductions as a result of the expensing of
economic development and energy assistance programs in the second quarter of
2002 related to the UE Missouri electric rate case settlement in 2002, partially
offset by higher depreciation costs and lower sales of emission credits.
The impact from the acquisition of CILCORP, Medina Valley and related
financings resulted in a reduction to Ameren's earnings per share in the first
nine months of 2003 of approximately 3 cents per share, but was accretive by
approximately 2 cents per share in the third quarter of 2003. Ameren expects
that the operations of CILCORP will be
54
accretive to earnings in the first full year following the acquisition date as
Ameren realizes synergies associated with this acquisition following the
integration of systems and operating practices in August and October of 2003.
The amortization of non-cash purchase accounting fair value adjustments at
CILCORP increased Ameren's and CILCORP's net income by $3 million in the third
quarter and $7 million for the eight months ended September 30, 2003, as
compared to the same prior year periods. The amortization of the fair value
adjustments that increased net income were related primarily to pension and
post-retirement liabilities, coal contract liabilities, severance liabilities
and long-term debt. The amortization of fair value adjustments that decreased
net income were related primarily to electric plant in service, purchased power
and emission credits. The following table presents the impact on Ameren's net
income of the amortization of these purchase accounting fair value adjustments
during 2003:
===================================================================================================================
For the periods ended September 30, 2003 Three Months Eight Months
-------------------------------------------------------------------------------------------------------------------
Statement of Income line item:
Other operations and maintenance........................ $ 5 $ 15
Interest................................................ 2 5
Fuel and purchased power................................ - (2)
Depreciation and amortization........................... (2) (6)
Income taxes............................................ (2) (5)
-------------------------------------------------------------------------------------------------------------------
Impact on net income.................................... $ 3 $ 7
===================================================================================================================
As a holding company, Ameren's net income and cash flows are primarily
generated by its principal subsidiaries, UE, CIPS, Genco and CILCORP. A
discussion of the results of operations of these principal subsidiaries is
included in this document. The following table presents the contribution by
Ameren's principal subsidiaries to Ameren's consolidated net income for the
three and nine months ended September 30, 2003 and 2002:
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net Income
UE(a).......................................... $ 224 $ 204 $ 396 $ 358
CIPS........................................... 25 23 29 31
Genco(a)....................................... 17 15 65 31
CILCORP(b)..................................... 11 - 14 -
Other(c)....................................... (2) (2) (18) (6)
-------------------------------------------------------------------------------------------------------------------
Ameren net income............................... $ 275 $ 240 $ 486 $ 414
===================================================================================================================
(a) Includes earnings from interchange sales by Ameren Energy that
provided approximately $18 million and $73 million of UE's net income
in the three and nine months ended September 30, 2003 (2002 - third
quarter - $9 million; year-to-date - $25 million) and approximately $9
million and $37 million of Genco's net income in the three and nine
months ended September 30, 2003 (2002 - third quarter - $5 million;
year-to-date - $12 million).
(b) The nine month period of 2003 excludes amounts prior to the
acquisition date of January 31, 2003.
(c) Includes corporate general and administrative expenses, transition
costs associated with the CILCORP acquisition, stock compensation and
other unregulated operations.
55
Electric Operations
The following tables present the favorable (unfavorable) variations in
electric margins, defined as electric revenues less fuel and purchased power,
for the three and nine months ended September 30, 2003 from the comparable
periods in 2002. We believe margin is a useful measure to analyze the change in
profitability of our electric operations between periods. The variation for
Ameren reflects the entire contribution from CILCORP as a separate line item.
The variations in CILCORP and CILCO electric margins are for the three and nine
months ended September 30, 2003 as compared to the same periods in 2002 when
Ameren did not own these companies, and they did not contribute to Ameren's
electric margins.
===================================================================================================================
Three months Ameren(a) UE CIPS Genco CILCORP(b) CILCO
-------------------------------------------------------------------------------------------------------------------
Electric revenue change:
CILCORP acquisition.................. $ 168 $ - $ - $ - $ - $ -
Interchange revenues................. 15 13 - 7 4 4
Effect of weather (estimate)......... (77) (62) (9) - (4) (4)
Rate reductions...................... (11) (11) - - - -
Growth and other (estimate).......... 33 20 (24) 2 1 1
EEI.................................. 3 - - - - -
-------------------------------------------------------------------------------------------------------------------
Total .................................. $ 131 $ (40) $ (33) $ 9 $ 1 $ 1
-------------------------------------------------------------------------------------------------------------------
Fuel and purchased power change:
CILCORP acquisition.................. $ (85) $ - $ - $ - $ - $ -
Fuel:
Generation and other............... 1 (8) - 8 1 1
Price.............................. - (2) - 2 - -
Purchased power...................... 8 14 21 (11) (16) (16)
EEI ................................. (6) - - - - -
-------------------------------------------------------------------------------------------------------------------
Total .................................. $ (82) $ 4 $ 21 $ (1) $ (15) $ (15)
-------------------------------------------------------------------------------------------------------------------
Net change in electric margins.......... $ 49 $ (36) $ (12) $ 8 $ (14) $ (14)
===================================================================================================================
===================================================================================================================
Nine months Ameren(a) UE CIPS Genco CILCORP(b) CILCO
-------------------------------------------------------------------------------------------------------------------
Electric revenue change:
CILCORP acquisition.................. $ 373 $ - $ - $ - $ - $ -
Interchange revenues................. 52 40 - 30 8 8
Effect of weather (estimate)......... (111) (91) (13) - (8) (8)
Rate reductions...................... (27) (27) - - - -
Growth and other (estimate).......... 36 21 (62) 4 24 24
EEI.................................. (45) - - - - -
-------------------------------------------------------------------------------------------------------------------
Total .................................. $ 278 $ (57) $ (75) $ 34 $ 24 $ 24
-------------------------------------------------------------------------------------------------------------------
Fuel and purchased power change:
CILCORP acquisition.................. $ (192) $ - $ - $ - $ - $ -
Fuel:
Generation and other............... (7) (30) - 21 - (1)
Price.............................. 1 (5) - 6 1 1
Purchased power...................... 58 50 59 (31) (37) (34)
EEI.................................. 2 - - - - -
-------------------------------------------------------------------------------------------------------------------
Total .................................. $ (138) $ 15 $ 59 $ (4) $ (36) $ (34)
-------------------------------------------------------------------------------------------------------------------
Net change in electric margins.......... $ 140 $ (42) $ (16) $ 30 $ (12) $ (10)
===================================================================================================================
(a) Includes amounts for non-registrant Ameren subsidiaries as well as
intercompany eliminations.
(b) Includes predecessor information for periods prior to January 31,
2003. CILCORP consolidates CILCO and therefore includes CILCO amounts
in its balances.
56
Ameren
Ameren's electric margin increased $49 million for the three months and
$140 million for the nine months ended September 30, 2003, compared to the same
periods in 2002. Increases in electric margin were primarily attributable to the
acquisition of CILCORP, organic sales growth, and increased interchange margins,
partially offset by unfavorable weather conditions relative to 2002. CILCORP's
electric margin for the three and eight months ended September 30, 2003 was $83
million and $181 million, respectively. Interchange margins increased (third
quarter - $13 million; year-to-date - $73 million) due to improved power prices
in the energy markets and better low-cost generation availability. Average
realized power prices on interchange sales increased from approximately $25 per
megawatt-hour in the first nine months of 2002 (third quarter - $27) to
approximately $33 per megawatt-hour in the first nine months of 2003 (third
quarter - $29).
The unfavorable weather conditions were primarily due to cooler summer
weather in the second and third quarters of 2003 versus slightly warmer than
normal conditions in the same periods in 2002. Cooling degree days were
approximately 17% less in the third quarter of 2003 in our service territory
compared to the prior year period, but comparable to normal conditions. In
Ameren's pre-CILCORP acquisition service territory, weather-sensitive
residential and commercial electric kilowatt-hour sales both declined 7% in the
third quarter of 2003 compared to the third quarter of 2002 (year-to-date -
decreased 3% and 4%, respectively). However, colder winter weather benefited
electric margins in the first quarter of 2003, reducing the net impact of
weather in the first nine months of 2003 as compared to the same period in 2002.
Annual rate reductions of $50 million and $30 million were effective April
1, 2002 and 2003, respectively, as a result of the 2002 UE electric rate case
settlement in Missouri, and negatively impacted electric revenues in the first
nine months of 2003. Revenues will be further reduced at UE by the 2002 UE
settlement of the Missouri electric rate case, due to an additional $30 million
of annual electric rate reduction effective April 1, 2004.
