AEE

Ameren Corporation 2003 10-K Filing Summary

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2003, for Ameren Corporation and its subsidiaries, including Union Electric Company (UE), Central Illinois Public Service Company (CIPS), Ameren Energy Generating Company (Genco), CILCORP Inc., and Central Illinois Light Company (CILCO). Ameren is a public utility holding company operating rate-regulated electric and natural gas businesses in Missouri and Illinois, alongside non-rate-regulated generation. A significant event in 2003 was the acquisition of CILCORP and CILCO on January 31, 2003, for approximately $1.4 billion.

Key Financial Metrics (2003)

Note: 2003 figures include CILCORP/CILCO from the acquisition date of January 31, 2003.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 19.6% to $4.593 billion, driven primarily by the inclusion of CILCORP operations and increased interchange sales due to improved power prices.
• Profitability: Net income rose 37% to $524 million. This increase was bolstered by a $31 million after-tax gain from a coal contract settlement and an $18 million after-tax gain from the adoption of SFAS No. 143 (Asset Retirement Obligations).
• Margin Drivers: Electric margins improved by $187 million year-over-year due to the CILCORP acquisition, favorable interchange margins, and organic growth, partially offset by unfavorable weather (cooler summer) and rate reductions in Missouri.
• Costs: Operating expenses increased due to the acquisition and higher employee benefit costs, though labor costs were reduced by a voluntary retirement program implemented in early 2003.

Guidance, Outlook, and Risks

• Illinois Power Acquisition: In February 2004, Ameren signed a definitive agreement to acquire Illinois Power and a 20% interest in EEI from Dynegy for approximately $2.3 billion. The transaction is expected to close by the end of 2004 but is subject to regulatory approvals. Ameren issued 19.1 million shares in February 2004 to fund the cash portion, which is expected to be dilutive to EPS in the short term before becoming accretive.
• Rate Regulation: Electric rates in Missouri are frozen through July 2006, and Illinois rates are frozen through January 2007. A $30 million annual rate reduction in Missouri is scheduled for April 2004. Gas rate increases totaling approximately $30 million are expected to positively impact 2004 earnings.
• Environmental Compliance: Significant capital expenditures are anticipated for environmental compliance. Estimated costs for NOx regulations range from $210 million to $250 million (2004-2008). Proposed EPA rules for SO2, NOx, and mercury could require $400 million to $600 million in capital by 2010 and up to $800 million by 2015.
• Operational Risks: Risks include the Callaway Nuclear Plant refueling outage in spring 2004 (expected to reduce earnings by $15-$20 million), rising employee benefit costs, and potential revenue reductions from FERC orders regarding "through and out" transmission revenues.

Investor Verification Checklist

• Acquisition Closing: Verify the status of regulatory approvals (ICC, SEC, FERC) for the Illinois Power acquisition and the timeline for closing.
• Rate Case Outcomes: Monitor the implementation of the $30 million Missouri electric rate reduction in April 2004 and the status of the Missouri gas rate case settlement.
• Environmental Costs: Track the finalization of EPA rules regarding SO2, NOx, and mercury emissions to assess the accuracy of the $400M-$800M capital expenditure estimates.
• Debt Covenants: Review compliance with debt covenants, particularly the 60% indebtedness to total capitalization limit, given the increased leverage from the Illinois Power deal.
• Pension Funding: Verify the actual funding requirements for defined benefit plans, which are estimated at $115 million annually from 2005-2008, dependent on market performance and interest rates.