Item 1. Business
THE COMPANY AND ITS SUBSIDIARIES
CILCORP Inc. (CILCORP or the Company) was incorporated as a holding company in the state of Illinois in 1985. The financial condition and operating results of CILCORP primarily reflect the operations of Central Illinois Light Company (CILCO), the Company's principal business subsidiary. The Company's other core business subsidiary is Environmental Science & Engineering, Inc. (ESE). The Company also has three other first-tier subsidiaries, CILCORP Development Services Inc., CILCORP Investment Management Inc. (CIM) and CILCORP Ventures Inc. (CVI), whose operations, combined with those of the holding company itself, are collectively referred to herein as Other Businesses.
The Company owns 100% of the common stock of CILCO. CILCO is engaged in the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois.
ESE, a wholly-owned subsidiary, was formed in February 1990 to conduct the environmental consulting and analytical services businesses acquired from Hunter Environmental Services, Inc. (Hunter) during that year. ESE provides engineering and environmental consulting, analysis, and laboratory services to a variety of governmental and private customers. ESE has seven wholly-owned subsidiaries: Keck Instruments, Inc., which manufactures geophysical instruments used in environmental applications; Chemrox, Inc., which has reduced its presence in the ethylene oxide and chloroflurocarbon control-equipment market by maintaining only a minimal staff, primarily to concentrate on warranty work; ESE Biosciences, Inc. whose on-site biological treatment of contaminated soil and groundwater is now performed primarily by ESE; ESE Architectural Services, Inc. which provides architecture and design services; National Professional Casualty Co., which provides professional liability insurance to ESE; ESE International Ltd., which provides engineering and consulting services in foreign countries; and ESE Michigan, Inc. which formerly conducted business as ESE Environmental Science and Engineering, Inc., provided the same services as its parent, ESE.
CIM, a wholly-owned subsidiary, manages the Company's investment portfolio. CIM manages seven leveraged lease investments through three wholly-owned subsidiaries: CILCORP Lease Management Inc. which was formed in 1985, and CIM Leasing Inc. and CIM Air Leasing Inc., which were formed in 1993. CIM's other subsidiary is CIM Energy Investments Inc. which was formed in 1989 to invest in non-regulated, independent power production facilities (see Other Businesses).
CVI, a wholly-owned subsidiary, is a venture capital company which pursues investment opportunities in new ventures and the expansion of existing ventures in environmental services, biotechnology and health care.
The following table summarizes the relative contribution of each business group to consolidated assets, revenue and net income for the year ended December 31, 1993.
CILCORP is an intrastate exempt holding company under the Public Utility Holding Company Act of 1935 (PUHCA). In 1989, the Securities and Exchange Commission (SEC) issued proposed rules regarding diversification by exempt intrastate utility holding companies. The proposed rules, which are intended to take effect three years after adoption in final form, would establish two safe harbors which specify those circumstances in which the SEC would not find diversification detrimental to interests protected under the PUHCA. If the rules are adopted, CILCORP will be required to apply for a formal exemptive order from the SEC or come within one of the safe harbors by either seeking passage of Illinois legislation permitting diversification or reducing its interest in non-utility businesses to less than 10% of consolidated assets. Although certain members of the U.S. Congress continue to explore this issue, the SEC has not taken any public action towards adopting final diversification rules since the proposed rules were issued.
BUSINESS OF CILCO
CILCO was incorporated under the laws of Illinois in 1913. CILCO's principal business is the generation, transmission, distribution and sale of electric energy in an area of approximately 3,700 square miles in central and east-central Illinois, and the purchase, distribution, transportation and sale of natural gas in an area of approximately 4,500 square miles in central and east-central Illinois.
In addition to its principal business, CILCO has two wholly-owned subsidiaries, CILCO Exploration and Development Company (CEDCO) and CILCO Energy Corporation (CECO). CEDCO was formed to engage in the exploration and development of gas, oil, coal and other mineral resources. CECO was formed to research and develop new sources of energy, including the conversion of coal and other minerals into gas. The operations of these subsidiaries are not significant.
CILCO is continuing to experience, in varying degrees, the issues common to the electric and gas utility industries. These include uncertainties as to the future demand for electricity and natural gas, structural and competitive changes in the markets for these commodities, the high cost of compliance with environmental and safety laws and regulations, and uncertainties in regulatory and political processes. At the same time, CILCO has sought to provide reliable service at reasonable rates for its customers and a fair return on its common equity.
ELECTRIC SERVICE
CILCO furnishes electric service to retail customers in 136 Illinois communities (including Peoria, Pekin, Lincoln and Morton). At December 31, 1993, CILCO had approximately 190,000 retail electric customers.
In 1993, 67% of CILCO's total operating revenue was derived from the sale of electricity. Approximately 39% of electric revenue resulted from residential sales, 30% from commercial sales, 28% from industrial sales, 2% from sales for resale and 1% from other sales. Electric sales, particularly residential and commercial sales during the summer months, fluctuate based on weather conditions.
The electric operating revenues of CILCO were derived from the following sources:
CILCO owns and operates two coal-fired base load generating plants and two natural gas combustion turbine-generators which are used for peaking service (see Item 2.
Item 2. Properties
CILCO
CILCO owns and operates two steam-electric generating plants and two combustion turbine-generators. These facilities had an available summer capability of 1,136 MW in 1993. In December 1993, CILCO announced it will acquire a cogeneration plant to be financed and built by CILCORP at the site of a Midwest Grain Inc. facility (see Capital Resources & Liquidity - CILCO under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations).
The major generating facilities of CILCO (representing 97.4% of CILCO's available summer generating capability projected for 1994), all of which are fueled with coal, are as follows:
CILCO's transmission system includes approximately 285 circuit miles operating at 138,000 volts, 48 circuit miles operating at 345,000 volts and 14 principal substations with an installed capacity of 3,343,200 kilovolt-amperes.
The electric distribution system includes approximately 6,210 miles of overhead pole and tower lines and 1,912 miles of underground distribution cables. The distribution system also includes 106 substations with an installed capacity of 1,996,995 kilovolt-amperes.
The gas system includes approximately 3,406 miles of transmission and distribution mains.
CILCO has an underground gas storage facility located about ten miles southwest of Peoria near Glasford, Illinois. The facility has a present recoverable capacity of approximately 4.5 billion cubic feet (bcf). An additional storage facility near Lincoln, Illinois, has a present recoverable capacity of approximately 5.2 bcf.
ESE
ESE owns approximately 55 acres of land in Gainesville, Florida, containing 110,000 square feet of offices, laboratory and other space. In Peoria, Illinois, ESE owns approximately 27,000 square feet of offices, laboratory and other space, secured by mortgages of $315,000 and leases approximately 21,000 square feet of additional space for offices. ESE and its subsidiaries lease additional facilities for offices, laboratories and warehouse space in 32 cities throughout the United States. ESE believes its facilities are suitable and adequate for its current businesses and does not expect to make any material acquisitions of real property in the near future. However, in 1994 ESE plans to spend $1.2 million to expand its Gainesville, Florida, laboratory by approximately 8,000 square feet.
Item 3.
Item 3. Legal Proceedings
Reference is made to Environmental Matters under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for certain pending legal proceedings and/or proceedings known to be contemplated by governmental authorities. Reference is also made to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Gas Take-or-Pay Charges and CILCO Gas Operations and CILCORP Note 3 - Federal Income Tax Audit Settlement included herein. Pursuant to CILCO's By Laws, CILCO has advanced legal and other expenses actually and reasonably incurred by employees, and former employees, in connection with the investigation of CILCO's Springfield gas operations described in Item 7. Management's Discussion and Anaylsis of Financial Condition and Results of Operations - CILCO Gas Operations.
CILCO and ESE are subject to certain claims and lawsuits in connection with work performed in the ordinary course of their businesses. In the opinion of management, all claims unless otherwise currently pending will not result in a material adverse effect on the financial position and results of operations of the Company as a result of one or more of the following reasons: (i) insurance coverage; (ii) contractual or statutory indemnification, or (iii) reserves for potential losses.
ESE
ESE leases a building in Shelton, Connecticut, under a lease agreement which expires February 15, 2000. In January 1991, ESE gave notice of its intent to exercise an option to purchase the building at fair market value pursuant to a provision of the lease. Due to a dispute with the lessor regarding the definition of fair market value, exercise of the option was delayed pending a declaratory judgment by a federal district court in Connecticut.
On February 25, 1994, the court issued its final order which declared the purchase option void. ESE filed its notice of appeal on March 2, 1994. Management cannot predict whether its appeal will be successful.
Future minimum rental payments are reflected in Note 10 to the financial statements. The building is not currently occupied by ESE or a sublessor, as ESE's Shelton operations ceased in 1991. If the purchase option is ultimately voided, ESE will record an after-tax loss of approximately $500,000, which is equal to the present value of the future rental payments, net of income taxes and estimated sublease revenues.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
CILCORP
There were no matters submitted to a vote of security holders during the fourth quarter of 1993.
CILCO
There were no matters submitted to a vote of security holders during the fourth quarter of 1993.
Executive Officers of CILCORP
Age at Positions Held During Initial Name 3/31/94 Past Five Years Effective Date(2)
R. O. Viets 50 President and Chief Executive Officer February 1, 1988
J. G. Sahn(1) 47 Vice President, General March 1, 1994 Counsel and Secretary Vice President and General Counsel February 1, 1989
R. J. Sprowls 36 Treasurer and Assistant Secretary October 1, 1990 Treasurer - CILCO February 1, 1988
T. D. Hutchinson 39 Controller February 1, 1988
Notes:
(1) M. J. Murray served as Secretary and Assistant Treasurer from January 22, 1985, until February 28, 1994, when he retired and was replaced as Secretary by J. G. Sahn.
(2) The term of each executive officer extends to the organization meeting of CILCORP's Board of Directors following the next annual election of Directors.
Executive Officers of CILCO
Age as of Positions Held During Initial Name 3/31/94 Past Five Years(1) Effective Date(2)
R. W. Slone 58 Chairman of the Board, President and Chief Executive Officer April 23, 1991 President and Chief Executive Officer February 1, 1988
T. S. Kurtz 46 Vice President November 1, 1988(3)
T. S. Romanowski 44 Vice President October 1, 1986(3)
W. M. Shay 41 Vice President January 1, 1993(3)
J. F. Vergon 46 Vice President October 1, 1986(3)(4)
W. R. Dodds 39 Treasurer and Manager of Treasury Department October 1, 1990 Controller and Manager of Accounting February 1, 1988
R. L. Beetschen 48 Controller and Manager of Accounting October 1, 1990 Supervisor - General Accounting May 1, 1988
J. G. Sahn 47 Secretary March 1, 1993
Notes:
(1) The officers listed have been employed by CILCO in executive or management positions for more than five years except Mr. Shay and Mr. Sahn. Mr. Shay was Vice President and Chief Financial Officer of CILCO's parent, CILCORP Inc., from August 15, 1988 through December 31, 1992. Mr. Sahn also serves as Vice President and General Counsel of CILCORP Inc., a position he has held since February 1, 1989.
(2) The term of each executive officer extends to the organization meeting of CILCO's Board of Directors following the next annual election of Directors.
(3) T. S. Kurtz, T. S. Romanowski, W. M. Shay and J. F. Vergon head the Electric Production Group, the Finance and Administrative Services Group, the Electric Operations Group, and the Gas Operations Group, respectively. T. S. Romanowski also serves as CILCO's Principal Financial Officer. J. F. Vergon also serves as Chairman of the Board, President and Chief Executive Officer of CILCORP Investment Management Inc.
(4) J. F. Vergon was Vice President of CILCO from October 1, 1986 through December 31, 1992. From January 1, 1993 through February 28, 1993, Mr. Vergon was Vice President and Chief Financial Officer of CILCO's parent, CILCORP Inc. Effective March 1, 1993, Mr. Vergon became a Vice President of CILCO.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
CILCORP
The Company's common stock is listed on the New York and Chicago Stock Exchanges (ticker symbol CER). At December 31, 1993, there were 15,830 holders of record of the Company's common stock. The following table sets forth, for the periods indicated, the dividends per share of common stock and the high and low prices of the common stock as reported in New York Stock Exchange Composite Transactions.