The growth and other line item in the table above includes the sale of
emission credits at UE. The sales of emission credits at UE increased $4 million
in the third quarter of 2003, but decreased $4 million in the first nine months
of 2003 compared to the same periods in 2002, respectively. In addition,
industrial electric kilowatt-hour sales increased approximately 1% in both the
third quarter and first nine months of 2003 in Ameren's pre-CILCORP acquisition
service territory.
EEI's revenues decreased in the first nine months of 2003 compared to the
prior period due to lower emission credit sales and decreased sales to its
principal customer, which also resulted in a decrease in fuel and purchased
power. EEI's sales of emission credits were $10 million in the first nine months
of 2003 (2002 - $38 million).
Ameren's fuel and purchased power increased in the third quarter and first
nine months of 2003 compared to the same prior year periods due to increased
kilowatt-hour sales related primarily to the addition of CILCORP. Excluding
CILCORP, fuel and purchased power decreased in the third quarter and first nine
months of 2003 primarily due to greater availability of low-cost generation.
During 2002, we adopted the provisions of EITF 02-3, "Issues Involved in
Accounting for Derivative Contracts Held for Trading Purposes and Contracts
Involved in Energy Trading and Risk Management Activities," that required
revenues and costs associated with certain energy contracts to be shown on a net
basis in the Statement of Income. See also Note 1 - Summary of Significant
Accounting Policies to our financial statements under Item 1 of Part I of this
report for further information on the impact of netting these operating revenues
and costs.
UE
UE's electric margin decreased $36 million for the three months and $42
million for the nine months ended September 30, 2003 compared to the same
periods in 2002. Decreases in electric margin were primarily attributable to the
unfavorable weather conditions as mentioned above and the rate reductions
resulting from the 2002 Missouri electric rate case settlement. However,
interchange margins increased (third quarter - $9 million; year-to-date - $48
million) due to improved power prices in the energy markets and better low-cost
generation availability. Fuel and purchased power decreased $4 million in the
third quarter and $15 million in the first nine months of 2003 due to greater
availability of low-cost generation.
57
CIPS
CIPS' electric margin decreased $12 million for the three months and $16
million for the nine months ended September 30, 2003 compared to the same
periods in 2002. Decreases in electric margin were primarily attributable to
unfavorable weather conditions as mentioned above and several customers
switching from CIPS to Marketing Company.
Commencing in 2002, all of CIPS', CILCO's and UE's Illinois residential,
commercial and industrial customers had a choice in electric suppliers as
provided by the Electric Service Customer Choice and Rate Relief Law of 1997.
Several CIPS' commercial and industrial customers switched to Marketing Company
for their energy supply resulting in a decline in CIPS' revenues included in the
growth and other line item in the table above and a decrease in purchased power
of approximately $25 million for the three months ended September 30, 2003 and
$67 million for the nine months ended September 30, 2003. CIPS continues to
provide electric delivery service to these customers and charges them
ICC-approved delivery service tariff rates for that service. There was no other
significant switching of customers among or outside of the Ameren Companies.
Genco
Genco's electric margin increased $8 million for the three months and $30
million for the nine months ended September 30, 2003, compared to the same
periods in 2002. Increases in electric margin were primarily attributable to
increased interchange margins. Interchange margins increased approximately $4
million in the third quarter and approximately $25 million in the first nine
months of 2003 due to improved power prices in the energy markets. Fuel and
purchased power increased $4 million in the first nine months of 2003 due to
higher purchased power costs associated with higher energy prices and lower
generation. These increased costs were partially offset by lower generation
costs due to a 14% decline in megawatt-hour generation. The decline in
generation was primarily attributable to the timing of outages at Genco's power
plants during the first nine months of 2003.
CILCORP
CILCORP's electric margin decreased $14 million for the three months and
$12 million for the nine months ended September 30, 2003 compared to the same
periods in 2002. Decreases in electric margin were primarily attributable to
unfavorable weather conditions, lower margin per megawatt-hour sold to non
rate-regulated electric customers outside of CILCO's service territory and the
transfer of one large CILCO customer to Marketing Company. In addition, fuel and
purchased power increased due to the effect of positive purchase accounting fair
value adjustments related to emission allowances, partially offset by negative
adjustments to coal contracts.
CILCO
CILCO's electric margin decreased $14 million for the three months and $10
million for the nine months ended September 30, 2003 compared to the same
periods in 2002. Decreases in electric margin were primarily attributable to
unfavorable weather conditions, lower margin per megawatt-hour sold to non
rate-regulated electric customers outside CILCO's service territory and the
transfer of one large CILCO customer to Marketing Company.
58
Gas Operations
The following table presents the favorable (unfavorable) variations in gas
margins, defined as gas revenues less gas purchased for resale, for the three
and nine months ended September 30, 2003 from the comparable period in 2002. We
believe margin is a useful measure to analyze the change in profitability of gas
operations between periods.
===================================================================================================================
Three Months Nine Months
-------------------------------------------------------------------------------------------------------------------
Ameren(a)...................................... $ 15 $ 51
UE............................................. - 7
CIPS........................................... 2 3
Genco.......................................... - -
CILCORP(b)..................................... 1 4
CILCO.......................................... 1 6
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) Includes predecessor information for periods prior to January 31,
2003.
Ameren's gas margin increased in the third quarter and first nine months of
2003 primarily due to the acquisition of CILCORP (third quarter - $14 million;
eight months ended September 30, 2003 - $49 million). UE's, CIPS', CILCORP's and
CILCO's gas margins were comparable in the third quarter of 2003 to the same
period in 2002, but increased in the first nine months of 2003, compared to the
same period in 2002, primarily due to increased customer demand resulting from
colder winter weather in the first quarter of 2003.
Operating Expenses and Other Statement of Income Items
The following tables present the favorable (unfavorable) variations in
operating and other expenses for the three and nine months ended September 30,
2003 from the comparable period in 2002:
===================================================================================================================
Three months Ameren(a) UE CIPS Genco CILCORP(b) CILCO
-------------------------------------------------------------------------------------------------------------------
Other operations and maintenance....... $ (24) $ 9 $ (2) $ - $ (8) $ (13)
Coal contract settlement............... 51 51 - - - -
Depreciation and amortization.......... (24) (1) - (2) - 2
Taxes other than income taxes.......... (9) 6 - (3) 1 1
Other income and deductions............ (2) 2 (1) 1 (2) (2)
Interest expense....................... (13) 3 3 (2) 1 3
Income taxes........................... (9) (15) 12 (1) 8 8
===================================================================================================================
===================================================================================================================
Nine months Ameren(a) UE CIPS Genco CILCORP(b) CILCO
-------------------------------------------------------------------------------------------------------------------
Other operations and maintenance....... $ (66) $ 28 $ (1) $ 14 $ (8) $ (23)
Coal contract settlement............... 51 51 - - - -
Depreciation and amortization.......... (67) (1) (1) (6) (6) -
Taxes other than income taxes.......... (27) 6 (1) (4) 1 1
Other income and deductions............ 32 14 (5) 3 (3) (2)
Interest expense....................... (46) 4 5 (13) 8 3
Income taxes........................... (17) (31) 13 (10) 6 9
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003. Includes amounts for other non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) Includes predecessor information for periods prior to January 31,
2003.
59
Other Operations and Maintenance
Ameren
Ameren's other operations and maintenance expenses increased in the third
quarter and first nine months of 2003 compared to the same periods in 2002
primarily due to the addition of CILCORP (third quarter - $38 million; eight
months ended September 30, 2003 - $95 million), CILCORP's transition costs
related to the acquisition in January 2003, higher employee benefit costs and a
net increase in injuries and damages reserves based on claims experience. These
increases in other operations and maintenance expenses were partially offset by
lower labor costs related to the voluntary employee retirement program
implemented in early 2003 and lower plant maintenance costs primarily due to the
number and timing of outages.
UE
UE's other operations and maintenance expenses decreased in the third
quarter and first nine months of 2003 compared to the same periods in 2002
primarily due to the lower labor and plant maintenance costs as mentioned above,
partially offset by the higher employee benefit costs and the net increase in
injuries and damages reserves as mentioned above.
CIPS
CIPS' other operations and maintenance expenses increased in the third
quarter and first nine months of 2003 to the same periods in 2002 primarily due
to the net increase in injuries and damages reserves and higher employee benefit
costs, partially offset by lower labor costs related to the voluntary employee
retirement program implemented in early 2003.
Genco
Genco's other operations and maintenance expenses were comparable in the
third quarter of 2003 to the same period in 2002.
Genco's other operations and maintenance expenses decreased in the first
nine months of 2003 compared to the same period in 2002 primarily due to a
reduction in consulting costs at its coal-fired generation stations, a decrease
in commitment fees for the use of UE's and CIPS' transmission lines, and a net
decrease in injuries and damages reserves, partially offset by higher employee
benefit costs.
