-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VDcQvnkAkSevIgzjWLuwIsWWQIaOCbVLiuvmETLFES59PLx5OvhziR3oRo1aSks4 aWgt6n4AN7x8VrBIylL2GQ== 0000049816-96-000022.txt : 19961118 0000049816-96-000022.hdr.sgml : 19961118 ACCESSION NUMBER: 0000049816-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS POWER CO CENTRAL INDEX KEY: 0000049816 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 370344645 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03004 FILM NUMBER: 96664558 BUSINESS ADDRESS: STREET 1: 500 S 27TH ST STREET 2: C/O HARRIS TRUST & SAVINGS BANK CITY: DECATUR STATE: IL ZIP: 62525-1805 BUSINESS PHONE: 2174246600 FORMER COMPANY: FORMER CONFORMED NAME: ILLINOIS IOWA POWER CO DATE OF NAME CHANGE: 19660822 10-Q 1 18 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to __________ Commission Registrants; State of Incorporation; IRS Employ er File Number Address; and Telephone Number Identification No. 1-11327 Illinova Corporation 37-1319890 (an Illinois Corporation) 500 S. 27th Street Decatur, IL 62525 (217) 424-6600 1-3004 Illinois Power Company 37-0344645 (an Illinois Corporation) 500 S. 27th Street Decatur, IL 62525 (217) 424-6600 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) have been subject to such filing requirements for the past 90 days. Illinova Yes X No Corporation ---- ---- Illinois Power Yes X No Company ---- ---- Indicate the number of shares outstanding of each of the issuers' classes of common stock, as of the latest practicable date: Illinova Corporation Common stock, no par value, 75,681,937 shares outstanding at October 31, 1996 Illinois Power Company Common stock, no par value, 72,233,040 shares outstanding held by Illinova Corporation at October 31, 1996 ILLINOVA CORPORATION ILLINOIS POWER COMPANY This combined Form 10-Q is separately filed by Illinova Corporation and Illinois Power Company. Information contained herein relating to Illinois Power Company is filed by Illinova Corporation and separately by Illinois Power Company on its own behalf. Illinois Power Company makes no representation as to information relating to Illinova Corporation or its subsidiaries, except as it may relate to Illinois Power Company. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX PAGE NO. Part I. FINANCIAL INFORMATION Item 1. Financial Statements Illinova Corporation Consolidated Balance Sheets 3 - 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Illinois Power Company Consolidated Balance Sheets 7 - 8 Consolidated Statements of Income 9 Consolidated Statements of Cash Flows 10 Notes to Consolidated Financial Statements of Illinova Corporation and Illinois Power Company 11 - 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for Illinova Corporation and Illinois Power Company 13 - 17 Part II. OTHER INFORMATION Item 1: Legal Proceedings 18 Item 6: Exhibits and Reports on Form 8-K 18 Signatures 19 - 20 Exhibit Index 21 PART I. FINANCIAL INFORMATION ILLINOVA CORPORATION CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ASSETS (Unaudited) (Millions of Dollars) Utility Plant, at original cost Electric (includes construction work in progress of $245.9 million and $199.8 million, respectively) $ 6,298.5 $ 6,189.0 Gas (includes construction work in progress of $16.2 million and $10.2 million, respectively) 637.4 625.9 ---------- ---------- 6,935.9 6,814.9 Less-Accumulated depreciation 2,379.9 2,251.7 ---------- ---------- 4,556.0 4,563.2 Nuclear fuel in process 5.4 5.7 Nuclear fuel under capital lease 95.2 95.2 ---------- ---------- Total utility plant 4,656.6 4,664.1 ---------- ---------- Investments and Other Assets 132.2 65.8 ---------- ---------- Current Assets Cash and cash equivalents 32.3 11.3 Notes receivable -- 6.1 Accounts receivable (less allowance for doubtful accounts of $3.0 million) Service 136.5 129.4 Other 38.5 13.2 Accrued unbilled revenue 86.2 89.1 Materials and supplies, at average cost 113.1 111.1 Prepayments and other 32.7 40.4 ---------- ---------- Total current assets 439.3 400.6 ---------- ---------- Deferred Charges Deferred Clinton costs 104.7 107.3 Recoverable income taxes 93.9 128.7 Other 218.9 243.3 ---------- ---------- Total deferred charges 417.5 479.3 ---------- ---------- $ 5,645.6 $ 5,609.8 ========== ==========