CILCO
CILCO's common stock is not traded on any market. As of March 15, 1994, 13,563,871 shares of CILCO's Common Stock, no par value, were issued, and outstanding and privately held, beneficially and of record, by CILCORP Inc.
CILCO's requirement for retained earnings before common stock dividends may be paid as described in Note 4 of CILCO's Notes to Financial Statements contained in Item 8. Financial Statements and Supplementary Data.
Item 6.
Item 6. Selected Financial Data
CILCORP INC.
Selected Financial Data
CILCO
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
CILCORP AND SUBSIDIARIES
The financial condition and operating results of CILCORP (the Company) primarily reflect the operations of Central Illinois Light Company (CILCO), the Company's principal business subsidiary. The Company's other core business subsidiary is Environmental Science & Engineering, Inc. (ESE). The Other Businesses segment includes the operations of the holding company itself (Holding Company), its investment subsidiary, CILCORP Investment Management Inc. (CIM), and its venture capital subsidiary, CILCORP Ventures Inc. (CVI).
CILCO is a regulated public utility engaged in the generation, transmission and distribution of electric energy and the purchase, transportation and distribution of natural gas in Central Illinois.
ESE is an environmental consulting and engineering firm with additional capabilities in laboratory analysis and equipment manufacturing. ESE provides a full-service approach to private, industrial and government clients, commencing with problem identification and analysis, continuing through regulatory negotiation and engineering, and concluding with preparation and implementation of remediation plans.
OVERVIEW
Contributions to the Company's earnings per share for the last three calendar years are shown below:
CILCO's earnings increased approximately 8% in 1993 due to higher electric retail sales. Cooling degree days were near normal in 1993 but were 23% below normal in 1992. The effect of higher gas sales resulting from increased heating degree days was more than offset by higher operations, maintenance, and depreciation expense resulting from increased repairs and replacements to the gas distribution system. As a result, gas operating income again declined. In January 1994, CILCO filed a request with the Illinois Commerce Commission (ICC) for an 8.9% increase in gas base rates (see Gas Rate Increase Request).
ESE's results decreased the Company's earnings by $2.3 million in 1993 compared to a positive earnings contribution of $1.9 million in 1992. ESE's revenues declined due to continued economic uncertainty, delays in government
enforcement actions, and a more cautious approach by ESE's customers toward environmental compliance. During 1993, ESE continued to close and consolidate offices with low personnel utilization and took steps to control administrative costs.
Other Businesses' results improved by $2.6 million from 1992. In late 1993, the Company and the Internal Revenue Service (IRS) settled certain tax issues related to the Company's leveraged lease portfolio. The settlement resulted in a $.24 per share increase in the Company's 1993 earnings.
The following table summarizes each business segment's contribution to net income (see Results of Operations for further discussion).
Return on average common equity was 10% in 1993 compared to 9.5% in 1992 and 12.3% in 1991. The ratio of common equity to total capitalization, including minority interest and short-term debt, remained stable in 1993 at approximately 45%. The fixed charge coverage ratio also remained stable at 2.4.
Inflation may have a significant impact on the Company's future operations, its ability to contain costs, and the need to seek timely and adequate utility rate increases. Over the past five years, the rate of inflation as measured by the Consumer Price Index has ranged from 2.6% to 5.4% annually. To help protect CILCO from the effects of inflation, substantially all electric and gas sales rates include a fuel adjustment clause (FAC) or a purchased gas adjustment clause (PGA) to provide for the recovery of changes in electric fuel costs, excluding coal transportation, and changes in the cost of gas.
CAPITAL RESOURCES AND LIQUIDITY
The Company believes that internal and external sources of capital which are, or are expected to be, available to the Holding Company and its subsidiaries will be adequate during the coming year to fund the Company's capital expenditures program, pay interest and dividends, meet working capital needs and retire (or refinance) debt as it matures.
THE COMPANY
In December 1993, the Company issued 62,220 shares of common stock through the CILCO Employees' Savings Plan (ESP) and the CILCORP Automatic Reinvestment and Stock Purchase Plan (DRIP). These shares were issued at an average price of $38 per share for total proceeds of $2.4 million.
Previously, the ESP and DRIP plans purchased shares of CILCORP common stock on the open market. Depending on market conditions, the Company may choose to issue new shares of common stock through the ESP and DRIP or have the plans resume purchasing CILCORP stock on the open market. However, the Company may not change its strategy more frequently than every 90 days. The Company plans to issue up to $30 million of common stock through these plans by 1996, depending on market conditions and corporate needs, but is under no commitment to do so. The proceeds from newly issued stock will be used to retire CILCORP short-term debt, to meet working capital and capital expenditure requirements at CILCO, and for other corporate purposes.
During 1993, CILCORP's Board of Directors authorized an increase in the Holding Company's short-term borrowing limit from $35 million to $40 million. At December 31, 1993, the Holding Company had $35 million of committed bank lines and $5 million of discretionary bank lines, of which $18.8 million was used, compared to $20 million committed and $2 million outstanding at December 31, 1992.
The Company established a $75 million private medium-term note program in 1991. To date, $26 million has been issued. The Company may issue additional notes during 1994-1997 to retire short-term debt incurred to partially fund new investments by CIM, to retire maturing debt of CILCORP Lease Management Inc. (CLM), a wholly-owned subsidiary of CIM, and to provide funds for other corporate purposes.
In December 1993, the Holding Company announced that it will initially finance the $11 million construction cost of a cogeneration facility to be located at the site of one of CILCO's current industrial customers (see Electric Competition). Upon receiving ICC approval for the project, CILCO will acquire the steam boilers and other equipment from the Holding Company and invest an additional $5.8 million to install a 20 megawatt turbine generator and related equipment.
In December 1993, the IRS and the Company reached agreement on certain disputed issues relating to the IRS audit of the Company's 1985 and 1986 income tax returns (see Note 3).
OTHER BUSINESSES
At December 31, 1992, CIM and CLM had cash and temporary cash investments of $20.6 million. During 1993, CIM invested $13 million in leveraged leases of passenger railway equipment and an aircraft. The two assets had a total cost of $67 million. The balance of CIM's investment was financed with non-recourse debt. During 1993, CLM retired $6 million of debt and paid the tax liability relating to the gain on the 1992 sale of an office building. At year-end, CIM and CLM had $300,000 of cash and temporary cash investments.
As part of the 1992 restructuring of the Springerville Unit No. 1 lease, CLM received approximately 1.2 million shares of Tucson Electric Power Company
(TEP) common stock, and warrants to purchase approximately 895,000 additional shares. During 1993, CLM sold one million shares at an average price per share of $3.57, realizing a pre-tax gain of $2 million. CLM plans to sell the remaining TEP stock during 1994, depending upon market conditions.
In December 1993, CIM acquired the 19% minority interest in CLM.
CILCO
In 1993, CILCO spent $73 million for capital additions and improvements. These expenditures consisted primarily of replacements and improvements to the existing electric and gas systems, including $17.5 million to replace certain portions of the Springfield gas distribution system (see Results of Operations, CILCO Gas Operations). This project was substantially completed in September 1993, at an ultimate cost of approximately $24 million. Utility capital projects were financed during 1993 with funds from operating activities. CILCO's cash flow from operations in 1993 was $92 million.
During 1993, CILCO issued $108 million of first mortgage pollution control bonds and medium term notes (see Note 7), $22 million of perpetual preferred stock and $25 million of flexible auction rate preferred stock (see Note 6). CILCO retired $96.4 million of first mortgage bonds and $45.5 million of perpetual preferred stock during 1993. The balance of the financing proceeds was used to retire short-term debt. Annual interest expense will decrease $730,000 as a result of the bond refinancings. Also, annual preferred dividend requirements are expected to decrease by $1.3 million as a result of refinancing fixed-rate preferred stock with lower fixed-rate preferred stock and with flexible auction rate preferred stock.
CILCO's short-term debt decreased to $12.4 million at December 31, 1993, from $24.5 million at December 31, 1992. CILCO expects to issue short-term commercial paper periodically during 1994, and is currently authorized by its Board of Directors to issue up to $66 million of short-term debt. At December 31, 1993, committed bank lines of credit totalled $30 million, all of which were unused. CILCO expects these bank lines will remain unused through 1994.
Estimated capital expenditures for 1994 and 1995 are $90 million and $73 million, respectively. The 1994 estimate includes $34 million for electric energy supply and transmission projects, $5 million for gas supply and transmission projects, and $43 million for electric and gas distribution system improvements. CILCO's expected purchase of the cogeneration plant being initially financed by the Holding Company is included in 1994 capital expenditures. CILCO plans to finance its 1994 and 1995 capital requirements with funds provided by operating activities and the issuance of approximately $30 million of additional long-term debt during 1994. Anticipated total capital expenditures for 1996-1998 are $213 million. These expenditures are expected to be financed primarily with internally-generated funds.
In October 1993, Standard & Poor's (S&P) released revised financial ratio benchmarks for rating electric utilities' debt which reflect increased business risk in the industry. As a result, S&P revised CILCO's rating outlook from "stable" to "negative." A "negative" outlook means a long-term debt rating may be lowered, but it is not necessarily a precursor of a rating change. CILCO's current S&P long-term debt rating is AA.
ESE
ESE spent $4.3 million for capital additions and improvements in 1993, and expects to spend $5.0 million in 1994. ESE's 1993 cash flow from operations was $11.5 million, which was used to fund capital expenditures and to reduce debt. A decrease in accounts receivable contributed $4.8 million to 1993 cash flow.
ESE had borrowed $23 million from the Holding Company and $8.1 million from third parties at December 31, 1992. In May 1993, ESE and the Holding Company entered into a credit agreement to consolidate ESE's outstanding debt at that time. The proceeds from this borrowing were used, in part, to retire loans from the Holding Company under the prior agreement. Under this new agreement, ESE can draw on a $15 million revolving line of credit which expires May 2, 1996. At December 31, 1993, ESE had $.9 million outstanding on this line. ESE also borrowed $20 million from the Holding Company on a term credit basis with the principal due on May 2, 1998. ESE reduced borrowings from the Holding Company by $2.1 million during 1993 and retired $7.6 million of its debt to third parties. ESE had an unused $1 million bank line of credit at December 31, 1993, to provide for working capital needs and had a separate $5 million bank line of credit, of which $2.6 million was used, to collateralize performance bonds issued to companies in connection with ESE projects. ESE expects to finance its capital expenditures and working capital needs for 1994 with a combination of funds generated internally and periodic short-term borrowing from the Holding Company.
GAS RATE INCREASE REQUEST
On January 14, 1994, CILCO filed a request with the ICC to increase gas base rates to reflect both the current costs of providing gas service and its additional investment in the gas system, including the replacement of certain portions of the Springfield gas distribution system (see Capital Resources and Liquidity-CILCO). The revised rates are designed to increase annual gas revenues approximately $15 million, or 8.9% based upon an adjusted test year ended December 31, 1995. The filing requests a 9.4% return on original cost rate base and a 12% return on common equity. Management cannot predict the outcome of the filing. A decision from the ICC is not expected until late 1994.
ENVIRONMENTAL MATTERS
CILCO's capital expenditures relating to pollution control facilities are estimated to be $9 million and $5 million for 1994 and 1995, respectively.
The acid rain provisions of the Clean Air Act Amendments of 1990 (Amendments) will require additional sulfur dioxide (SO2) and nitrogen oxide (NOx) emission reductions at CILCO's generating facilities. CILCO's facilities are exempt in Phase I of the Amendments due to previous emission reductions, but are subject to Phase II of the Amendments, which require additional emission reductions by the year 2000.