CILCORP
CILCORP's other operations and maintenance expenses increased in the third
quarter and first nine months of 2003 compared to the same period in 2002
primarily due to higher employee benefit, severance and other costs associated
with the integration of operations as a result of the acquisition by Ameren on
January 31, 2003. These increases were partially offset by the amortization of
purchase accounting fair value adjustments for pension and severance costs.
CILCO
CILCO's other operations and maintenance expenses increased in the third
quarter and first nine months of 2003 compared to the same period in 2002
primarily due to higher employee benefit, severance and other costs associated
with the integration of operations as a result of the acquisition on January 31,
2003.
Coal Contract Settlement
Ameren and UE recorded a coal contract settlement gain of $51 million in
the third quarter of 2003. This gain primarily represented a return of coal
costs plus accrued interest accumulated by a coal supplier for reclamation of a
coal mine that principally supplied UE's power plant. This mine reclamation is
now substantially complete. In August 2003, UE entered into a settlement
agreement with the coal supplier to return the accumulated reclamation funds,
which will be paid to UE ratably through December 2004.
60
Depreciation and Amortization
Depreciation and amortization expenses increased at Ameren and Genco in the
third quarter and first nine months of 2003 as compared to the same periods in
2002. The increase at Ameren and Genco was primarily due to the completion of
four combustion turbine generating units at Genco in the third and fourth
quarters of 2002. In addition, Ameren's depreciation and amortization expenses
increased due to the inclusion of CILCORP operations in 2003 (third quarter -
$18 million; eight months ended September 30, 2003 - $54 million).
Depreciation and amortization expenses increased at UE in the third quarter
and first nine months of 2003 to the same periods in 2002 primarily due to
capital additions in 2002, partially offset by a reduction in depreciation
rates. The decrease in depreciation rates was based on the updated analysis of
asset values, service lives and accumulated depreciation levels that were
required by UE's 2002 Missouri electric rate case settlement.
Depreciation and amortization expenses increased at CILCORP in the first
nine months of 2003 as compared to the same period in 2002 primarily due to the
effect of purchase accounting fair value adjustments that increased the fair
value of the Duck Creek and E.D. Edwards power plants and Sterling Avenue
peaking station. The increase in fair value is being depreciated over the
estimated remaining lives of the power plants.
Depreciation and amortization expenses at CIPS and CILCO were comparable in
the third quarter and first nine months of 2003 to the same periods in 2002.
Taxes Other Than Income Taxes
At Ameren, taxes other than income taxes increased in the third quarter and
first nine months of 2003 as compared to the same periods in 2002 primarily due
to the acquisition of CILCORP (third quarter - $9 million; eight months ended
September 30, 2003 - $26 million).
At UE, taxes other than income taxes decreased in the third quarter and
first nine months of 2003 as compared to the same periods in 2002 due to a
decrease in gross receipts taxes related to lower native sales resulting from
milder weather.
At CIPS, taxes other than income taxes was comparable in the third quarter
of 2003 to the same period in 2002, but increased in the first nine months of
2003 as compared to the same period in 2002 due to tax refunds that lowered
expense in 2002.
At Genco, taxes other than income taxes increased in the third quarter and
first nine months of 2003 as compared to the same periods in 2002 primarily due
to adjustments related to property tax assessments and increased property taxes
associated with the four combustion turbine generating units added in the third
and fourth quarters of 2002.
CILCORP's and CILCO's taxes other than income taxes were comparable in the
third quarter and first nine months of 2003 to the same periods in 2002.
Other Income and Deductions
Other income and deductions increased at Ameren and UE in the first nine
months of 2003 as compared to the same period in 2002 primarily due to the
expensing of economic development and energy assistance programs required in the
UE Missouri electric rate case settlement in 2002 ($26 million). Ameren's other
income and deductions also increased in 2003 due to an increase in the minority
interest related to EEI's higher earnings in 2002. The increase in UE's other
income and deductions was partially offset by a net decrease in earnings from
UE's ownership interest in EEI and decreased gains on derivative contracts.
CIPS other income and deductions decreased in the third quarter and the
first nine months of 2003 compared to the same periods in 2002, primarily due to
a decline in intercompany interest CIPS received on the Genco subordinated
promissory note due to a lower outstanding principal balance. In addition, CIPS'
other income and deductions decreased in the first nine months of 2003 compared
to the same period in 2002, due to a decrease in contributions in aid of
construction.
61
Genco, CILCORP and CILCO's other income and deductions were comparable in
the third quarter and first nine months of 2003 to the same periods in 2002.
Interest
Interest expense increased at Ameren in the third quarter and first nine
months of 2003, compared to the same periods in 2002 primarily due to the
assumption of CILCORP debt (third quarter - $15 million; eight months ended
September 30, 2003 - $35 million). In addition, interest expense was higher in
2003 due to Genco's issuance of $275 million of 7.95% notes in June 2002 and the
interest expense component associated with the $345 million of adjustable
conversion rate equity security units issued by Ameren in March 2002, partially
offset by lower interest rates at UE.
Interest expense decreased at UE in the third quarter and first nine months
of 2003 compared to the same period in 2002 primarily due to lower interest
rates on new issuances of first mortgage bonds as compared to those redeemed.
Interest expense decreased at CIPS in the third quarter and in the first
nine months of 2003 compared to the same periods in 2002 primarily due to the
redemption of first mortgage bonds in the third quarter of 2002 and in the
second quarter of 2003.
Interest expense increased at Genco in the third quarter of 2003 as
compared to the same period in 2002 primarily due to increased borrowings from
Ameren's non-state regulated subsidiary money pool, partially offset by a
reduction in the principal amounts outstanding on subordinated intercompany
promissory notes to CIPS and Ameren in May 2003. In addition, Genco's interest
expense increased in the first nine months of 2003 compared to the same period
in 2002 primarily due to the issuance of $275 million of 7.95% Senior Notes in
June 2002.
Interest expense decreased at CILCORP and CILCO in the third quarter and
first nine months of 2003 as compared to the same periods in 2002. The decrease
was primarily due to the redemption of long-term debt, partially offset by
expense associated with debt redemption. In addition, interest expense decreased
due to the effect of purchase accounting fair value adjustments made at CILCORP
based on market rates. The increase in the fair value of long-term debt in
purchase accounting is being amortized as a reduction in interest expense over
the remaining life of the debt.
Income Taxes
Income tax expense increased at Ameren, UE and Genco in the third quarter
and first nine months of 2003 compared to the same periods in 2002 primarily due
to higher pre-tax income. Income tax expense decreased at CIPS primarily due to
lower pre-tax income and an Illinois tax settlement in the third quarter of
2003, which benefited income taxes by $7 million. Income tax expense decreased
at CILCORP and CILCO in the third quarter and first nine months of 2003 compared
to the same periods in 2002 primarily due to lower pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The following tables present net cash provided by (used in) operating,
investing and financing activities for the nine months ended September 30, 2003
and 2002:
==========================================================================================================================
Net cash provided by | Net cash provided by | Net cash provided by
operating activities | (used in) investing activities | (used in) financing activities
--------------------------------------------------------------------------------------------------------------------------
2003 2002 Variance | 2003 2002 Variance | 2003 2002 Variance
---- ---- -------- | ---- ---- -------- | ---- ---- -------
| |
Ameren(a)........ $ 852 $ 733 $ 119 | $ (938) $ (582) $ (356) | $ (442) $ 411 $ (853)
UE............... 486 559 (73) | (308) (291) (17) | (172) (270) 98
CIPS............. 102 71 31 | 26 2 24 | (128) (83) (45)
Genco............ 125 150 (25) | (39) (300) 261 | (87) 151 (238)
CILCORP(b)....... 75 96 (21) | (64) (93) 29 | (34) 36 (70)
CILCO............ 100 97 3 | (67) (95) 28 | (52) 26 (78)
==========================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
62
(b) 2002 amounts represent predecessor information. 2003 amounts include
January 2003 predecessor information. CILCORP consolidates CILCO and
therefore includes CILCO amounts in its balances.
Operating
Cash flows provided by operating activities increased for Ameren, CIPS and
CILCO and decreased for UE, Genco and CILCORP for the nine months ended
September 30, 2003 as compared to the same period in 2002. Cash flows provided
by operating activities increased for Ameren for the nine months ended September
30, 2003 compared to the same period in 2002 primarily as a result of increased
net earnings discussed above. Cash flows provided by operating activities were
reduced by two non-cash components of net earnings associated with the gain
related to the adoption of SFAS 143 and the $51 million pre-tax gain related to
the settlement of the coal mine reclamation issues, of which only $6 million was
received in cash during the third quarter of 2003.