ILLINOVA CORPORATION CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements) SEPTEMBER 30, DECEMBER 31, 1996 1995 CAPITAL AND LIABILITIES (Unaudited) (Millions of Dollars) Capitalization Common stock - No par value, 200,000,000 shares authorized; 75,681,937 and 75,643,937 shares outstanding, respectively, stated at $ 1,425.7 $ 1,424.6 Less - Deferred compensation - ESOP 15.2 18.4 Retained earnings 234.0 129.6 Less - Capital stock expense 8.2 8.8 Preferred stock of subsidiary 96.6 125.6 Mandatorily redeemable preferred stock of subsidiary 197.0 97.0 Long-term debt of subsidiary 1,649.4 1,739.3 ---------- ---------- Total capitalization 3,579.3 3,488.9 ---------- ---------- Current Liabilities Accounts payable 136.1 119.9 Notes payable 322.9 359.6 Long-term debt and lease obligations maturing within one year 94.7 95.0 Other 114.4 173.0 ---------- ---------- Total current liabilities 668.1 747.5 ---------- ---------- Deferred Credits Accumulated deferred income taxes 1,024.1 1,012.8 Accumulated deferred investment tax credits 217.6 222.8 Other 156.5 137.8 ---------- ---------- Total deferred credits 1,398.2 1,373.4 ---------- ---------- $ 5,645.6 $ 5,609.8 ========== ==========
ILLINOVA CORPORATION CONSOLIDATED STATEMENTS OF INCOME (See accompanying Notes to Consolidated Financial Statements) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 (Unaudited) (Millions except per share) Operating Revenues: Electric $ 377.1 $ 410.5 $ 938.4 $ 977.2 Electric interchange 43.3 40.8 108.8 87.8 Gas 38.0 34.8 223.6 190.9 ----------- ----------- ----------- ----------- Total 458.4 486.1 1,270.8 1,255.9 ----------- ----------- ----------- ----------- Operating Expenses and Taxes: Fuel for electric plants 59.8 77.2 185.9 199.8 Power purchased 25.0 20.3 48.1 49.4 Gas purchased for resale 12.8 15.2 118.6 94.4 Other operating expenses 62.9 66.2 181.9 193.9 Maintenance 21.1 20.0 65.9 76.8 Depreciation & amortization 48.5 45.4 144.9 136.0 General taxes 32.6 34.7 102.0 104.0 Income taxes 62.4 69.9 127.2 119.0 ----------- ----------- ----------- ----------- Total 325.1 348.9 974.5 973.3 ----------- ----------- ----------- ----------- Operating Income 133.3 137.2 296.3 282.6 ----------- ----------- ----------- ------------ Other Income and Deductions: Allowance for equity funds used during construction -- 0.2 -- 0.5 Miscellaneous - net (5.3) (6.3) (13.1) (7.2) ----------- ----------- ---------- ----------- Total (5.3) (6.1) (13.1) (6.7) ----------- ----------- ---------- ----------- Income Before Interest Charges 128.0 131.1 283.2 275.9 ----------- ----------- ----------- ----------- Interest Charges: Interest on long-term debt 28.8 33.4 90.0 101.2 Other interest charges 4.3 3.5 10.6 11.3 Allowance for funds used during construction (1.6) (1.5) (5.2) (4.0) Preferred dividend requirements of subsidiary 5.5 5.8 16.8 18.8 ----------- ----------- ----------- ----------- Total 37.0 41.2 112.2 127.3 ----------- ----------- ----------- ----------- Net Income 91.0 89.9 171.0 148.6 Carrying amount under consideration paid for redeemed preferred stock of subsidiary (0.3) -- (0.8) -- ----------- ----------- ----------- ---------- Net Income applicable to common stock $ 90.7 $ 89.9 $ 170.2 $ 148.6 ========== =========== ========== =========== Earnings per common share $1.20 $1.18 $2.25 $1.96 Cash dividends declared per common share $0.28 $0.25 $0.84 $0.75 Cash dividends paid per common share $0.28 $0.25 $0.84 $0.75 Weighted average number of common shares outstanding during period 75,681,937 75,543,937 75,679,472 75,643,937
ILLINOVA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (See accompanying Notes to Consolidated Financial Statements) NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 (Unaudited) (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 170.2 $ 148.6 Items not requiring cash, net 192.8 195.9 Changes in assets and liabilities (24.9) (41.8) -------- -------- Net cash provided by operating activities 338.1 302.7 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (129.2) (143.3) Other investing activities (66.8) (16.9) -------- -------- Net cash used in investing activities (196.0) (160.2) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on common stock (63.6) (56.7) Exercise of stock options 1.1 -- Redemptions - Short-term debt (351.4) (154.3) Long-term debt of subsidiary (92.1) (5.2) Preferred stock of subsidiary (29.1) (39.2) Issuances - Short-term debt 314.7 77.1 Preferred Stock of subsidiary 100.0 -- Other financing activities (0.7) 1.6 --------- --------- Net cash used in financing activities (121.1) (176.7) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 21.0 (34.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11.3 50.7 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32.3 $ 16.5 ========= =========