CILCO's final compliance strategy will depend upon regulations issued under the Amendments; therefore, CILCO cannot currently determine definitive compliance costs and schedules. CILCO's present strategy includes use of an existing SO2 scrubber and limited fuel switching to reduce SO2 emissions, and
combustion control modifications to reduce NOx emissions. CILCO's generating units will not require additional SO2 scrubbers. CILCO cannot determine the extent to which greater market demand for low-sulfur compliance coal in Phase II may increase fuel costs. CILCO spent $3.5 million through 1993 to install replacement burners on one of its generating units to reduce NOx emissions. Total costs for boiler retrofits and emissions monitoring equipment are expected to be $15.8 million through 1995. CILCO will install additional NOx controls at its generating units as needed to meet the compliance provisions under Title IV of the Clean Air Act.
Other provisions of the Amendments call for new permitting programs, new monitoring and enforcement programs, and several power plant emissions studies which could eventually result in further emission regulation and additional emission controls for hazardous air pollutants. Also, the Clean Water Act and the Resource Conservation and Recovery Act, which deal with water and solid waste pollution control, may be reauthorized during 1994. CILCO will continue to monitor regulatory actions and develop compliance strategies to minimize any financial impact. Under current regulatory policies, CILCO expects to recover compliance costs associated with the Amendments and other environmental regulations through rates charged to customers.
In March 1993, the U.S. Environmental Protection Agency (EPA) issued a final rule which specified the number of acid rain emission allowances allocated to power plants in Phase II of the Amendments and established various allowance reserves. Allowances are transferable from one utility to another at market prices. The number of allowances allocated to CILCO approximates its future needs, so CILCO expects it will buy or sell minimal amounts of allowances.
Some studies suggest that magnetic fields produced by electric current, known as "electric and magnetic fields" or EMF, may be associated with illness or disease. However, research conducted to date has found no conclusive evidence that EMF has an adverse impact on health. CILCO is participating in utility industry funded studies on this subject. There also are claims that EMF may contribute to losses in the market value of property near electric power lines. CILCO will continue to monitor these issues; their ultimate impact cannot be predicted at this time.
CILCO continues to investigate former gas manufacturing plant sites to determine if it is responsible for the remediation of any remaining waste materials (coal tar) at those sites. The sites of five former gas manufacturing plants are located within CILCO's present gas service territory. CILCO previously operated three of the five plants, and of the three sites, it currently owns two. In cooperation with the Illinois Environmental Protection Agency (IEPA), CILCO has completed remedial action, at a cost of $3.3 million, at one of the two owned sites at which it operated a plant. CILCO developed an investigation plan in 1992 to define the extent of remediation for the other owned site at which it formerly operated a plant. That investigation plan has been reviewed and approved by the IEPA, and CILCO implemented the investigation plan in 1993. A remediation plan for this site is currently being developed. CILCO has not yet formulated a remediation plan for the previously owned site where it formerly operated a gas manufacturing plant. CILCO does not currently own the two sites at which it did not operate a plant.
Through 1993, CILCO paid approximately $500,000 to outside parties to investigate and/or test former gas manufacturing plant sites. CILCO expects to spend approximately $200,000 for site monitoring and feasibility studies in 1994. Until more detailed site specific testing has been completed, CILCO cannot determine the ultimate extent or cost of any remediation of the two remaining sites where it operated plants. CILCO has recorded a $4.4 million liability and a corresponding regulatory asset on its balance sheet for coal tar investigation and remediation costs. The $4.4 million represents the minimum amount of the estimated range of such future costs which CILCO expects to incur. CILCO has not yet determined the extent, if any, of its remediation responsibility for the non-owned sites at which it never operated a gas manufacturing plant.
In August 1991, the ICC approved a rate rider which authorized CILCO to recover prudently incurred coal tar investigation and remediation costs from gas customers during the respective years the costs were incurred. The rider provided that the incurred costs would be subject to a yearly prudence review and a reconciliation of actual costs with amounts recovered through the rider. Future recoveries were to be adjusted to reflect prior under-recoveries or over-recoveries of costs.
In 1992, the ICC issued a generic order which authorized Illinois utilities to recover prudently incurred expenditures paid to outside parties to investigate and remediate coal tar sites. Under the generic order, expenses would be recovered over a five-year period, with no carrying costs allowed on the unrecovered balance. CILCO was directed by the ICC to make its rider consistent with the generic order. The 1991 decision relating to CILCO and the 1992 generic order were appealed to the Illinois Appellate Court by various parties, including CILCO.
In December 1993, the Illinois Appellate Court affirmed the ICC's generic order and directed the ICC to make the 1991 CILCO order consistent with the generic order. Based upon CILCO's interpretation of existing law, it believes that coal tar expenses prudently incurred and collected prior to the Appellate Court's decision are not subject to refund. However, if no appeal is granted from the Appellate Court's decision or if that decision is affirmed by the Illinois Supreme Court, expenses incurred after the Appellate Court's decision will be subject to the generic order. CILCO has been advised that at least one party plans to appeal the generic order to the Illinois Supreme Court.
Coal tar remediation costs incurred through 1993 have been deferred on the Balance Sheets, net of amounts recovered from customers. CILCO began recovering remediation costs under its coal tar rider on October 1, 1991, and through 1993 has recovered approximately $4 million. CILCO cannot predict the outcome of any appeal to the Illinois Supreme Court, or whether amounts previously recovered will be subject to refund, but believes most or all of its future coal tar remediation costs will continue to be recoverable from customers. Although the total cost to CILCO of any action with respect to the unremediated sites and the possibility of recovering that cost from insurance carriers or any potentially responsible parties cannot now be determined, management believes that such cost will not have a material adverse effect on CILCO's financial position or results of operations.
ELECTRIC COMPETITION
The electric utility industry is expected to become more competitive as a result of the passage in 1992 of the National Energy Policy Act. This Act encourages competition by allowing both utilities and non-utilities to form non-regulated generation subsidiaries to supply additional electric demand without being restricted by the Public Utility Holding Company Act of 1935. Also, the Federal Energy Regulatory Commission (FERC) may order access to utility transmission systems by third-party energy producers on a case-by-case basis and may order electric utilities to enlarge their transmission systems to transport (wheel) power, subject to certain conditions. The Act specifically bans federally-mandated wheeling of power for retail customers, but several state public utility regulatory commissions, including Illinois, are currently studying retail wheeling.
To prepare for an increasingly competitive environment, CILCO implemented a new electric tariff in 1993 which permits it to negotiate contractual rates with individual customers who find it economically feasible and practical to use cogeneration, independent power production, or other power arrangements in place of CILCO-supplied energy. CILCO currently has one customer on this contractual rate.
In December 1993, CILCO and one of its current large industrial customers, Midwest Grain Products, Inc. (Midwest Grain), announced an agreement to build a cogeneration plant. The plant, which will be located at a Midwest Grain facility in CILCO's service territory, will utilize natural gas to provide steam heat to the facility and electricity for sale to Midwest Grain and other CILCO customers (see Capital Resources and Liquidity-The Company).
With growing competition in the electric utility industry, CILCO's largest customers may have increased opportunities to select their electric supplier. CILCO formed a Corporate Sales Department in 1993 to work with its larger customers to address their unique electric power requirements and business needs so that CILCO may remain their supplier of choice. To date, CILCO has entered into long-term contracts with four of its industrial customers to provide them with their electric power requirements.
FEDERAL ENERGY REGULATORY COMMISSION ORDER 636
In 1992, the FERC issued Orders 636, 636A, and 636B (collectively Order 636). The orders have been appealed to the United States Court of Appeals by various parties. As a result of Order 636 and subsequent regulatory filings by interstate pipelines, the pipelines will continue to transport gas to local gas distribution companies such as CILCO, but this service will be administered independently of the pipelines' sales of gas. Interstate pipelines serving CILCO have generally ceased sales of gas and have become transporters only. CILCO currently arranges for the purchase of gas from a variety of suppliers and has contracted for additional gas storage capacity to meet customer demands for gas. CILCO believes it is well-positioned to ensure the continued acquisition of adequate and reliable gas supplies despite the regulatory changes.
Order 636 also permits pipelines to file new tariffs to provide for the recovery from their customers, including CILCO, of prudently incurred costs resulting from the transition to services under Order 636 ("transition
costs"). Thus far, CILCO's pipeline suppliers have filed with the FERC to directly bill CILCO, subject to refund, for approximately $1.4 million of transition costs, including interest, as of December 31, 1993. CILCO has been billed approximately $394,000 through December 31, 1993. These charges are being recovered from CILCO's customers through its PGA. The PGA allows CILCO to immediately reflect increases or decreases in the cost of natural gas in its charges to customers. Approximately $332,000 has been recovered from customers through December 31, 1993. CILCO has recorded a liability of approximately $1 million and a corresponding regulatory asset on its balance sheet, representing the minimum amount of the estimated range of such future transition costs which CILCO expects to incur. On September 15, 1993, the ICC ordered an investigation into the appropriate recovery of transition costs by Illinois gas utilities. CILCO estimates that it could ultimately be billed up to $3 million, excluding interest, for pipeline transition costs. While CILCO cannot at this time determine its actual allocation of suppliers' transition costs or the outcome of the ICC proceeding, management believes that based on existing law and regulatory practice, any transition charges or other billings by the pipelines to CILCO as a result of Order 636 should be recoverable from customers through CILCO's gas rates. Therefore, management does not expect the orders will materially impact CILCO's financial position or results of operations.
GAS TAKE-OR-PAY CHARGES
Under FERC Order 500, and subsequent Orders 528 and 528A, interstate gas pipelines may bill gas distribution utilities for take-or-pay charges, including interest. In response to the latter two orders, pipelines serving CILCO filed new tariff allocations, entered into system-wide negotiations and reached settlements with their customers. Based on these and subsequent FERC-approved settlements, CILCO estimates it will ultimately be directly billed a total of approximately $19.6 million of take-or-pay costs, excluding interest. This number includes $3.2 million of take-or-pay charges for the Liquefied Natural Gas Settlement (discussed below). Through December 1993, pipelines have billed CILCO $19.4 million for take-or-pay charges, including $3.6 million of interest.
In 1988, the ICC issued an order allowing Illinois gas utilities to recover from customers take-or-pay charges, including interest, billed to utilities by interstate pipelines. Upon appeal, the Illinois Supreme Court affirmed that ruling, and a subsequent petition for issuance of a writ of certiorari to the U.S. Supreme Court was denied. CILCO is currently recovering take-or-pay charges via a factor incorporated into the PGA, and has thus far recovered $18.6 million from its customers.
LIQUEFIED NATURAL GAS SETTLEMENT
A joint settlement proposal before the FERC among Trunkline LNG Company (Trunkline), Panhandle Eastern Pipeline Company (Panhandle), and others, including CILCO, became effective in September 1992. The settlement allows Panhandle to recover certain costs related to Trunkline's liquefied natural gas project and various other matters. As a result of this settlement, disputed issues were resolved, and CILCO was billed approximately $4.4 million. CILCO began recovering the cost through the PGA beginning in 1993. Approximately $3.2 million of this billing relates to gas take-or-pay, and is included in the discussion of gas take-or-pay charges above. Of the
remaining $1.2 million, approximately $330,000 has been billed as of December 31, 1993. Through 1993, CILCO has recovered approximately $270,000 from its customers. CILCO has recorded a regulatory asset and corresponding liability of $1 million on the Balance Sheets. This $1 million represents the minimum amount of the estimated range of such future costs which CILCO expects to incur.
ACCOUNTING PRONOUNCEMENTS
In 1992, the Financial Accounting Standards Board (FASB) issued Statement No. 109, "Accounting for Income Taxes" (SFAS 109), and Statement No. 112, "Employer's Accounting for Postemployment Benefits" (SFAS 112). CILCO adopted SFAS 109 effective January 1, 1993 (see Note 2). CILCO will adopt SFAS 112 on January 1, 1994 (see Note 1).
RESULTS OF OPERATIONS
ELECTRIC OPERATIONS
The following table summarizes electric operating revenue and expenses by component.