Cash flows from operating activities in the first nine months of 2003 for
Ameren also benefited as compared to the same period in 2002 from changes in
working capital requirements and other non-cash accruals. Accounts receivable
were lower in the current year period due to milder weather late in the third
quarter of 2003 as compared to 2002. In addition, cash earnings were favorably
impacted in the first nine months of 2003 by higher non-cash employee benefit
accruals and the time of accounts payable as compared to 2002. Partially
offsetting these benefits to cash flows from operating activities were increased
materials and supplies inventories resulting from increased natural gas volumes
being put into storage during the summer injection period, principally due to
the acquisition of CILCORP, and higher gas prices. Taxes also reduced cash flows
from operating activities in the first nine months of 2003 compared to the same
period in 2002 primarily due to the timing of payments.
In addition to the items listed above, cash flows from operating activities
increased for CIPS and CILCO primarily due to reductions in working capital
requirements. Cash provided by operating activities decreased for UE, Genco and
CILCORP in the first nine months of 2003 primarily due to increased working
capital requirements and timing differences. UE's decrease in cash flows from
operating activities was attributable to lower electric margins, increased tax
payments and gas inventory increases, partially offset by lower operations and
maintenance expenses.
Pension Funding
A minimum pension liability was recorded at December 31, 2002 which
resulted in a charge to Accumulated OCI and a reduction in stockholders' equity.
The minimum pension liability has not changed as of September 30, 2003. The
following table presents the minimum pension liability amounts, after taxes, as
of September 30, 2003:
==========================================================================================================================
September 30, 2003
--------------------------------------------------------------------------------------------------------------------------
Ameren(a)................................................................ $ 102
UE....................................................................... 62
CIPS..................................................................... 13
Genco.................................................................... 6
CILCORP(b)............................................................... 61
CILCO.................................................................... 30
==========================================================================================================================
(a) Excludes amounts for CILCORP and CILCO, which were prior to the
acquisition date of January 31, 2003.
(b) Represents predecessor information.
We made voluntary cash contributions totaling $25 million to our defined
benefit retirement plan during the third quarter and for the first nine months
of 2003. Based on the performance of plan assets through September 30, 2003, we
expect to be required under ERISA to fund an average of approximately $150
million to $175 million annually in 2005, 2006 and 2007 in order to maintain
minimum funding levels for our pension plan. We expect UE's, CIPS', Genco's and
CILCO's portion of these funding requirements to be approximately 50%, 9%, 7%,
and 12%, respectively. These amounts are estimates and may change based on
actual stock market performance, changes in interest rates, and any changes in
government regulations.
63
Investing
Cash flows used in investing activities increased for Ameren and UE and
decreased for Genco, CILCORP and CILCO for the nine months ended September 30,
2003, as compared to the first nine months of 2002. Cash provided by investing
activities increased for CIPS over that same period. The increase in cash used
in investing activities for Ameren over the prior year period was primarily
related to $489 million in cash paid for the acquisitions of CILCORP and Medina
Valley in early 2003 along with CILCORP construction expenditures of $52 million
incurred in 2003 with no such expenditures in the pre-acquisition period of
2002, partially offset by lower construction expenditures at companies other
than CILCORP and lower nuclear fuel expenditures in 2003. The increase for UE
over the prior year period was primarily related to the 2002 receipt of $84
million UE had invested in the utility money pool, partially offset by lower
construction and nuclear fuel expenditures in 2003. The decrease in cash flows
used in investing activities from the prior year period for Genco was primarily
related to lower construction expenditures as Genco completed construction in
2002 of combustion turbine generating units. In addition, Genco paid
approximately $140 million in the first quarter of 2002 to Development Company
for a combustion turbine generating unit purchased, but not yet paid for, at
December 31, 2001. The decrease for CILCORP and CILCO for the nine months of
2003 compared to the same period in 2002 was primarily due to lower construction
expenditures related to the completed installation of pollution-control
equipment. The increase in cash provided by investing activities for CIPS was
primarily due to principal payments received on its intercompany note receivable
from Genco.
The following table presents expected capital expenditures for the entire
year in 2003:
==========================================================================================================================
Ameren(a) UE CIPS Genco CILCORP CILCO
--------------------------------------------------------------------------------------------------------------------------
2003 capital expenditures forecast....... $ 675 $ 485 $ 55 $ 50 $ 100 $ 100
==========================================================================================================================
(a) Excludes $15 million forecasted for predecessor CILCORP for January
2003 prior to the acquisition by Ameren.
We continually review our generation portfolio and expected power needs
and, as a result, we could modify our plan for generation capacity, which could
include the timing of when certain assets will be added to or removed from our
portfolio, the type of generation asset technology that will be employed, or
whether capacity may be purchased, among other things. Any changes that we may
plan to make for future generating needs could result in significant capital
expenditures or losses being incurred, which could be material.
Financing
Cash flows used in financing activities increased for Ameren, CIPS, Genco,
CILCORP and CILCO for the nine months ended September 30, 2003, as compared to
the first nine months of 2002 and decreased for UE over that same period.
Ameren's principal financing activities for the first nine months of 2003
included the redemption of short-term and long-term debt, as well as payment of
dividends, partially offset by the issuance of long-term debt and common stock.
In addition, cash flows provided by financing activities for the first nine
months of 2002 included Ameren's issuances of adjustable conversion rate equity
security units. The increase in cash flows used in financing activities for CIPS
for the nine months ended 2003 compared to the same period in 2002 was due
primarily to the redemption of long-term debt, partially offset by borrowings
made from the money pool by CIPS in 2003. Genco's decrease in cash flows from
financing activities was due primarily to the issuance of $275 million in
long-term debt in 2002 with no financings in 2003 and an increase in common
dividend payments, offset by redemptions of short-term borrowings from Ameren's
non-state regulated subsidiary money pool. CILCORP and CILCO's decrease in cash
flows from financing activities for the first nine months of 2003, compared to
the same period in 2002, were primarily due to the issuance of $100 million in
long-term debt in 2002 with no financings in 2003, increased redemptions of
long-term debt in 2003 and an increase in common dividend payments, partially
offset by borrowings from the money pool in 2003.
Ameren and UE are authorized by the SEC under PUHCA to have up to an
aggregate of $1.5 billion and $1 billion, respectively, of short-term unsecured
debt instruments outstanding at any time. In addition, CIPS, AERG, CILCORP and
CILCO have PUHCA authority to have up to an aggregate of $250 million each of
short-term unsecured debt instruments outstanding at any time. Genco is
authorized by the FERC to have up to $300 million of short-term debt outstanding
at any time.
64
Short-Term Debt and Liquidity
Short-term debt typically consists of commercial paper borrowings
(maturities generally within 1 to 45 days). The following table presents the
Ameren Companies' and EEI's committed credit facilities at September 30, 2003:
==========================================================================================================================
Credit Facility Expiration Outstanding and Committed Amount Available
--------------------------------------------------------------------------------------------------------------------------
Ameren:
364-day revolving......... July 2004 $ 235 $ 235
Multi-year revolving...... July 2005 130 130
Multi-year revolving...... July 2006 235 235
UE:
Various 364-day revolving through May 2004 157 157
Nuclear fuel lease(a)..... February 2004 120 43
CIPS:
Two 364-day revolving...... through May 2004 15 15
Genco:
Committed credit facilities (b) (b)
CILCORP:
Committed credit facilities (b) (b)
CILCO:
Three 364-day revolving... through August 2004 60 60
EEI:
Two bank credit facilities through June 2004 45 45
--------------------------------------------------------------------------------------------------------------------------
Total ..................... $ 997 $ 920
==========================================================================================================================
(a) Provides for financing of nuclear fuel at Gateway Fuel Company.
(b) Credit facilities are indirectly available through money pool
arrangements.
At September 30, 2003, committed credit facilities of $832 million were
available for use by UE, CIPS, CILCO and Ameren Services through our utility
money pool arrangement. In addition, $600 million of this amount may be used by
Ameren directly and most of our non rate-regulated affiliates including, but not
limited to, Resources Company, Genco, Marketing Company, AFS, AERG and Ameren
Energy through our non-state regulated subsidiary money pool arrangement. In
September 2003, CILCO received final regulatory approval to participate in the
utility money pool arrangement. CILCORP receives funds through direct loans from
Ameren since it is not part of the non-state regulated money pool agreement.
These committed credit facilities are used to support our commercial paper
programs under which there were no amounts outstanding at September 30, 2003.
Access to our credit facilities for all Ameren Companies is subject to reduction
based on use by affiliates. In October 2003, AERG received final regulatory
approval to participate in our non-state regulated subsidiary money pool
arrangement and as a lender only in our utility money pool.