ILLINOIS POWER COMPANY CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ASSETS (Unaudited) (Millions of Dollars) Utility Plant, at original cost Electric (includes construction work in progress of $245.9 million and $199.8 million, respectively) $ 6,298.5 $ 6,189.0 Gas (includes construction work in progress of $16.2 million and $10.2 million, respectively) 637.4 625.9 ------------ ------------ 6,935.9 6,814.9 Less-Accumulated depreciation 2,379.9 2,251.7 ------------ ------------ 4,556.0 4,563.2 Nuclear fuel in process 5.4 5.7 Nuclear fuel under capital lease 95.2 95.2 ------------ ------------ Total utility plant 4,656.6 4,664.1 ------------ ------------ Investments and Other Assets 15.4 16.4 ------------ ------------ Current Assets Cash and cash equivalents 19.7 4.3 Accounts receivable (less allowance for doubtful accounts of $3.0 million) Service 136.5 129.4 Other 27.3 18.2 Accrued unbilled revenue 86.2 89.1 Materials and supplies, at average cost 112.3 111.1 Prepayments and other 32.1 40.4 ------------ ------------ Total current assets 414.1 392.5 ------------ ------------ Deferred Charges Deferred Clinton costs 104.7 107.3 Recoverable income taxes 93.9 128.7 Other 231.4 258.2 ------------ ------------ Total deferred charges 430.0 494.2 ------------ ------------ $ 5,516.1 $ 5,567.2 ============ ============
ILLINOIS POWER COMPANY CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements)
SEPTEMBER 30, DECEMBER 31, 1996 1995 CAPITAL AND LIABILITIES (Unaudited) (Millions of Dollars) Capitalization Common stock - No par value, 100,000,000 shares authorized; 75,643,937 shares issued, stated at $ 1,424.6 $ 1,424.6 Retained earnings 244.6 129.6 Less - Capital stock expense 8.2 8.8 Less - 3,410,897 and 2,696,086 shares of common stock in treasury, respectively, at cost 86.2 67.3 Preferred stock 96.6 125.6 Mandatorily redeemable preferred stock 197.0 97.0 Long-term debt 1,649.4 1,739.3 ------------ ------------ Total capitalization 3,517.8 3,440.0 ------------ ------------ Current Liabilities Accounts payable 115.9 119.9 Notes payable 265.9 359.6 Long-term debt and lease obligations maturing within one year 94.7 95.0 Other 113.9 173.0 ------------ ------------ Total current liabilities 590.4 747.5 ------------ ------------ Deferred Credits Accumulated deferred income taxes 1,038.4 1,019.1 Accumulated deferred investment tax credits 217.6 222.8 Other 151.9 137.8 ------------ ------------ Total deferred credits 1,407.9 1,379.7 ------------ ------------ $ 5,516.1 $ 5,567.2 ============ ============
ILLINOIS POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (See accompanying Notes to Consolidated Financial Statements)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 (Unaudited) (Millions of Dollars) Operating Revenues: Electric $ 377.1 $ 410.5 $ 938.4 $ 977.2 Electric interchange 43.3 40.8 108.8 87.8 Gas 38.0 34.8 223.6 190.9 ---------- ----------- ----------- ----------- Total 458.4 486.1 1,270.8 1,255.9 ---------- ----------- ----------- ----------- Operating Expenses and Taxes: Fuel for electric plants 59.8 77.2 185.9 199.8 Power purchased 25.0 20.3 48.1 49.4 Gas purchased for resale 12.8 15.2 118.6 94.4 Other operating expenses 62.9 66.2 181.9 193.9 Maintenance 21.1 20.0 65.9 76.8 Depreciation & amortization 48.5 45.4 144.9 136.0 General taxes 32.6 34.7 102.0 104.0 Income taxes 62.4 127.2 119.0 69.9 ----------- ---------- ------------ ----------- Total 325.1 348.9 974.5 973.3 ----------- ---------- ------------ ----------- Operating Income 133.3 137.2 296.3 282.6 ----------- ----------- ----------- ----------- Other Income and Deductions: Allowance for equity funds used during construction -- 0.2 -- 0.5 Miscellaneous - net (1.2) (3.8) (2.5) (0.2) ----------- ----------- ---------- ---------- Total (1.2) (3.6) (2.5) 0.3 ----------- ----------- ---------- ---------- Income Before Interest Charges 132.1 133.6 293.8 282.9 ___________ ____________ __________ _________ Interest Charges and Other: Interest on long-term debt 28.8 33.4 90.0 101.2 Other interest charges 4.3 3.5 10.6 11.3 Allowance for borrowed funds used during construction (1.6) (1.5) (5.2) (4.0) ----------- ----------- ----------- ---------- Total 31.5 35.4 95.4 108.5 ----------- ----------- ----------- --------- Net Income 100.6 98.2 198.4 174.4 Preferred dividend requirements 5.5 5.8 16.8 18.8 Carrying amount under consideration paid for redeemed preferred stock (0.3) -- (0.8) -- of subsidiary ---------- ----------- ----------- ----------- Net Income applicable to common stock $ 94.8 $ 92.4 $ 180.8 $ 155.6 ========== =========== ========== ===========