Electric gross margin increased 6% in 1993, primarily due to a 7% increase in retail kilowatt hour sales. The increase in retail sales was partially offset by a decrease in sales for resale revenue. The ratio of gross margin to revenue has remained constant at 62%. Residential sales volumes increased 10%, while commercial sales volumes increased 5%. These increases were primarily due to warmer summer weather. Cooling degree days were 30% higher in 1993 than in 1992. Industrial sales volumes increased 6% compared to 1992 due to greater demand by several of CILCO's large industrial customers. The overall level of business activity in CILCO's service territory and weather conditions are expected to continue to be the primary factors affecting electric sales in the near term. CILCO's electric sales may also be affected in the long-term by increased competition in the electric utility industry (see Electric Competition).
The 1993 increase in purchased power expense was partially offset by a decrease in cost of fuel. Sales for resale and purchased power vary based on the energy requirements of neighboring utilities, CILCO's available capacity for bulk power sales, its need for energy, and the price of power available for sale or purchase. CILCO expects increased competition to continue in the bulk power market due to certain provisions of the Energy Policy Act of 1992 (see Electric Competition).
Electric gross margin in 1992 decreased 5% from 1991, primarily due to decreased sales. Residential sales volumes decreased 10% while commercial sales volumes remained relatively constant. Industrial sales volumes decreased 4% in 1992 compared to 1991, primarily due to reduced demand at several of CILCO's large industrial customers during 1992. Cooling degree days for 1992 were 40% lower than in 1991, which contributed to the revenue decreases.
Electric operation and maintenance expenses increased 6% in 1993 and increased slightly in 1992. The 1993 increase was primarily due to greater power plant maintenance costs and the cancellation of a combustion turbine which CILCO had planned to construct to meet electric peak demand in the late 1990's. Instead, CILCO's increased energy needs will be met through firm power purchases and by the Midwest Grain cogeneration facility (see Electric Competition). Operation and maintenance expenses were also affected by general inflationary trends. A decrease in medical expenses partially offset this trend.
On December 31, 1993, CILCO changed the discount rate assumption used to calculate pension and postretirement medical benefit obligations from 8% to 7% (see Note 1). This change will increase benefit costs for electric operations employees by approximately $640,000 in 1994 and $550,000 in 1995.
The increases in depreciation and amortization expense in 1993 and 1992 reflect additions and replacements of utility plant at costs in excess of the original cost of the property retired.
The changes in income taxes in 1993 and 1992 were primarily the result of changes in pre-tax income. Higher federal corporate income tax rates also contributed to the 1993 increase (see Note 2).
GAS OPERATIONS
The following table summarizes gas operating revenue and expenses by component.
Gas gross margin increased 6% in 1993, primarily due to an 8% increase in retail sales volumes. Residential and commercial sales volumes increased 10% and 9%, respectively, primarily due to colder weather during the heating season. Heating degree days were 11% higher in 1993 than in 1992.
Gas gross margin for 1992 increased 1% from 1991 while total retail sales volumes decreased 2%. Residential and commercial sales volumes each decreased 3% primarily due to a milder heating season. Heating degree days in 1992 were 2% lower than the previous year. While total gas revenues decreased 2% in 1992 from 1991 levels, cost of sales decreased 5%, primarily due to a 5% decrease in the cost of gas. This decrease was a result of lower sales and lower take-or-pay charges, partially offset by higher natural gas prices.
Revenue from gas transportation services decreased 4% in 1993 and 5% in 1992, while the volume of gas transported decreased 11% in 1993 and increased 12% in 1992. Revenues declined primarily due to decreased purchases of gas by industrial transportation customers from suppliers other than CILCO. The changes in 1993 and 1992 revenue were not proportional to the changes in volume because certain large volume transportation customers can negotiate lower unit charges for service. There were 668 transportation customers in 1993 compared to 635 customers in 1992 and 617 in 1991. Transportation arrangements have made it practical for certain industrial customers to continue to use gas instead of switching to alternate fuels.
Weather conditions, the ability of large customers to purchase gas on the open market at competitive rates, the continuing trend toward more efficient gas appliances, and overall economic conditions in CILCO's service area will affect future gas sales.
On January 14, 1994, CILCO filed a request with the ICC to increase its gas base rates (see Gas Rate Increase Request).
After a significant number of leaks were detected in the Springfield gas distribution system in mid-1992, CILCO began a detailed examination of its Springfield gas distribution system and related operating practices and procedures. The objective of this examination was to detect and repair gas main leaks and to identify and correct any operating deficiencies. This project was substantially completed on September 30, 1993 (see Capital Resources and Liquidity-CILCO).
In September 1992, the ICC staff began an informal review of CILCO's Springfield gas operations and recordkeeping practices. Subsequently, at the request of the ICC, the U.S. Department of Transportation and the U.S. Department of Justice began conducting investigations, which management believes to be focused principally on CILCO's Springfield gas operations. These reviews could potentially lead to criminal charges, regulatory actions (see Gas Rate Increase Request), as well as certain sanctions and civil penalties. Management cannot currently determine the outcome of these reviews or their regulatory effect, but does not believe they will have a material adverse impact on CILCO's financial position or results of operations.
Gas operation and maintenance expenses increased 12% in 1993 and 5% in 1992. These increases were primarily due to increased repairs to the Springfield gas distribution system, partially offset by lower injury and damage claims expenses. Operation and maintenance expenses are also affected by general inflationary trends.
The December 31, 1993, change in the discount rate assumption used to calculate pension and postretirement medical benefit obligations (see Note 1) will increase benefit costs for gas operations employees by approximately $330,000 in 1994 and $280,000 in 1995.
The increases in depreciation and amortization expenses in 1993 and 1992 reflect additions and replacements of utility plant at costs in excess of the original cost of the property retired.
The changes in income taxes in 1993 and 1992 were primarily the result of changes in taxable income. Higher federal corporate income tax rates (see Note 2) also contributed to the 1993 increase.
OTHER INCOME AND DEDUCTIONS
Utility other income and deductions changed slightly from 1992 to 1993. Interest expense decreased due to lower interest rates on bonds refinanced in 1993 (see Capital Resources and Liquidity-CILCO).
Interest expense increased during 1992 due to interest on overcollection of take-or-pay charges and settlement of utility-related tax issues arising from an IRS audit, partially offset by lower interest expense on bonds refinanced during 1992.
ESE
The following table summarizes environmental and engineering services revenue and expenses.
Revenues decreased by 11% in 1993 following revenue increases of 8% in 1992 and 35% in 1991. ESE experienced difficulty in obtaining new contracts to replace completed projects due to continued economic uncertainty, delays in government enforcement actions, and a more cautious approach by ESE's customers toward environmental compliance. In late 1992, ESE was awarded a contract by the U.S. Environmental Protection Agency (USEPA) to determine the effectiveness of new air quality regulations. This five-year contract has a
total value of $81 million, assuming annual contract renewals and authorization of task by the USEPA. ESE currently estimates total revenues for this project to be $50 million. Due to delays in task approvals, this project provided only $5 million of revenue in 1993. ESE closed two offices and one laboratory during 1993 in response to market factors. The closed facilities contributed $11 million in revenue in 1992 and less than $.5 million in 1993.
Direct non-labor costs as a percentage of gross revenue fluctuate primarily due to subcontractor usage. Direct non-labor costs decreased by 17% due to decreased business activity and the completion of a large turnkey project in 1992. This turnkey project constituted 24% of the direct non-labor costs for 1992 and less than 1% of the direct non-labor costs for 1993.
Direct and indirect salary expense decreased by 4% in 1993 primarily as a result of a reduction in work force associated with the overall decline in business volume. Because the consulting business is labor intensive, ESE can adjust staffing levels to appropriately recognize changing business conditions. The increase of 4% in 1992 resulted from wage increases.
General and administrative expenses increased by 5% in 1993 due to general inflation and higher employee medical benefit costs. Additionally, a more competitive marketplace has led to increased overhead costs as utilization of staff on projects declined, and bid and proposal costs increased. The 6% decrease in general and administrative costs in 1992 resulted from the closing of certain offices and reduced insurance costs resulting from the establishment of a wholly-owned subsidiary to provide professional liability insurance.
Depreciation expense increased each year as a result of additions to fixed assets. Amortization expense relates to a non-compete agreement, which is being amortized over its five-year duration, and to the Cost in Excess of Net Assets of the Acquired Company, which is being amortized over forty years.
Interest expense decreased because of lower interest rates and lower average debt balances during 1993 and 1992. The reduction in income taxes results primarily from the decrease in ESE's pre-tax income.
ESE's future business activity will continue to be affected by the level of demand for consulting services and by the enforcement of various federal and state statutes and regulations dealing with the environment and the use, control, disposal and clean-up of hazardous wastes. The market for ESE's services is competitive; however, no single entity currently dominates the environmental and engineering consulting services marketplace.
OTHER BUSINESSES
The following table summarizes Other Businesses' revenue and expenses. Other
Businesses' results include income earned and expenses incurred at the Holding Company, CIM, CVI, and non-operating interest income of CILCO.
The increase in Other Businesses' net income resulted primarily from the December 1993 settlement of the Company's dispute with the IRS concerning certain leveraged lease tax issues, including the proper depreciable life of the Springerville Unit No. 1 generating station (see Note 3). As a result of the settlement, income tax expense was reduced by $3.1 million in 1993 to reverse tax expense which had been recorded in prior years to reflect the potential unfavorable outcome of the dispute.
During 1993, the Company adjusted leveraged lease revenues and related income taxes to reflect higher corporate income tax rates enacted during the year. Statement of Financial Accounting Standards No. 13, "Accounting for Leases," requires that the amount and timing of leveraged lease income be adjusted when tax rates change. The Company will recognize less income over the life of its existing lease portfolio due to the tax rate change; therefore, the Company recorded a one-time charge of $1.1 million against 1993 lease portfolio net income.
Leveraged lease revenue in 1992 included a $1.5 million one-time adjustment related to the December 1992 restructuring of the Springerville Unit No. 1 lease. This adjustment offset revenue declines from other leases during 1992. Generally accepted accounting principles pertaining to leveraged leases cause revenues to decline as the lease portfolio matures. A slight decline in 1993 revenues from the Company's maturing leveraged leases was partially offset by revenues from two new leveraged lease investments made in late 1993 (see Capital Resources and Liquidity-Other Businesses). During
1994, the Company expects leveraged lease revenues to increase by $2.6 million as a result of the two new leases.
Other revenues in 1993 reflect a $2 million gain from the sale of one million shares of TEP stock. Other revenues in 1992 included the fair market value of approximately 1.2 million shares of TEP stock the Company received in December 1992 as part of the Springerville Unit No. 1 lease restructuring. Other revenues also included a 1992 gain from the sale of an office building from the Company's lease portfolio. Interest income on temporary cash investments, which is included in other revenues, declined due to lower interest rates and investment balances.
Operating expenses declined due to fewer employees assigned to the Holding Company, greater utilization of Holding Company staff by operating subsidiaries, and lower legal and professional services expenses.
In late 1993, CIM purchased the 19% minority interest in CLM (see Capital Resources and Liquidity-Other Businesses). Since the purchase occurred prior to the Company's settlement of the leveraged lease tax issues with the IRS, there was no minority interest in the resulting reduction in income tax expense.
In 1991, CIM sold CLM Inc.-IX, a subsidiary which owned three leveraged lease investments. Income and other taxes for 1991 included income taxes from the sale of this subsidiary, which were partially offset by a capital loss carryforward from 1987. Income tax expense in 1991 and 1992 also included a reserve for potential income taxes and interest in the event the Company's position regarding the depreciable life of Springerville Unit No. 1 was not upheld.
ITEM 8.
ITEM 8.: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements:
Page
CILCORP Inc.