UE had average short-term borrowings of $53 million and $23 million for the
three and nine months ended September 30, 2003, respectively. Peak short-term
borrowings for UE were $228 million for both the three and nine months ended
September 30, 2003. UE was the only registrant with short-term borrowings during
these periods.
We rely on access to short-term and long-term capital markets as a
significant source of funding for capital requirements not satisfied by our
operating cash flows. Our inability to raise capital on favorable terms,
particularly during times of uncertainty in the capital markets, could
negatively impact our ability to maintain or grow our businesses. Based on our
current credit ratings, we believe that we will continue to have access to the
capital markets. However, events beyond our control may create uncertainty in
the capital markets such that our cost of capital would increase or our ability
to access the capital markets would be adversely affected.
Financial Agreement Provisions and Covenants
Our financial agreements include customary default or cross default
provisions that could impact the continued availability of credit or result in
the acceleration of repayment. The majority of our committed credit facilities
require the borrower to represent in connection with any borrowing under the
facility that no material adverse change has occurred since certain dates. Our
financing arrangements do not contain credit rating triggers, except for a $100
million funded bank
65
term loan at CILCO. At September 30, 2003, the Ameren Companies were in
compliance with all material financial agreement provisions and covenants.
Debt Issuances and Redemptions
The following table presents our issuances, redemptions and maturities of
long-term debt for the nine months ended September 30, 2003 and 2002. For
additional information related to the terms and uses of these issuances and the
sources of funds and terms for redemptions, see Note 4 - Debt and Equity
Financings to our financial statements under Item 1 of Part I of this report.
==========================================================================================================================
Month Issued,
Redeemed, Nine Months
Repurchased or -----------------------
Matured 2003 2002
--------------------------------------------------------------------------------------------------------------------------
Issuances -
Ameren:
5.70% Notes, due February 1, 2007................................. January $ - $ 100
Senior notes, due May 15, 2007(a)................................. March - 345
UE:
5.50% Senior secured notes due March 15, 2034..................... March 184 -
4.75% Senior secured notes due April 1, 2015...................... April 114 -
5.10% Senior secured notes due August 1, 2018..................... July 200 -
5.25% Senior secured notes due September 1, 2012.................. August - 173
CIPS - -
Genco:
7.95% Senior notes due June 1, 2032............................... June - 275
CILCORP - -
CILCO - -
-------------------------------------------------------------------------------------------------------------------
Total long-term debt issuances $ 498 $ 893
-------------------------------------------------------------------------------------------------------------------
Redemptions, Repurchases and Maturities -
Ameren - -
UE:
8.25% First mortgage bonds due October 15, 2022................... April $ 104 $ -
8.00% First mortgage bonds due December 15, 2022.................. May 85 -
7.65% First mortgage bonds due July 15, 2003...................... July 100 -
7.15% First mortgage bonds due August 1, 2023..................... August 75 -
8.75% First mortgage bonds due December 1, 2021................... September - 125
CIPS:
6.94% Series 97-1 First mortgage bonds due March 15, 2002......... March - 5
6.99% Series 97-1 First mortgage bonds due March 15, 2003......... March 5 -
6.375% Series Z First mortgage bonds due April 1, 2003............ April 40 -
7.50% Series X First mortgage bonds due July 1, 2007.............. April 50 -
6.96% Series 97-1 First mortgage bonds due September 15, 2002..... September - 5
6.75% Series Y First mortgage bonds due September 15, 2002........ September - 23
Genco - -
CILCORP(b): - -
9.375% Senior bonds due 2029...................................... September 17 -
8.7% Senior notes due 2009........................................ September 31 -
---------------------------------------------------------------------------------------------------------------------
66
---------------------------------------------------------------------------------------------------------------------
Month Issued,
Redeemed, Nine Months
Repurchased or -------------------------
Matured 2003 2002
---------------------------------------------------------------------------------------------------------------------
CILCO:
6.82% First mortgage bonds due February 10, 2003.................. February 25 -
8.20% First mortgage bonds due January 15, 2022................... April 65 -
7.80% Two series of first mortgage bonds due February 9, 2023..... April 10 -
Hallock Substation Power Modules bank loan due through 2004 ...... August 3 -
Kickapoo Substation Power Modules bank loan due through 2004 ..... August 2 -
Medina Valley:
Secured term loan due June 30, 2019............................... June 36 -
---------------------------------------------------------------------------------------------------------------------
Total long-term debt redemptions, repurchases and maturities........ $ 648 $ 158
======================================================================================================================
(a) Senior notes are a component of adjustable conversion-rate equity
security units.
(b) In conjunction with Ameren's acquisition of CILCORP, CILCORP's
existing debt was adjusted to fair value. The repurchase above
includes a redemption of $13 million of the original principal amount
of 9.375% senior bonds and $27 million of the original principal
amount of 8.7% senior notes, along with a reduction of the fair value
write-up of $8 million in aggregate.
In October 2003, UE issued, pursuant to its September 2003 shelf
registration statement, $200 million of 4.65% Senior Secured Notes due October
1, 2013. UE received net proceeds, after fees, of $198 million, which were used
to repay outstanding short-term debt.
Dividends
Ameren's Board of Directors does not set specific targets or payout
parameters when declaring common stock dividends. However, the Board considers
various issues including Ameren's historic earnings and cash flow, projected
earnings, cash flow and potential cash flow requirements, dividend payout rates
at other utilities, return on investments with similar risk characteristics, and
overall business considerations. Dividends paid by Ameren to shareholders during
the first nine months of 2003 were $308 million (2002 - $279 million) or $1.905
per share (2002 - $1.905). On October 10, 2003, Ameren's Board of Directors
declared a quarterly common stock dividend of 63.5 cents per share payable on
December 31, 2003 to shareholders of record on December 10, 2003.
Certain of our financial agreements and corporate governance documents
contain covenants and conditions that, among other things, provide restrictions
on the Ameren Companies' payment of dividends. The Ameren parent company has
restrictions on dividend payments if it were to defer contract adjustment
payments on its equity security units. UE has restrictions on dividend payments
if it were to extend interest payment periods on its subordinated debentures.
CIPS has provisions restricting dividend payments based on ratios of common
stock to total capitalization along with provisions related to certain operating
expenses and accumulations of earned surplus. Genco's indenture includes
restrictions which prohibit making any dividend payments if debt service
coverage ratios are below a defined threshold. CILCORP has restrictions in the
event leverage ratio and interest coverage ratio thresholds are not met, if
CILCORP's senior long-term debt does not have specified ratings as described in
its indenture. CILCO has restrictions on dividend payments relative to the ratio
of its balance of retained earnings to the annual dividend requirement on its
preferred stock and amounts to be set aside for any sinking fund retirement of
Class A Preferred Stock. In addition, CILCO's dividends cannot exceed $45
million during any given annual period.
67
The following table presents dividends paid directly or indirectly to
Ameren by its subsidiaries for the nine months ended September 30, 2003 and
2002:
===================================================================================================================
2003 2002
-------------------------------------------------------------------------------------------------------------------
UE........................................................................ $ 224 $ 224
CIPS...................................................................... 54 47
Genco..................................................................... 22 12
CILCORP (holding company only)(a)......................................... (34) -
CILCO..................................................................... 44 28
Non-registrants........................................................... - 1
-------------------------------------------------------------------------------------------------------------------
$ 310 $ 312
===================================================================================================================
(a) Indicates funds retained from CILCO dividend.
Off-Balance Sheet Arrangements
At September 30, 2003, neither Ameren, nor any of its subsidiaries, had any
off-balance sheet financing arrangements, other than operating leases entered
into in the ordinary course of business.
OUTLOOK
We expect the following industry-wide trends and company-specific issues to
impact earnings in 2004 and beyond:
o Economic conditions, which principally impact native load demand,
particularly from our industrial customers, have been weak for the past few
years, but have recently had some improvement with a 1% increase in
industrial sales for the first nine months of 2003.
o We have historically achieved weather-adjusted growth in our native
electric residential and commercial load of approximately 2% per year and
expect this trend to continue.
o Electric rates in UE's, CIPS' and CILCO's Illinois service territories are
legislatively fixed through January 1, 2007 and an electric rate case
settlement in UE's Missouri service territory has resulted in reductions of
$50 million on April 1, 2002, and $30 million on April 1, 2003 with an
additional $30 million reduction required for April 1, 2004. In addition,
electric rates in Missouri cannot change prior to July 1, 2006, subject to
certain exclusions outlined in UE's rate settlement.
o Power prices in the Midwest impact the amount of revenues UE, Genco and
AERG can generate by marketing any excess power into the interchange
markets. Power prices in the Midwest also impact the cost of our CILCO
power CILCO purchases in the interchange markets. Long-term power prices
continue to be generally soft in the Midwest, despite the fact that power
prices in 2003 strengthened significantly relative to 2002 due in part to
higher prices for natural gas.
o Increased expenses associated with rising employee benefit costs and higher
insurance and security costs associated with additional measures UE has
taken, or may have to take, at its Callaway nuclear plant and other
operating plants related to world events.
o UE's Callaway nuclear plant will have a refueling outage in the spring of
2004, which is expected to last 40-45 days, and will increase maintenance
and purchased power costs, and reduce the amount of excess power available
for sale. Refueling outages occur approximately every 18 months and have
historically reduced net earnings at Ameren and UE by $15 to $20 million.
UE's 2005 refueling outage is expected to last 70 days due to the
installation of new steam generator units during the refueling.
o UE is pursuing an annual gas rate increase of $27 million in Missouri. In
October 2003, the MoPSC staff recommended an annual gas rate increase of
approximately $11 million. Settlement discussions are ongoing with hearings
scheduled for January 2004 and a decision expected by April 2004. In
October 2003, the ICC issued orders awarding CILCO an increase in annual
gas rates of $9 million and awarding CIPS and UE increases in annual gas
rates of $7 million and $2 million, respectively. See Note 3 - Rate and
Regulatory Matters to our financial statements under Item 1 of Part I of
this report for additional information.
o Upon entering the Midwest ISO, UE expects to receive a refund of $13
million and CIPS expects to receive a refund of $5 million for fees paid
originally to exit the Midwest ISO; however, Ameren, UE and CIPS will incur
higher ongoing operation costs. See Note 3 - Rate and Regulatory Matters to
our financial statements under Item 1 of Part I of this report for
additional information.
68
o Integration of the CILCORP acquisition continues and Ameren, CILCORP and
CILCO expect to realize synergies associated with reduced overhead expenses
and lower fuel costs.
During the second and third quarters of 2003, we entered into new four-year
labor agreements with the IBEW and the IUOE representing eleven bargaining units
covering approximately 70% of Ameren's entire workforce (UE - six units covering
65%; CIPS - one unit covering 70%; Genco - two units covering 70%). The new
agreements include no wage increase for year one of the agreements, 3.5%
increases for both years two and three, and increases of 3.25% for year four. In
addition, the agreements include a pension supplement, more flexible work rules
and a change to employee medical benefits resulting in employees paying a
greater portion of future benefit cost increases.
At December 31, 2002, we recorded a minimum pension liability of $102
million, after taxes, which resulted in a charge to Accumulated OCI and a
reduction in stockholders' equity. UE, CIPS and Genco's portion of the minimum
pension liability was $62 million, $13 million and $6 million, after-tax,
respectively. CILCORP and CILCO have recorded a minimum pension liability of $61
million and $30 million, respectively. Based on changes in interest rates, we
expect to change our actuarial assumptions for our pension plan at December 31,
2003, which could result in a requirement to record an additional minimum
pension liability.
In the ordinary course of business, we evaluate strategies to enhance our
financial position, results of operations and liquidity. These strategies may
include potential acquisitions, divestitures, and opportunities to reduce costs
or increase revenues, and other strategic initiatives in order to increase
Ameren's shareholder value. We are unable to predict which, if any, of these
initiatives will be executed, as well as the impact these initiatives may have
on our future financial position, results of operations or liquidity, however
the impact could be material.
REGULATORY MATTERS
See Note 3 - Rate and Regulatory Matters to our financial statements under
Item 1 of Part I of this report for information.
ACCOUNTING MATTERS
Critical Accounting Policies
Preparation of the financial statements and related disclosures in
compliance with GAAP requires the application of appropriate technical
accounting rules and guidance, as well as the use of estimates. Our application
of these policies involves judgments regarding many factors, which, in and of
themselves, could materially impact the financial statements and disclosures.
Refer to Management's Discussion and Analysis of Financial Condition and Results
of Operations that is incorporated by reference from Ameren's 2002 Annual Report
to Shareholders into Ameren's Annual Report on Form 10-K for the period ended
December 31, 2002 and that is contained in the other Ameren Companies' 2002
Annual Reports on Form 10-K for a discussion of the critical accounting policies
that we believe are most difficult, subjective or complex. In the discussion
below, we have outlined an additional accounting policy that has developed due
to our acquisition of CILCORP. A future change in the assumptions or judgments
applied in determining the following matter, among others, could have a material
impact on future financial results.
69
Accounting Policy Uncertainties Affecting Application
----------------- -----------------------------------
Leveraged Leases
We account for our investment in leveraged o Market conditions of the industry of the leased asset that
leases in accordance with SFAS No. 13, might affect the residual value at the end of the lease
"Accounting for Leases." As required by SFAS terms. This would include: the real estate markets where
13, we periodically review the estimated each of the assets are located; the rail industry; the
residual value as well as all other important aerospace industry; and energy market.
assumptions affecting estimated total net
income from the leases. SFAS 13 requires the
rate of return and total income of a lease to be
recalculated if there is a permanent decline in
the estimated residual value below the value
currently used to calculate income.
Basis for Judgment
------------------
We determine whether the residual value has been "permanently impaired"
based on an internal review as well as a periodic third party review of the
residual value.
Impact of Future Accounting Pronouncements
See Note 1 - Summary of Significant Accounting Policies to our financial
statements under Item 1 of Part I of this report for information.
70
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risk represents the risk of changes in value of a physical asset or
a financial instrument, derivative or non-derivative, caused by fluctuations in
market variables such as interest rates. The following discussion of our risk
management activities includes "forward-looking" statements that involve risks
and uncertainties. Actual results could differ materially from those projected
in the "forward-looking" statements. We handle market risks in accordance with
established policies, which may include entering into various derivative
transactions. In the normal course of business, we also face risks that are
either non-financial or non-quantifiable. Such risks principally include
business, legal and operational risks and are not represented in the following
discussion.
Our risk management objective is to optimize our physical generating assets
within prudent risk parameters. Our risk management policies are set by a Risk
Management Steering Committee, which is comprised of senior-level Ameren
officers.
Interest Rate Risk
We are exposed to market risk through changes in interest rates associated
with:
o long-term and short-term variable-rate debt;
o fixed-rate debt;
o commercial paper;
o auction-rate long-term debt; and
o auction-rate preferred stock.
We manage our interest rate exposure by controlling the amount of these
instruments we hold within our total capitalization portfolio and by monitoring
the effects of market changes in interest rates.
The following table presents the estimated increase (decrease) in our
annual interest expense and net income if interest rates were to change by 1% on
debt outstanding at September 30, 2003:
===================================================================================================================
Interest Expense Net Income(a)
-------------------------------------------------------------------------------------------------------------------
Ameren.............................................................. $ 9 $ (5)
UE.................................................................. 7 (5)
CIPS................................................................ 1 -
Genco............................................................... - -
CILCORP............................................................. 2 (1)
CILCO............................................................... 2 (1)
===================================================================================================================
(a) Calculations are based on an effective tax rate of 39%.
The model does not consider the effects of the reduced level of potential
overall economic activity that would exist in such an environment. In the event
of a significant change in interest rates, management would likely take actions
to further mitigate our exposure to this market risk. However, due to the
uncertainty of the specific actions that would be taken and their possible
effects, the sensitivity analysis assumes no change in our financial structure.
Credit Risk
Credit risk represents the loss that would be recognized if counterparties
fail to perform as contracted. NYMEX-traded futures contracts are supported by
the financial and credit quality of the clearing members of the NYMEX and have
nominal credit risk. On all other transactions, we are exposed to credit risk in
the event of nonperformance by the counterparties in the transaction.
Our physical and financial instruments are subject to credit risk
consisting of trade accounts receivables and executory contracts with market
risk exposures. The risk associated with trade receivables is mitigated by the
large number of customers in a broad range of industry groups comprising our
customer base. No non-affiliated customer represents greater
71
than 10%, in the aggregate or per specific company, of our accounts receivable.
Our revenues are primarily derived from sales of electricity and natural gas to
customers in Missouri and Illinois. UE and Genco have credit exposure associated
with accounts receivables from non-affiliated companies for interchange sales.
At September 30, 2003, UE's and Genco's combined credit exposure to
non-investment grade counterparties related to interchange sales was $4 million,
net of collateral. We establish credit limits for these counterparties and
monitor the appropriateness of these limits on an ongoing basis through a credit
risk management program which involves daily exposure reporting to senior
management, master trading and netting agreements, and credit support management
such as letters of credit and parental guarantees. We also analyze each
counterparty's financial condition prior to entering into sales, forwards,
swaps, futures or option contracts and monitor counterparty exposure associated
with our leveraged leases. As of September 30, 2003, we had approximately $166
million invested in leveraged leases, primarily at CILCORP.