Management's Report to the Stockholders of CILCORP Inc. 50 Report of Independent Public Accountants 51 Consolidated Statements of Income 52-53 Consolidated Balance Sheets 54-55 Consolidated Statements of Cash Flows 56-57 Consolidated Statements of Common Stockholders' Equity 58 Statements of Segments of Business 59-61 Notes to Consolidated Financial Statements 62-77
CILCO
Management's Report 78 Report of Independent Public Accountants 79 Consolidated Statements of Income 80 Consolidated Balance Sheets 81-82 Consolidated Statements of Cash Flows 83-84 Consolidated Statements of Retained Earnings 85 Statements of Segments of Business 86-87 Notes to Consolidated Financial Statements 88-100
Management's Report To the Stockholders of CILCORP Inc.:
Management has prepared the accompanying financial statements and notes for CILCORP Inc. and its consolidated subsidiaries in accordance with generally accepted accounting principles. Estimates and judgments used in developing these statements are the responsibility of management. Financial data presented throughout this report is consistent with these statements.
CILCORP Inc. maintains a system of internal accounting controls which management believes is adequate to provide reasonable assurance as to the integrity of accounting records and the protection of assets. Such controls include established policies and procedures, a program of internal audit, and the careful selection and training of qualified personnel.
The financial statements have been audited by CILCORP's independent public accountants, Arthur Andersen & Co., whose appointment was ratified by stockholders. Their audit was conducted in accordance with generally accepted auditing standards and included an assessment of selected internal accounting controls only to determine the scope of their audit procedures. The report of the auditors is contained in this annual report.
The Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with the independent public accountants, internal auditors and management to review accounting, auditing, internal accounting control, and financial reporting matters. The auditors have direct access to the Audit Committee.
R. O. Viets R. O. Viets President and Chief Executive Officer
T. D. Hutchinson T. D. Hutchinson Controller
Report of Independent Public Accountants To the Stockholders of CILCORP Inc.:
We have audited the accompanying consolidated balance sheets of CILCORP Inc. (an Illinois corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows, stockholders' equity and segments of business for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CILCORP Inc. and its subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As explained in Note 2, effective January 1, 1993, the Company changed its method of accounting for income taxes. As explained in Note 1, effective January 1, 1991, the Company changed its method of accounting for postemployment health care benefits.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14(a)2 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These financial statement schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen & Co. Chicago, Illinois February 4, 1994
Consolidated Statements of Income CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets CILCORP Inc. and Subsidiaries
Consolidated Balance Sheets CILCORP Inc. and Subsidiaries
Consolidated Statements of Cash Flows CILCORP Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity CILCORP Inc. and Subsidiaries
Statements of Segments of Business CILCORP Inc. and Subsidiaries
CILCORP INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CILCORP Inc. (CILCORP or Company), Central Illinois Light Company (CILCO), Environmental Science & Engineering, Inc. (ESE) and CILCORP's other subsidiaries after elimination of significant intercompany transactions. Prior year amounts have been reclassified on a basis consistent with the 1993 presentation.
REGULATION
CILCO is a public utility subject to regulation by the Illinois Commerce Commission (ICC) and the Federal Energy Regulatory Commission (FERC) with respect to accounting matters, and maintains its accounts in accordance with the Uniform System of Accounts prescribed by these agencies.
UTILITY OPERATING REVENUES, FUEL COSTS, AND COST OF GAS
Electric and gas revenues include service provided but unbilled at year end. Substantially all electric rates and gas system sales rates of CILCO include a fuel adjustment clause and a purchased gas adjustment clause, respectively. These clauses provide for the recovery of changes in electric fuel costs, excluding coal transportation, and changes in the cost of gas on a current basis in billings to customers. CILCO adjusts the cost of fuel and cost of gas to recognize over or under recoveries of allowable costs. The cumulative effects are deferred in the Balance Sheet as a current asset or current liability and adjusted by refunds or collections through future billings to customers.
CONCENTRATION OF CREDIT RISK
CILCO, as a public utility, must provide service to customers within its defined service territory and may not discontinue service to residential customers when certain weather conditions exist. CILCO continually reviews customers' creditworthiness and requests deposits or refunds deposits based on that review. At December 31, 1993, CILCO had net receivables of $34.2 million, of which approximately $4.9 million was due from its major industrial customers.
See Note 5 for a discussion of receivables related to CILCORP's leveraged lease portfolio.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of Cash and Temporary Cash Investments, Investment in Marketable Securities and Other, Preferred Stock with Mandatory Redemption, and Notes Payable approximates fair value, with the exception of the Company's investment in Tucson Electric Power Company (TEP) stock and warrants, which had a value at December 31, 1993 approximately $1.6 million greater than its $266,000 carrying amount. At December 31, 1992, the carrying amount of this investment was $1.6 million and its fair market value was $2.9 million. The estimated fair value of the Company's Long-Term
Borrowings was $358 million at December 31, 1993, and $343 million at December 31, 1992, based on current market interest rates for other companies with comparable credit ratings, capital structures, and size.
ENVIRONMENTAL AND ENGINEERING SERVICES REVENUES
ESE performs professional environmental and engineering consulting services under time and material, cost-plus, and fixed-price contracts. Consulting services revenues include amounts for services provided but unbilled at year end.
Revenues from time and material and cost-plus contracts are recognized as costs are incurred. Revenues from fixed-price contracts are recognized under the percentage-of-completion method.
DEPRECIATION AND MAINTENANCE
Provisions for depreciation of property for financial reporting purposes are based on straight-line composite rates. The annual provisions for utility plant depreciation, expressed as a percentage of average depreciable property, were as follows:
Maintenance and repair costs are charged directly to expense. Renewals of units of property are charged to the utility plant account, and the original cost of depreciable property replaced or retired, together with the removal cost less salvage, is charged to the accumulated provision for depreciation. Non-utility property is depreciated over estimated lives ranging from 5 to 30 years.
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
Cost in excess of net assets of acquired businesses is being amortized using the straight-line method over forty years.
INCOME TAXES
The Company follows a policy of comprehensive interperiod income tax allocation. Investment tax credits have been deferred and are amortized over the estimated useful lives of the related property. CILCORP and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the individual companies based on their respective taxable income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows.
Cash paid for interest and income taxes was as follows:
During 1991, $18,979,000 of CILCORP convertible preferred stock was converted to CILCORP common stock.
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE
In November 1992, the Financial Accounting Standards Board (FASB) issued Statement No. 112, "Employer's Accounting for Postemployment Benefits" (SFAS 112). The Company will adopt SFAS 112 on January 1, 1994. This accounting standard requires the accrual of a liability for certain benefits other than pensions or health care provided to former or inactive employees. The Company will record a pre-tax expense of approximately $1.1 million upon adoption of SFAS 112 to establish the liability for these benefits.
PENSION BENEFITS
Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are covered by trusteed, non-contributory defined benefit pension plans. Benefits under these plans reflect the employee's years of service, age at retirement, and maximum total compensation for any consecutive sixty-month period prior to retirement.
Pension costs for the past three years were charged as follows:
Provisions for pension expense are determined under the rules prescribed by Statement of Financial Accounting Standards No. 87, including the use of the projected unit credit actuarial cost method.
Information on the plans' funded status, on an aggregate basis follows:
POSTEMPLOYMENT HEALTH CARE BENEFITS
Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are currently covered by a trusteed, non-contributory defined benefit postemployment health care plan. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from CILCO after reaching age 55 with 10 or more years of service.
ESE does not provide health care benefits to retired employees.
On January 1, 1991, CILCO adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), which requires that the expected cost of postemployment health care benefits be charged to expense during the years in which employees render service. CILCO has elected to amortize the unfunded obligation at January 1, 1991, over a period of 18.6 years, which represents the average remaining service period.
Postemployment health care benefit costs were charged as follows:
For measurement purposes, a health care cost trend rate of 9% annually was assumed for 1994; the rate was assumed to decrease to 8% for 1995, then decrease gradually to 6% by 2020 and remain at that level thereafter.
Increasing the assumed health care cost trend rate by 1% in each year would increase the accumulated postemployment benefit obligation at December 31, 1993, by $5.2 million and the aggregate of the service and interest cost components of net postemployment health care cost for 1993 by $376,000. The discount rate used in determining the accumulated postemployment benefit obligation at December 31, 1993, was 7% and at
December 31, 1992, was 8%. The weighted average expected return on assets net of taxes was 8.1%, where taxes are assumed to decrease return by 0.4%.
COMPANY-OWNED LIFE INSURANCE POLICIES
The following amounts related to company-owned life insurance contracts, issued by one major insurance company, are included in Investments and Other Property.
Interest expense related to borrowings against company-owned life insurance, included in "Other" on the Consolidated Statements of Income, was $1.4 million, $930,000 and $870,000 for 1993, 1992 and 1991.
NOTE 2: INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), on January 1, 1993, and accounted for its initial application as a cumulative change in accounting principle. SFAS 109 requires the use of the liability method to account for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Temporary differences occur because the income tax law either requires or permits certain items to be reported on the Company's income tax return in a different year than they are reported in the financial statements. Adoption of SFAS 109 did not have a material impact on the Company's financial position, results of operations or cash flows; however, the adoption of SFAS 109 required reclassification of accumulated deferred income taxes on the balance sheet. CILCO established a regulatory liability to account for the net effect of expected future regulatory actions related to unamortized investment tax credits, income tax liability initially recorded at tax rates in excess of current rates, the equity component of Allowance for Funds Used During Construction, and other items for which deferred taxes had not previously been provided.
The temporary differences related to the consolidated net deferred income tax liability at December 31, 1993, and January 1, 1993, were as follows:
The following table represents a reconciliation of the effective tax rate with the statutory federal income tax rate.
NOTE 3: FEDERAL INCOME TAX AUDIT SETTLEMENT
In December 1990, the Internal Revenue Service (IRS) completed a review of the Company's 1985 and 1986 consolidated federal income tax returns. The IRS proposed to disallow depreciation deductions claimed in 1985 and 1986 for assets purchased and leased to four lessees during those years by CLM or CLM's wholly-owned subsidiaries (collectively CLM). The IRS asserted that these transactions were financing arrangements and that CLM did not own the properties for federal income tax purposes. Alternatively, the IRS contended that one of the properties, the Springerville Unit No. 1 generating station, should be depreciated over 15 years rather than 5 years. The potential tax deficiency from the depreciable life issue was $9.4 million, plus interest, for 1985-1993.
In January 1991, the Company protested the proposed adjustments to the Appeals Division of the IRS, and in December 1993, the Company and the IRS entered into a closing agreement settling the disputed issues. The IRS recognized the Company as owner of the properties and allowed it to depreciate a significant portion of the Springerville Unit No. 1 generating station over five years. To reflect the settlement, the Company reduced its 1993 income tax expense by $3.1 million to reverse income tax expense which it had recorded in prior years to reflect the potential unfavorable resolution of this dispute.
NOTE 4: SHORT-TERM DEBT
Short-term debt at December 31, 1993, consisted of $18.8 million of Holding Company bank borrowings and $12.4 million of CILCO commercial paper. Short-term debt at December 31, 1992, included $24.5 million of commercial paper and $4.8 million of other notes payable.
CILCO had arrangements for bank lines of credit totalling $30 million at December 31, 1993, all of which were unused. These lines of credit consisted of $6.65 million maintained by compensating balances and $23.35 million maintained by commitment fees ranging from 1/16 to 3/16 of 1% per annum in lieu of balances. The compensating bank balance arrangements provide that CILCO maintain bank deposits to average annually 3% to 5% of the line, such balances being available to CILCO for operating purposes and as compensation to the bank for other bank services. These bank lines of credit also support CILCO's issuance of commercial paper.
At December 31, 1993, ESE had a $1 million bank line of credit to provide for working capital needs. In addition, ESE had a $5 million bank line of credit, of which $2.6 million was used at year-end, to collateralize performance bonds issued by insurance companies.
NOTE 5: LEVERAGED LEASE INVESTMENTS
The Company, through subsidiaries of CIM is a lessor in seven leveraged lease arrangements under which mining equipment, electric production facilities, warehouses, office buildings, passenger railway equipment and an aircraft are leased to third parties. The economic lives and lease terms vary with the leases. CIM's share of total equipment and facilities cost was approximately $305 million and $239 million at December 31, 1993 and 1992.
During 1993, CIM invested $13 million, net of non-recourse debt, in leveraged leases of passenger railway equipment and an aircraft (see Capital Resources and Liquidity-Other Businesses).
The cost of the equipment and facilities owned by CIM is partially financed by non-recourse debt provided by lenders, who have been granted as their sole remedy in the event of a lessee default an assignment of rents due under the leases and a security interest in the leased property. Such debt amounted to $229 million at December 31, 1993, and $180 million at December 31, 1992. Leveraged lease residual value assumptions, which are conservative in relation to independently appraised residual values, are tested on a periodic basis.
The Company's net investment in leveraged leases at December 31, 1993 and 1992 is shown below:
The table above includes CLM's approximately 7% investment in the Springerville Unit No. 1 electric generating station, which is leased pursuant to TEP's comprehensive financial restructuring plan that was consummated in December 1992.
NOTE 6: PREFERRED STOCK
PREFERRED STOCK OF SUBSIDIARY
All classes of preferred stock are entitled to receive cumulative dividends and rank equally as to dividends and assets, according to their respective terms.
The total annual dividend requirement for preferred stock outstanding at December 31, 1993, is $2.8 million, assuming a continuation of the auction dividend rate at December 31, 1993, for the flexible auction rate series.
PREFERRED STOCK WITHOUT MANDATORY REDEMPTION
The call provisions of preferred stock redeemable at CILCO's option outstanding at December 31, 1993, are as follows:
PREFERRED STOCK WITH MANDATORY REDEMPTION
CILCO's 5.85% Class A preferred stock may be redeemed in 2003 at $100 per share. A mandatory redemption fund must be established on July 1, 2003. The fund will provide for the redemption of 11,000 shares for $1.1 million on July 1 of each year through July 1, 2007. On July 1, 2008, the remaining 165,000 shares will be retired for $16.5 million.
PREFERENCE STOCK OF SUBSIDIARY, CUMULATIVE
No Par Value, Authorized 2,000,000 shares, of which none have been issued.
PREFERRED STOCK OF HOLDING COMPANY
No Par Value, Authorized 4,000,000 shares, of which none were outstanding at December 31, 1993 and 1992.
NOTE 7: LONG-TERM DEBT
The first mortgage bonds of CILCO are secured by a lien on substantially all of its property and franchises. Unamortized borrowing expense, premium and discount on outstanding long-term debt are being amortized over the lives of the respective issues.
Total consolidated maturities of long-term debt for 1995-1998 are $21 million, $19 million, $23 million, and $22 million, respectively.
The 1994 maturities of long-term borrowings have been classified as current liabilities.
NOTE 8: COMMITMENTS & CONTINGENCIES
CILCO's capital expenditures for 1994 are estimated to be $90 million, in connection with which CILCO has normal and customary purchase commitments at December 31, 1993.
CILCO's policy is to act as a self-insurer for certain insurable risks resulting from employee health and life insurance programs.
ESE's capital expenditures for 1994 are estimated to be $5 million, in connection with which ESE has normal and customary purchase commitments at December 31, 1993.
ESE's policy is to act as a self-insurer for certain insurable risks resulting from employee health programs and professional liability claims.
In August 1990, CILCO entered into a firm, wholesale bulk power purchase agreement with CIPS. This agreement, which expires in 1998, provides for an initial purchase of 30 MW of capacity, increasing to 90 MW in 1997. CILCO can increase purchases to a maximum of 100 MW during the contract period, provided CIPS then has the additional capacity available. In November 1992, CILCO entered into a limited-term power agreement to purchase 100 MW of CIPS' capacity from June 1998 through May 2002. At CILCO's request, purchases may be increased to a maximum of 150 MW during the contract period, provided CIPS has the additional capacity available.
Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations, Environmental Matters (regarding former gas manufacturing sites) for a discussion of that item and Gas Operations, for a discussion of contingencies related to CILCO's Springfield gas system.
NOTE 9: RATE MATTERS
Reference is made to Management's Discussion and Analysis of Financial Condition and Results of Operations, Gas Rate Increase Request, Environmental Matters, Electric Competition, Gas Take-or-Pay, and Liquefied Natural Gas Settlement for a discussion of gas and electric rate matters.
NOTE 10: LEASES
The Company and its subsidiaries lease certain equipment, buildings, and other facilities under capital and operating leases. Several of the operating leases provide that the Company pay taxes, maintenance and other occupancy costs applicable to these premises.
Minimum future rental payments under non-cancelable capital and operating leases having remaining terms in excess of one year as of December 31, 1993, are $35.3 million in total. Payments due during the years ending December 31, 1994, through December 31, 1998, are $8.5 million; $5.7 million; $5.0 million; $4.3 million; and $3.5 million, respectively.
NOTE 11: SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following quarterly operating results are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of CILCORP Inc.'s operating results for the periods indicated. The results of operations for each of the fiscal quarters are not necessarily comparable to, or indicative of, the results of an entire year due to the seasonal nature of the Company's business and other factors. The sums of earnings per average common share for the four quarters of 1992 do not equal the totals for the year because the average number of shares outstanding changed.
MANAGEMENT'S REPORT
The accompanying financial statements and notes for CILCO and its consolidated subsidiaries have been prepared by management in accordance with generally accepted accounting principles. Estimates and judgments used in developing these statements are the responsibility of management. Financial data presented throughout this report is consistent with these statements.
CILCO maintains a system of internal accounting controls which management believes is adequate to provide reasonable assurance as to the integrity of accounting records and the protection of assets. Such controls include established policies and procedures, a program of internal audit, and the careful selection and training of qualified personnel.
The financial statements have been audited by CILCO's independent accountants, Arthur Andersen & Co. Their audit was conducted in accordance with generally accepted auditing standards and included an assessment of selected internal accounting controls only to determine the scope of their audit procedures. The report of the auditors is contained in this Form 10-K annual report.
The Audit Committee of the CILCORP Inc. Board of Directors, consisting solely of outside directors, meets periodically with the independent public accountants, internal auditors and management to review accounting, auditing, internal accounting control, and financial reporting matters. The auditors have direct access to the Audit Committee.
R. W. Slone R. W. Slone Chairman of the Board, President and Chief Executive Officer
T. S. Romanowski T. S. Romanowski Vice President and Chief Financial Officer
R. L. Beetschen R. L. Beetschen Controller and Manager of Accounting
February 4, 1994
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Central Illinois Light Company:
We have audited the accompanying consolidated balance sheets of Central Illinois Light Company (an Illinois corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, cash flows, segments of business, and retained earnings for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Central Illinois Light Company and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles.
As explained in Note 2 effective January 1, 1993, the Company changed its method of accounting for income taxes. As explained in Note 1, effective January 1, 1991, the Company changed its method of accounting for postemployment health care benefits.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14(a)2 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These financial statement schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Chicago, Illinois February 4, 1994
CENTRAL ILLINOIS LIGHT COMPANY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of CILCO include the accounts of CILCO and its subsidiaries, CILCO Exploration and Development Corporation and CILCO Energy Corporation. CILCO is a subsidiary of CILCORP Inc. In accordance with FERC Order 529, sales of electricity for resale, which had been previously recorded as an offset to purchased power expense, have been reclassified to electric revenues. Prior year amounts have been reclassified on a basis consistent with the 1993 presentation.
REGULATION CILCO is subject to regulation by the ICC and the FERC with respect to accounting matters and maintains its accounts in accordance with the Uniform System of Accounts prescribed by these agencies.
OPERATING REVENUES, FUEL COSTS, AND COST OF GAS Electric and gas revenues include service provided but unbilled at year end. Substantially all electric rates and gas system sales rates include a fuel adjustment clause and a purchased gas adjustment clause, respectively. These clauses provide for the recovery of changes in electric fuel costs, excluding coal transportation, and in the cost of gas on a current basis in billings to customers. CILCO adjusts the cost of fuel and cost of gas to recognize over or under recoveries of allowable costs. The cumulative effects are deferred in the Balance Sheet as a current asset or current liability and adjusted by refunds or collections through future billings to customers.
CONCENTRATIONS OF CREDIT RISK CILCO, as a public utility, is required to provide service to customers within its defined service territory and is precluded from discontinuing service to residential customers when certain weather conditions exist. CILCO continually reviews customers' credit worthiness and requests deposits or refunds deposits based on that review.
At December 31, 1993 CILCO had net receivables of $34.2 million, of which approximately $4.9 million was due from its major industrial customers.
TRANSACTIONS WITH AFFILIATES CILCO, which is a subsidiary of CILCORP, incurs certain corporate expenses such as legal, shareholder and accounting fees on behalf of CILCORP and its other subsidiaries. These expenses are billed monthly to CILCORP and its other subsidiaries based on specific identification of costs except for shareholder-related costs which are based on the relative equity percentages of CILCORP and its subsidiary corporations. A return on CILCO assets used by CILCORP and its other subsidiaries is also calculated and billed monthly. Total billings to CILCORP and its other subsidiaries amounted to $2.3 million, $3.3 million and $4 million, in 1993, 1992 and 1991, respectively.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The allowance, representing the cost of equity and borrowed funds used to finance construction, is capitalized as a component of the cost of utility plant. The amount of the allowance varies depending on the rate used and the size and length of the construction program. The Uniform System of Accounts defines AFUDC, a non-cash item, as the net cost for the period of construction of borrowed funds used for construction purposes and a reasonable rate upon other funds when so used. On the income statement, the cost of borrowed funds capitalized is reported as a reduction of total interest expense and the cost of equity funds capitalized is reported as other income. In accordance with the FERC formula, the composite AFUDC rates used in 1993, 1992 and 1991 were 3.5%, 5.7% and 10.6%, respectively.
DEPRECIATION AND MAINTENANCE Provisions for depreciation for financial reporting purposes are based on straight-line composite rates. The annual provisions expressed as a percentage of average depreciable property were as follows:
Maintenance and repair costs are charged directly to expense. Renewals of units of property are charged to the utility plant account, and the original cost of depreciable property replaced or retired, together with the removal cost less salvage, is charged to the accumulated provision for depreciation.
INCOME TAXES CILCO follows a policy of comprehensive interperiod income tax allocation. Investment tax credits (except for amounts applicable to the Employee Stock Ownership Plan) have been deferred and are amortized over the estimated useful lives of the related property. CILCORP and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to the individual companies, including CILCO, based on their respective taxable income or loss.
CONSOLIDATED STATEMENTS OF CASH FLOWS CILCO considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents for purposes of the Consolidated Statements of Cash Flows.
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS AND HEALTH CARE In November 1992, the Financial Accounting Standards Board (FASB) issued Statement No. 112, "Employer's Accounting for Postemployment Benefits" (SFAS 112). CILCO will adopt SFAS 112 on January 1, 1994. This standard requires accrual of benefits other than pensions or health care provided to former or inactive employees. The cumulative effect to CILCO of initially applying SFAS 112 will be a pre-tax charge of approximately $1 million in January 1994, a portion of which will be capitalized.
PENSION BENEFITS Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are covered by trusteed, non-contributory defined benefit pension plans. Benefits under these plans reflect the employee's years of service, age at retirement and maximum total compensation for any consecutive sixty-month period prior to retirement.
Pension costs for the past three years were charged as follows:
Provisions for pension costs were determined under the rules prescribed by Statement of Financial Accounting Standards No. 87, including the use of the projected unit credit actuarial cost method.
Information on the plans' funded status, on an aggregate basis, at December 31, 1993 and 1992 follows:
POSTEMPLOYMENT HEALTH CARE BENEFITS Substantially all of CILCO's full-time employees, including those assigned to the Holding Company, are currently covered by a trusteed, non-contributory defined benefit postemployment health care plan. The plan pays stated percentages of most necessary medical expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from CILCO after reaching age 55 with 10 or more years of service.