Equity Price Risk
Our costs of providing non-contributory defined benefit retirement and
post-retirement benefit plans are dependent upon a number of factors, such as
the rates of return on plan assets, discount rate, the rate of increase in
health care costs and contributions made to the plans. The market value of our
plan assets has been affected by declines in the equity market since 2000 for
the pension and post-retirement plans. As a result, at December 31, 2002, we
recognized an additional minimum pension liability as prescribed by SFAS No. 87,
"Employers' Accounting for Pensions." The minimum pension liability was recorded
at December 31, 2002 which resulted in a charge to Accumulated OCI and a
reduction in stockholders' equity. The minimum pension liability has not changed
as of September 30, 2003. The following table presents the minimum pension
liability amounts, after taxes, as of September 30, 2003:
===================================================================================================================
September 30, 2003
-------------------------------------------------------------------------------------------------------------------
Ameren(a)................................................................ $ 102
UE....................................................................... 62
CIPS..................................................................... 13
Genco.................................................................... 6
CILCORP(b)............................................................... 61
CILCO.................................................................... 30
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO, which were prior to the
acquisition date of January 31, 2003.
(b) Represents predecessor information.
The amount of the liability was the result of asset returns experienced
through 2002, interest rates and our contributions to the plans during 2002. In
future years, the liability recorded, the costs reflected in net income, or OCI,
or cash contributions to the plans could increase materially without a recovery
in equity markets in excess of our assumed return on plan assets of 8.5%. If the
fair value of the plan assets were to grow and exceed the accumulated benefit
obligations in the future, then the recorded liability would be reduced and a
corresponding amount of equity would be restored in the Consolidated Balance
Sheet.
UE also maintains trust funds, as required by the Nuclear Regulatory
Commission and Missouri and Illinois state laws, to fund certain costs of
nuclear decommissioning. By maintaining a portfolio that includes long-term
equity investments, UE seeks to maximize the returns to be utilized to fund
nuclear decommissioning costs. However, the equity securities included in the
portfolio are exposed to price fluctuations in equity markets and the
fixed-rate, fixed-income securities are exposed to changes in interest rates. UE
actively monitors the portfolio by benchmarking the performance of our
investments against certain indices and by maintaining, and periodically
reviewing, established target allocation percentages of the assets of the trusts
to various investment options. UE's exposure to equity price market risk is, in
large part, mitigated, due to the fact that it is currently allowed to recover
decommissioning costs in its rates.
72
Fair Value of Contracts
We utilize derivatives principally to manage the risk of changes in market
prices for natural gas, fuel, electricity and emission credits. Price
fluctuations in natural gas, fuel and electricity cause:
o an unrealized appreciation or depreciation of our firm commitments to
purchase or sell when purchase or sales prices under the firm commitment
are compared with current commodity prices;
o market values of fuel and natural gas inventories or purchased power to
differ from the cost of those commodities in inventory under firm
commitment; and
o actual cash outlays for the purchase of these commodities to differ from
anticipated cash outlays.
The derivatives that we use to hedge these risks are dictated by risk
management policies and include forward contracts, futures contracts, options
and swaps. We continually assess our supply and delivery commitment positions
against forward market prices and internally forecast forward prices and modify
our exposure to market, credit and operational risk by entering into various
offsetting transactions. In general, we believe these transactions serve to
reduce our price risk. See Note 6 - Derivative Financial Instruments to our
financial statements under Item 1 of Part I of this report for further
information.
The following tables present the favorable (unfavorable) changes in the
fair value of all contracts marked-to-market during the three and nine months
ended September 30, 2003:
===================================================================================================================
Three months Ameren (a) UE CIPS CILCORP CILCO
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts $ 1 $ 3 $ - $ - $ 1
at beginning of period, net.................
Contracts realized or
otherwise settled during the period....... - - - - -
Changes in fair values attributable
to changes in valuation techniques
and assumptions........................... - - - - -
Fair value of new contracts entered
into during the period.................... - - - - -
Other changes in fair value.................. 3 - (3) - 1
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding
at end of period, net....................... $ 4 $ 3 $ (3) $ - $ 2
===================================================================================================================
(a) Includes amounts for non-registrant Ameren subsidiaries as well as intercompany eliminations.
===================================================================================================================
Nine months Ameren(a) UE CIPS CILCORP(b) CILCO(b)
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts $ 7 $ 6 $ - $ - $ 2
at beginning of period, net.................
Contracts realized or
otherwise settled during the period....... (4) - - - (6)
Changes in fair values attributable
to changes in valuation techniques
and assumptions........................... - - - - -
Fair value of new contracts entered
into during the period.................... - - - - -
Other changes in fair value.................. 1 (3) (3) - 6
-------------------------------------------------------------------------------------------------------------------
Fair value of contracts outstanding
at end of period, net....................... $ 4 $ 3 $ (3) $ - $ 2
===================================================================================================================
(a) Excludes amounts for CILCORP and CILCO prior to the acquisition date
of January 31, 2003 and includes amounts for non-registrant Ameren
subsidiaries as well as intercompany eliminations.
(b) Includes January 2003 predecessor information, which was zero for
CILCORP and $2 million for CILCO..
73
The following table presents maturities of contracts as of September 30,
2003:
===================================================================================================================
Maturity Maturity in
less than Maturity 1-3 Maturity 4-5 excess of 5 Total fair
Sources of fair value 1 year years years years value(a)
------------------------------------------------------------------------------------------------------------------
Ameren
Prices actively quoted............. $ 4 $ - $ - $ - $ 4
Prices provided by other external
sources(b)...................... (5) (2) - - (7)
Prices based on models and other
valuation methods(c)............ 6 2 (1) - 7
-------------------------------------------------------------------------------------------------------------------
Total.............................. $ 5 $ - $ (1) $ - $ 4
===================================================================================================================
===================================================================================================================
UE
Prices actively quoted............. $ - $ - $ - $ - $ -
Prices provided by other external
sources(b)...................... (1) (1) - - (2)
Prices based on models and other
valuation methods(c)............ 5 1 (1) - 5
-------------------------------------------------------------------------------------------------------------------
Total.............................. $ 4 $ - $ (1) $ - $ 3
===================================================================================================================
===================================================================================================================
CIPS
Prices actively quoted............. $ - $ - $ - $ - $ -
Prices provided by other external
sources(b)...................... (2) (1) - - (3)
Prices based on models and other
valuation methods(c)............ - - - - -
-------------------------------------------------------------------------------------------------------------------
Total.............................. $ (2) $ (1) $ - $ - $ (3)
===================================================================================================================
===================================================================================================================
CILCORP
Prices actively quoted ............ $ - $ - $ - $ - $ -
Prices provided by other external
sources(b)...................... - - - - -
Prices based on models and other
valuation methods(c)............ - - - - -
-------------------------------------------------------------------------------------------------------------------
Total $ - $ - $ - $ - $ -
===================================================================================================================
===================================================================================================================
CILCO
Prices actively quoted ............ $ 2 $ - $ - $ - $ 2
Prices provided by other external
sources(b)...................... - - - - -
Prices based on models and other
valuation methods(c)............ - - - - -
-------------------------------------------------------------------------------------------------------------------
Total $ 2 $ - $ - $ - $ 2
===================================================================================================================
(a) Contracts of less than $1 million were with non-investment-grade rated
counterparties.
(b) Principally power forward values based on NYMEX prices for over-the-counter
contracts and natural gas swap values based primarily on Inside FERC.
(c) Principally coal and sulfur dioxide option values based on a Black-Scholes
model that includes information from external sources and our estimates.
Also includes power forward values based on our estimates.
74
ITEM 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2003, the principal executive officer and principal
financial officer of each registrant have evaluated the effectiveness of the
design and operation of such registrant's disclosure controls and procedures (as
defined in Rules 13a - 15(e) and 15d - 15(e) of the Exchange Act). Based upon
that evaluation, the principal executive officer and principal financial officer
of each such registrant have concluded that such disclosure controls and
procedures are effective in timely alerting them to any material information
relating to such registrant, which is required to be included in such
registrant's reports filed or submitted with the SEC under the Exchange Act.
(b) Change in Internal Controls
There has been no significant change in the registrants' internal control
over financial reporting that occurred during their most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
their internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
Statements made in this report which are not based on historical facts are
"forward-looking" and, accordingly, involve risks and uncertainties that could
cause actual results to differ materially from those discussed. Although such
"forward-looking" statements have been made in good faith and are based on
reasonable assumptions, there is no assurance that the expected results will be
achieved. These statements include (without limitation) statements as to future
expectations, beliefs, plans, strategies, objectives, events, conditions and
financial performance. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause actual
results to differ materially from those anticipated. The following factors, in
addition to those discussed elsewhere in this report and in subsequent
securities filings and others, could cause actual results to differ materially
from management expectations as suggested by such "forward-looking" statements:
o the effects of the stipulation and agreement relating to the UE Missouri
electric excess earnings complaint case and other regulatory actions,
including changes in regulatory policy;
o changes in laws and other governmental actions, including monetary and
fiscal policies;
o the impact on us of current regulations related to the opportunity for
customers to choose alternative energy suppliers in Illinois;
o the effects of increased competition in the future due to, among other
things, deregulation of certain aspects of our business at both the state
and federal levels;
o the effects of participation in a FERC-approved RTO, including activities
associated with the Midwest ISO;
o the availability of fuel for the production of electricity, such as coal
and natural gas, and purchased power and natural gas for distribution, and
the level and volatility of future market prices for such commodities,
including the ability to recover any increased costs;
o the use of financial and derivative instruments;
o average rates for electricity in the Midwest;
o business and economic conditions;
o the impact of the adoption of new accounting standards on the application
of appropriate technical accounting rules and guidance;
o interest rates and the availability of capital;
o actions of rating agencies and the effects of such actions;
o weather conditions;
o generation plant construction, installation and performance;
o operation of nuclear power facilities and decommissioning costs;
o the effects of strategic initiatives, including acquisitions and
divestitures;
o the impact of current environmental regulations on utilities and generating
companies and the expectation that more stringent requirements will be
introduced over time, which could potentially have a negative financial
effect;
o future wages and employee benefit costs, including changes in returns on
benefit plan assets;
75
o disruptions of the capital markets or other events making our access to
necessary capital more difficult or costly;
o competition from other generating facilities, including new facilities that
may be developed;
o difficulties in integrating CILCO with Ameren's other businesses;
o changes in the coal markets, environmental laws or regulations or other
factors adversely impacting synergy assumptions in connection with the
CILCORP acquisition;
o cost and availability of transmission capacity for the energy generated by
our generating facilities or required to satisfy energy sales made by
Ameren; and
o legal and administrative proceedings.
Given these uncertainties, undue reliance should not be placed on these
forward-looking statements. Except to the extent required by the federal
securities laws, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
76
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Reference is made to Item 1. Legal Proceedings in Part II of Genco's Form
10-Q for the quarterly period ended June 30, 2003 for a discussion of a
complaint filed in July 2003 by Genco and its parent company, Development
Company, in the Circuit Court of Cook County, Illinois against the Village of
Bartlett, Illinois, the Village Trustees, and Realen Homes, L.P. seeking a
declaratory judgment and/or writ of certiorari to invalidate certain annexation
and rezoning decisions by the Village which could impact Genco's combustion
turbine generating units located in Elgin, Illinois. On August 28, 2003, both
the Village of Bartlett and Realen Homes, L.P. filed motions to dismiss various
counts of the complaint. On October 15, 2003, Genco and Development Company
filed an amended complaint. On November 7, 2003, both the Village of Bartlett
and Realen Homes, L.P. filed motions to dismiss the amended complaint. In a
related matter, on October 28, 2003, Genco filed a rulemaking proceeding before
the Illinois Pollution Control Board seeking site specific noise limitations for
its combustion turbine generating units in Elgin, Illinois. The new limitations,
if adopted by the Illinois Pollution Control Board, would allow Genco to meet
Illinois noise requirements in a newly proposed residential area.
Note 3 - Rate and Regulatory Matters and Note 8 - Commitments and
Contingencies to our financial statements under Item 1 of Part I of this report
contain additional information on legal and administrative proceedings which are
incorporated by reference under this item.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) (i) Exhibits filed herewith.
10.1 - Contribution Agreement between CILCO and AERG.
10.2 - Power Supply Agreement between AERG and CILCO.
10.3 - Second Amended Ameren Corporation System Utility Money
Pool Agreement.
10.4 - Ameren Corporation System Non-State Regulated Subsidiary
Money Pool Agreement.
31.1 - Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of Ameren Corporation (required by
Section 302 of the Sarbanes-Oxley Act of 2002).
31.2 - Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of Ameren Corporation (required by
Section 302 of the Sarbanes-Oxley Act of 2002).
31.3 - Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of UE (required by Section 302 of the
Sarbanes-Oxley Act of 2002).
31.4 - Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of UE (required by Section 302 of the
Sarbanes-Oxley Act of 2002).
31.5 - Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of CIPS (required by Section 302 of the
Sarbanes-Oxley Act of 2002).
31.6 - Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of CIPS (required by Section 302 of the
Sarbanes-Oxley Act of 2002).
31.7 - Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of Genco (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
31.8 - Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of Genco (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
77
31.9 - Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of CILCORP (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
31.10- Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of CILCORP (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
31.11- Rule 13a -14(a)/15d-14(a) Certification of Principal
Executive Officer of CILCO (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
31.12- Rule 13a-14(a)/15d-14(a) Certification of Principal
Financial Officer of CILCO (required by Section 302 of
the Sarbanes-Oxley Act of 2002).
32.1 - Section 1350 Certification of Principal Executive Officer
of Ameren Corporation (required by Section 906 of the
Sarbanes-Oxley Act of 2002).
32.2 - Section 1350 Certification of Principal Financial Officer
of Ameren Corporation (required by Section 906 of
the Sarbanes-Oxley Act of 2002).
32.3 - Section 1350 Certification of Principal Executive Officer
of UE (required by Section 906 of the Sarbanes-Oxley Act
of 2002).
32.4 - Section 1350 Certification of Principal Financial Officer
of UE (required by Section 906 of the Sarbanes-Oxley Act
of 2002).
32.5 - Section 1350 Certification of Principal Executive Officer
of CIPS (required by Section 906 of the Sarbanes-Oxley Act
of 2002).
32.6 - Section 1350 Certification of Principal Financial Officer
of CIPS (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.7 - Section 1350 Certification of Principal Executive Officer
of Genco (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.8 - Section 1350 Certification of Principal Financial Officer
of Genco (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.9 - Section 1350 Certification of Principal Executive Officer
of CILCORP (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.10- Section 1350 Certification of Principal Financial Officer
of CILCORP (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.11- Section 1350 Certification of Principal Executive Officer
of CILCO (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
32.12- Section 1350 Certification of Principal Financial Officer
of CILCO (required by Section 906 of the Sarbanes-Oxley
Act of 2002).
(a) (ii) Exhibits incorporated by reference.
4.1 - UE Company Order dated October 7, 2003 establishing the
4.65% Senior Secured Notes due 2013 (UE Form 8-K
dated October 7, 2003, Exhibit 4.2).
78
4.2 - Supplemental Indenture dated October 1, 2003 to Indenture
of Mortgage and Deed of Trust dated June 15, 1937, as
amended, from UE to The Bank of New York, as successor
trustee, relating to First Mortgage Bonds, Senior Notes
Series EE, 4.65% due 2013 (UE Form 8-K dated October 7,
2003, Exhibit 4.4).
(b) Reports on Form 8-K. The Ameren Companies filed the following reports
on Form 8-K during the quarterly period ended September 30, 2003:
===================================================================================================================
Items Financial Statements
Date of Report Reported Filed
-------------------------------------------------------------------------------------------------------------------
Ameren:
July 17, 2003............................................... 5 None
July 30, 2003............................................... 7, 12 (a)
-------------------------------------------------------------------------------------------------------------------
UE:
July 28, 2003............................................... 5, 7 None
-------------------------------------------------------------------------------------------------------------------
CIPS:
None
-------------------------------------------------------------------------------------------------------------------
Genco:
None
-------------------------------------------------------------------------------------------------------------------
CILCORP/CILCO:
None
===================================================================================================================
(a) Unaudited consolidated operating statistics for the three and six
months ended June 30, 2003 and 2002, consolidated Balance Sheet as of
June 30, 2003 and December 31, 2002, and consolidated Statement of
Cash Flows for the six months ended June 30, 2003 and 2002.
79
SIGNATURES
Pursuant to the requirements of the Exchange Act, each registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized. The signature for each undersigned company shall be deemed to relate
only to matters having reference to such company or its subsidiaries.
AMEREN CORPORATION
(Registrant)
/s/ Martin J. Lyons
--------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
UNION ELECTRIC COMPANY
(Registrant)
/s/ Martin J. Lyons
--------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY
(Registrant)
/s/ Martin J. Lyons
---------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
AMEREN ENERGY GENERATING COMPANY
(Registrant)
/s/ Martin J. Lyons
---------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
80
CILCORP Inc.
(Registrant)
/s/ Martin J. Lyons
----------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
Central Illinois Light Company
(Registrant)
/s/ Martin J. Lyons
----------------------------------------
Martin J. Lyons
Vice President and Controller
(Principal Accounting Officer)
Date: November 14, 2003
81