On January 1, 1991, CILCO adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). This standard requires that the expected cost of postemployment health care benefits be charged to expense during the years in which employees render service. CILCO has elected to amortize the unfunded obligation at January 1, 1991, over a period of 18.6 years, which represents the average remaining service period.
Postemployment health care benefit costs were charged as follows:
Information on the plans' funded status, on an aggregate basis at December 31, 1993 and 1992, follows:
For measurement purposes, a health care cost trend rate of 9% annually was assumed for 1994; the rate was assumed to decrease to 8% for 1995, then decrease gradually to 6% by 2020 and remain at that level thereafter. Increasing the assumed health care cost trend rate by 1% in each year would increase the accumulated postemployment benefit obligation at December 31, 1993, by $5.2 million and the aggregate of the service and interest cost components of net postemployment health care cost for 1993 by $376,000. The discount rate used in determining the accumulated postemployment benefit obligation at December 31, 1993 was 7% and at December 31, 1992 was 8%. The weighted average expected return on assets net of taxes was 8.1% where taxes are assumed to decrease return by 0.4%.
CILCO-OWNED LIFE INSURANCE POLICIES The following amounts related to CILCO-owned life insurance contracts, with one major insurance company, are recorded on the consolidated balance sheets:
Interest expense for CILCO-owned life insurance borrowings included in CILCO-owned Life Insurance, Net in the Consolidated Statements of Income was $1.4 million, $930,000 and $870,000 for 1993, 1992 and 1991, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of Cash and Temporary Cash Investments, Other Investments, and Notes Payable approximates fair value. At December 31, 1993 and 1992, CILCO had $278.3 million and $266.7 million, respectively, in long-term debt, including current maturities, consisting of first mortgage bonds, pollution control bonds, and medium-term notes, recorded on the Balance Sheet. The estimated fair value of these financial instruments at December 31, 1993 and 1992 is $305.2 million and $267.3 million, respectively, based on current market interest rates for other companies with comparable credit ratings, capital structures, and size.
NOTE 2: INCOME TAX EXPENSE
CILCO adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), on January 1, 1993, and accounted for its initial application as a cumulative change in accounting principle. SFAS 109 requires the use of the liability method to account for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. Temporary differences occur because the income tax law either requires or permits certain items to be reported on CILCO's income tax return in a different year than they are reported in the financial statements. Adoption of SFAS 109 did not have a material impact on CILCO's financial position, results of operations or cash flows; however, the adoption of SFAS 109 required reclassification of accumulated deferred income taxes on the balance sheet. CILCO established a regulatory liability to account for the net effect of expected future regulatory actions related to unamortized investment tax credits, income tax liability initially recorded at tax rates in excess of current rates, the equity component of Allowance for Funds Used During Construction, and other items for which deferred taxes had not previously been provided.
The temporary differences related to CILCO's net deferred income tax liability at December 31, 1993, and January 1, 1993, were as follows:
Of the $5,027,000 increase in the net deferred income tax liability from January 1, 1993 to December 31, 1993, $182,000 is due to current year deferred federal and state income tax expense. The remaining increase is primarily the result of a decrease in the net regulatory liability.
Total deferred income taxes, net, include deferred state income taxes of $332,000, $435,000 and $775,000 for 1993, 1992 and 1991, respectively.
NOTE 3: SHORT-TERM FINANCING ARRANGEMENTS
CILCO had arrangements for bank lines of credit totaling $30 million at December 31, 1993, all of which were unused. These lines of credit consisted of $6.65 million maintained by compensating balances and $23.35 million maintained by commitment fees ranging from 1/16 to 3/16 of 1% per annum in lieu of balances. The compensating bank balance arrangements provide that CILCO maintain bank deposits to average annually from 3% to 5% of the line, such balances being available to CILCO for operating purposes and as compensation to the bank for other bank services. These bank lines of credit are also used to support CILCO's issuance of commercial paper. Short-term borrowings consisted of commercial paper totaling $12.4 million at December 31, 1993.
NOTE 4: RETAINED EARNINGS
CILCO's Articles of Incorporation provide that no dividends shall be paid on the common stock if, at the time of declaration, the balance of retained earnings does not equal at least two times the annual dividend requirement on all outstanding shares of preferred stock. The amount of retained earnings so required at December 31, 1993 was $5.6 million.
NOTE 5: PREFERRED STOCK
All classes of preferred stock are entitled to receive cumulative dividends and rank equally as to dividends and assets, according to their respective terms.
The total annual dividend requirement for preferred stock outstanding at December 31, 1993 is $2.8 million, assuming the auction dividend rate at December 31, 1993 for the flexible auction rate series.
Preferred Stock Without Mandatory Redemption The call provisions of preferred stock redeemable at CILCO's option outstanding at December 31, 1993 are as follows:
CILCO's first mortgage bonds are secured by a lien on substantially all property and franchises. Unamortized borrowing expense, call premiums, premium and discount on outstanding long-term debt are being amortized over the lives of the respective issues.
Scheduled maturities of long-term debt for the five-year period ending December 31, 1998 are $16 million due in 1996, $20 million due in 1997 and $10.65 million due in 1998.
NOTE 7: COMMITMENTS & CONTINGENCIES
CILCO's capital expenditures for utility plant for 1994 are estimated to be $90 million, in connection with which CILCO has normal and customary purchase commitments at December 31, 1993.
It is the policy of CILCO to act as a self-insurer for certain insurable risks resulting from employee health and life insurance programs.
In August 1990, CILCO entered into a firm, wholesale bulk power purchase agreement with Central Illinois Public Service Company (CIPS). This agreement, which expires in 1998, provides for an initial purchase of 30 megawatts (MW) of capacity, increasing to 90 MW in 1997. CILCO can increase purchases to a maximum of 100 MW during the contract period, provided CIPS then has the additional capacity available. In November 1992, CILCO entered into a limited-term power agreement to purchase 100 MW of CIPS' capacity from June 1998 through May 2002. At CILCO's request, purchases may be increased to a maximum of 150 MW during the contract period, provided CIPS has the additional capacity available.
Reference is made to the following sections in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation for a discussion of additional commitments and contingencies: Environmental Matters (regarding former gas manufacturing sites) and Gas Operations for a discussion regarding contingencies related to CILCO's Springfield gas system.
NOTE 8: RATE MATTERS
Reference is made to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Gas Rate Increase Request, Environmental Matters, Electric Competition, and Gas Take-or-Pay Charges for a discussion of gas and electric rate matters.
NOTE 9: LEASES
CILCO leases certain equipment, buildings, and other facilities under capital and operating leases. Minimum future rental payments under non-cancelable capital and operating leases having remaining terms in excess of one year as of December 31, 1993, are $24 million in total. Payments due during the years ending December 31, 1994 through December 31, 1998, are $5.2 million; $3.1 million; $2.9 million; $2.9 million; and $2.9 million, respectively.
NOTE 10: SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following quarterly consolidated operating results are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of CILCO's operating results for the periods indicated (see Note 1). The results of operations for each of the fiscal quarters are not necessarily comparable or necessarily indicative of the results of an entire year due to, among other factors, the seasonal nature of CILCO's business.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
CILCORP Not applicable.
CILCO
Not applicable. PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
CILCORP
The information required by Item 10 relating to directors is set forth in the Company's definitive proxy statement for its 1994 Annual Meeting of Stockholders filed with the Commission pursuant to Regulation 14A. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors" on pages 3 through 11 of such proxy statement. Information required by Item 10 relating to executive officers of the Company is set forth under a separate caption in Part I hereof.
CILCO
The information required by Item 10 relating to directors is set forth in CILCO's definitive proxy statement for its 1994 Annual Meeting of Stockholders filed with the Commission pursuant to Regulation 14A. Such information is incorporated herein by reference to the material appearing under the caption "Election of Directors" on pages 2 through 7 of such proxy statement. Information required by Item 10 relating to executive officers of CILCO is set forth under a separate caption in Part I hereof.
Item 11.
Item 11. Executive Compensation
CILCORP
The Company has filed with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 11 is incorporated herein by reference to the material appearing under the caption "Executive Compensation" on pages 13 through 19 of such proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 11 is incorporated herein by reference to the material appearing under the caption "Executive Compensation" on pages 8 through 13 of such proxy statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
CILCORP
The Company has filed with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 12 is incorporated herein by reference to the material appearing under the caption "Voting Securities and Principal Holders" on pages 2 through 4 of such proxy statement.
CILCO
CILCO has filed with the Commission a definitive proxy statement pursuant to Regulation 14A. The information required by Item 12 is incorporated herein by reference to the material appearing under the caption "Voting Securities and Principal Holders" on pages 1 and 2 of such proxy statement.
Item 13.
Item 13. Certain Relationships and Related Transactions
CILCORP
CILCORP Inc. (CILCORP or Company), a holding company, is the parent of its subsidiaries Central Illinois Light Company (CILCO), CILCORP Development Services Inc., CILCORP Investment Management Inc., CILCORP Ventures Inc., and Environmental Science & Engineering, Inc. (ESE). In the course of business, the Company carries on certain relations with affiliated companies such as shared facilities, utilization of employees and other business transactions. Central Illinois Light Company is reimbursed at cost by the Company and the other subsidiaries for any services it provides.
ESE and the Holding Company entered into an agreement to consolidate ESE's outstanding debt. Under this agreement, ESE can draw on a $15 million revolving line of credit which expires May 2, 1996. ESE also borrowed $20 million from the Holding Company on a term credit basis with the principal due May 2, 1998.
Additionally, at December 31, 1993, ESE had borrowed $20.9 million from CILCORP.
At December 31, 1993, CILCORP guaranteed $21 million of outstanding debt of CILCORP Lease Management Inc. CILCORP receives a fee for the guarantee.
CIM has guaranteed the performance of CIM Leasing Inc. and CIM Air Leasing Inc. with respect to certain obligations arising from the leveraged lease investments held by these subsidiaries.
CILCO
Certain members of the Board of Directors of CILCORP Inc. are also members of the Board of Directors of CILCO and the secretary of CILCO is also a Vice President of CILCORP Inc.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
CILCORP
Page No. Form 10-K (a) 1. Financial Statements
The following are included herein:
Management's Report 50
Report of Independent Public Accountants 51
Consolidated Statements of Income for the three years ended December 31, 1993 52-53
Consolidated Balance Sheets as of December 31, 1993 and December 31, 1992 54-55
Consolidated Statements of Cash Flows for the three years ended December 31, 1993 56-57
Consolidated Statements of Common Stockholders' Equity for the three years ended December 31, 1993 58
Consolidated Statements of Segments of Business for the three years ended December 31, 1993 59-61
Notes to the Consolidated Financial Statements 62-77
(a) 2. Financial Statement Schedules
The following schedules are included herein.
Schedule V - Property, Plant and Equipment for the three years ended December 31, 1993 109-114
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the three years ended December 31, 1993 115-120
Schedule VIII - Valuation and Qualifying Accounts and Reserves 121
Schedule IX - Short-term Borrowings for the three years ended December 31, 1993 122
Schedule XIII -Investment in Leveraged Leases at December 31, 1993 123
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
(a) 3. Exhibits
*(3) Articles of Incorporation (Designated in Form 10-K for the year ended December 31, 1991, File No. 1-8946, as Exhibit (3)).
*(3)a By-laws as amended December 4, 1990 (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-8946, as Exhibit (3)a).
*(4) Indenture of Mortgage and Deed of Trust between Illinois Power *** Company and Bankers Trust Company, as Trustee, dated as of April 1, 1933, Supplemental Indenture between the same parties dated as of June 30, 1933, Supplemental Indenture between the Company and Bankers Trust Company, as Trustee, dated as of July 1, 1933 and Supplemental Indenture between the same parties dated as of January 1, 1935, securing First Mortgage Bonds, and indentures supplemental to the foregoing through January 1, 1993. (Designated in Registration No. 2-1937 as Exhibit B-1, in Registration No. 2-2093 as Exhibit B-1(a), in Form 8-K for April 1940, File No. 1-2732-2, as Exhibit A, in Form 8-K for December 1949, File No. 1-2732-2, as Exhibit A, in Form 8-K for December 1951, File No. 1-2732, as Exhibit A, in Form 8-K for July 1957, File No. 1-2732, as Exhibit A, in Form 8-K for July 1958, File No. 1-2732, as Exhibit A, in Form 8-K for March 1960, File No. 1-2732, as Exhibit A, in Form 8-K for September 1961, File No. 1-2732, as Exhibit B, in Form 8-K for March 1963, File No. 1-2732, as Exhibit A, in Form 8-K for February 1966, File No. 1-2732, as Exhibit A, in Form 8-K for March 1967, File No. 1-2732, as Exhibit A, in Form 8-K for August 1970, File No. 1-2732, as Exhibit A, in Form 8-K for September 1971, File No. 1-2732, as Exhibit A, in Form 8-K for September 1972, File No. 1-2732, as Exhibit A, in Form 8-K for April 1974, File No. 1-2732, as Exhibit 2(b), in Form 8-K for June 1974, File No. 1-2732, as Exhibit A, in Form 8-K for March 1975, File No. 1-2732, as Exhibit A, in Form 8-K for May 1976, File No. 1-2732, as Exhibit A, in Form 10-Q for the quarter ended June 30, 1978, File No. 1-2732, as Exhibit 2, in Form 10-K for the year ended December 31, 1982, File No. 1-2732, as Exhibit (4)(b), in Form 8-K dated January 30, 1992, File No. 1-2732, as Exhibit (4) and in Form 8-K dated January 29, 1993, File No. 1-2732, as Exhibit (4).)
*(4)a Supplemental Indenture dated August 1, 1993.
(10) CILCO Executive Deferral Plan as amended through February 22, 1994.
*(10)a Executive Deferral Plan II (Designated in Form 10-K for the year ended December 31, 1989, File No. 1-8946, as Exhibit (10)b).
*(10)b Economic Value Added Incentive Compensation Plan (Designated in Form 10-K for the year ended December 31, 1989, File No. 1-8946, as Exhibit (10)c).
*(10)c CILCO Compensation Protection Plan (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-8946, as Exhibit (10)d).
*(10)d CILCO Benefit Replacement Plan (Designated in Form 10-K for the year ended December 31, 1991, File No. 1-8946, as Exhibit (10)e).
*(10)e Deferred Compensation Stock Plan (Designated in Form 10-K for the year ended December 31, 1991, File No. 1-8946, as Exhibit (10)f).
*(10)f Shareholder Return Incentive Compensation Plan (included as part of Company's definitive proxy in 1993 Anuual Meeting of Stockholders, filed with the Commission on March 26,1993.)
(12) Computation of Ratio of Earnings to Fixed Charges
*(13) Annual Report to Security Holders
(24) Consent of Arthur Andersen & Co.
(25) Power of Attorney
**(b) Reports on Form 8-K
A Form 8-K was filed on December 17, 1993, to disclose an agreement between CILCO and one of its largest customers to develop a cogeneration plant.
A Form 8-K was filed on December 31, 1993, to disclose CILCORP Inc., through its wholly-owned subsidiary, CILCORP Investment Management Inc., (CIM), acquired a 40% partnership interest in a McDonnell Douglas MD-11F cargo plane through a leveraged lease transaction. The plane will be leased to a U. S. corporation which will use it in its fleet operations.
A Form 8-K was filed on January 14, 1994, to disclose CILCO's filing with the Illinois Commerce Commission (ICC) to increase gas base rates.
*These exhibits have been previously filed with the Securities and Exchange Commission (SEC) as exhibits to registration statements or to other filings of CILCO with the SEC and are incorporated herein as exhibits by reference. The file number and exhibit number of each such exhibit (where applicable) are stated in the description of such exhibit.
***Pursuant to Paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company has not filed as an exhibit to this Form 10-K any instrument with respect to long-term debt as the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis, but hereby agrees to furnish to the SEC on request any such instruments.
CILCO
Page No. Form 10-K (a) 1. Financial Statements The following are included herein:
Management's Report 78
Report of Independent Public Accountants 79
Consolidated Statements of Income for the three years ended December 31, 1993 80
Consolidated Balance Sheets as of December 31, 1993 and December 31, 1992 81-82
Consolidated Statements of Cash Flows for the three years ended December 31, 1993 83-84
Consolidated Statements of Retained Earnings for the three years ended December 31, 1993 85
Consolidated Statements of Segments of Business for the three years ended December 31, 1993 86-87
Notes to the Consolidated Financial Statements 88-100
(a) 2. Financial Statement Schedules The following schedules are included herein: Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters and Employees Other Than Related Parties 124
Schedule V - Property, Plant and Equipment for the three years ended December 31, 1993 125-130
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment for the three years ended December 31, 1993 131-136
Schedule VIII - Valuation and Qualifying Accounts and Reserves for the three years ended December 31, 1993 137
Schedule IX - Short-Term Borrowings for the three years ended December 31, 1993 138
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
(a) 3. Exhibits
*(3) Articles of Incorporation. (Designated in Form 10-K for the fiscal year ended December 31, 1980, File No. 1-2732, as Exhibit 3).
*(3)a Bylaws. (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-2732, as Exhibit (3) a).
*(4) Indenture of Mortgage and Deed of Trust between Illinois Power Company and Bankers Trust Company, as Trustee, dated as of April 1, 1933, Supplemental Indenture between the same parties dated as of June 30, 1933, Supplemental Indenture between the Company and Bankers Trust Company, as Trustee, dated as of July 1, 1933 and Supplemental Indenture between the same parties dated as of January 1, 1935, securing First Mortgage Bonds, and indentures supplemental to the foregoing through January 1, 1993. (Designated in Registration No. 2-1937 as Exhibit B-1, in Registration No. 2-2093 as Exhibit B-1(a), in Form 8-K for April 1940, File No. 1-2732-2, as Exhibit A, in Form 8-K for December 1949, File No. 1-2732-2, as Exhibit A, in Form 8-K for December 1951, File No. 1-2732, as Exhibit A, in Form 8-K for July 1957, File No. 1-2732, as Exhibit A, in Form 8-K for July 1958, File No. 1-2732, as Exhibit A, in Form 8-K for March 1960, File No. 1-2732, as Exhibit A, in Form 8-K for September 1961, File No. 1-2732, as Exhibit B, in Form 8-K for March 1963, File No. 1-2732, as Exhibit A, in Form 8-K for February 1966, File No. 1-2732, as Exhibit A, in Form 8-K for March 1967, File No. 1-2732, as Exhibit A, in Form 8-K for August 1970, File No. 1-2732, as Exhibit A, in Form 8-K for September 1971, File No. 1-2732, as Exhibit A, in Form 8-K for September 1972, File No. 1-2732, as Exhibit A, in Form 8-K for April 1974, File No. 1-2732, as Exhibit 2(b), in Form 8-K for June 1974, File No. 1-2732, as Exhibit A, in Form 8-K for March 1975, File No. 1-2732, as Exhibit A, in Form 8-K for May 1976, File No. 1-2732, as Exhibit A, in Form 10-Q for the quarter ended June 30, 1978, File No. 1-2732, as Exhibit 2, in Form 10-K for the year ended December 31, 1982, File No. 1-2732, as Exhibit (4)(b), in Form 8-K dated January 30, 1992, File No. 1-2732, as Exhibit (4) and in Form 8-K dated January 29, 1993, File No. 1-2732, as Exhibit (4).)
*(4)a Supplemental Indenture dated August 1, 1993.
(10) Executive Deferral Plan as amended February 2, 1994. (Designated in Form 10-K for the year ended December 31, 1993, File No. 1-8946, as Exhibit (10).)
*(10)a Executive Deferral Plan II. (Designated in Form 10-K for the year ended December 31, 1989, File No. 1-2732, as Exhibit (10)b.)
*(10)b Compensation Protection Plan. (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-2732, as Exhibit (10)c.)
*(10)c Deferred Compensation Stock Plan. (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-2732, as Exhibit (10)d.)
*(10)d Economic Value Added Incentive Compensation Plan. (Designated in Form 10-K for the year ended December 31, 1990, File No. 1-2732, as Exhibit (10)e.)
*(10)e Benefit Replacement Plan. (Designated in Form 10-K for the year ended December 31, 1991, File No. 1-2732, as Exhibit (10)f.)
*(10)f Shareholder Return Incentive Compensation Plan
(12) Computation of Ratio of Earnings to Fixed Charges
(25) Power of Attorney
(b) Reports on Form 8-K A Form 8-K was filed on December 17, 1993 to disclose an agreement between CILCO and one of its largest customers to develop a cogeneration plant.
A Form 8-K was filed on January 14, 1994 to disclose CILCO's filing with the Illinois Commerce Commission (ICC) to increase gas base rates.
*These exhibits have been previously filed with the Securities and Exchange Commission (SEC) as exhibits to registration statements or to other filings of CILCO with the SEC and are incorporated herein as exhibits by reference. The file number and exhibit number of each such exhibit (where applicable) are stated in the description of such exhibit.
Schedule V Page 1 of 6
Schedule V Page 3 of 6
Schedule V Page 5 of 6
Schedule VI Page 1 of 6
Schedule VI Page 3 of 6
Schedule VI Page 5 of 6
Schedule VIII
Schedule XIII
Schedule II
Schedule V Page 1 of 6
Schedule V Page 3 of 6
Schedule V Page 5 of 6
Schedule VI Page 1 of 6
Schedule VI Page 3 of 6
Schedule VI Page 5 of 6
Schedule VIII
Schedule IX
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CILCORP INC.
March 15, 1994 By R. O. Viets R. O. Viets President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
(i) and (ii) Principal executive officer, director and principal financial officer:
R. O. Viets R. O. Viets President, Chief March 15, 1994 Executive Officer and Director
(iii) Controller
T. D. Hutchinson T. D. Hutchinson Controller March 15, 1994
(iv) A majority of the Directors (including the director named above):
M. Alexis* Director March 15, 1994 J. R. Brazil* Director March 15, 1994 D. E. Connor* Director March 15, 1994 R. V. O'Keefe* Director March 15, 1994 H. S. Peacock* Director March 15, 1994 R. W. Slone* Director March 15, 1994 K. E. Smith* Director March 15, 1994 R. N. Ullman* Director March 15, 1994 J. M. Unland* Director March 15, 1994 M. M. Yeomans* Director March 15, 1994
R. O. Viets R. O. Viets Director March 15, 1994
*By R. O. Viets R. O. Viets Attorney-in-fact
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CENTRAL ILLINOIS LIGHT COMPANY
March 15, 1994 By R. W. Slone R. W. Slone Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date (i) Principal executive officer and director:
R. W. Slone R. W. Slone Chairman of the Board, March 15, 1994 President, Chief Executive Officer and Director
(ii) Principal financial officer:
T. S. Romanowski T. S. Romanowski Vice President March 15, 1994
(iii) Controller
R. L. Beetschen R. L. Beetschen Controller and March 15, 1994 Manager of Accounting
(iv) A majority of the Directors (including the director named above):
M. Alexis* Director March 15, 1994 J. R. Brazil* Director March 15, 1994 W. Bunn III* Director March 15, 1994 D. E. Connor* Director March 15, 1994 H. S. Peacock* Director March 15, 1994 W. M. Shay* Director March 15, 1994 K. E. Smith* Director March 15, 1994 R. N. Ullman* Director March 15, 1994 J. M. Unland* Director March 15, 1994 J. F. Vergon* Director March 15, 1994 M. M. Yeomans* Director March 15, 1994
R. W. Slone R. W. Slone Director March 15, 1994
*By R. W. Slone R. W. Slone Attorney-in-fact
EXHIBIT (12)
EXHIBIT (12)
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by reference of our reports, dated February 4, 1994, included herein in this Form 10-K, into CILCORP Inc.'s previously filed Registration Statements File No. 33-45318, 33-51315 and 33-51241.
ARTHUR ANDERSEN & CO.
Chicago, Illinois March 11, 1994