ILLINOIS POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (See accompanying Notes to Consolidated Financial Statements)
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 (Unaudited) (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 198.4 $ 174.4 Items not requiring cash, net 200.8 198.6 Changes in assets and liabilities (39.7) (17.0) ------------- ------------ Net cash provided by operating 359.5 356.0 activities ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (129.2) (143.3) Other investing activities 0.6 (4.7) ------------- ------------ Net cash used in investing (128.6) (148.0) activities ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on preferred and common (81.1) (75.5) stock Repurchase of common stock (18.9) (49.0) Redemptions - Short-term debt (351.4) (154.3) Long-term debt (92.1) (5.2) Preferred Stock (29.1) (36.0) Issuances Short-term debt 257.7 77.1 Preferred Stock 100.0 -- Other financing activities (0.6) (1.8) ------------- ------------ Net cash used in financing activities (215.5) (244.7) ------------- ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 15.4 (36.7) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4.3 47.9 ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19.7 $ 11.2 ============= ============
ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS GENERAL Financial Statement note disclosures, normally included in financial statements prepared in conformity with generally accepted accounting principles, have been omitted from this Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. However, in the opinion of Illinova Corporation (Illinova) and Illinois Power Company (IP), the disclosures and information contained in this Form 10-Q are adequate and not misleading. See the consolidated financial statements and the accompanying notes in Illinova's 1995 Annual Report to Shareholders (included in the Proxy Statement), the consolidated financial statements and the accompanying notes in IP's 1995 Annual Report to Shareholders (included in the Information Statement), Illinova's and IP's 1995 Form 10-K filings to the Securities and Exchange Commission, and Illinova's and IP's Report on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996 for information relevant to the consolidated financial statements contained herein, including information as to certain regulatory and environmental matters and as to the significant accounting policies followed. In the opinion of Illinova, the accompanying unaudited consolidated financial statements for Illinova reflect all adjustments necessary to present fairly the Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995, the Consolidated Statements of Income for the three months and nine months ended September 30, 1996 and 1995, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995. In addition, it is Illinova's and IP's opinion that the accompanying unaudited consolidated financial statements for IP reflect all adjustments necessary to present fairly the Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995, the Consolidated Statements of Income for the three months and the nine months ended September 30, 1996 and 1995, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995. Due to seasonal and other factors which are characteristic of electric and gas utility operations, interim period results are not necessarily indicative of results to be expected for the year. ACCOUNTING MATTERS CONSOLIDATION The consolidated financial statements of Illinova include the accounts of Illinova, IP, Illinova Generating Company (IGC), Illinova Power Marketing, Inc. (IPMI) and Illinova Energy Partners, Inc. (IEPI). All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. All non-utility operating transactions are included in the section titled Other Income and Deductions, "Miscellaneous-net" in Illinova's and IP's Consolidated Statements of Income. Investments and Other Assets - The increase in Investments and Other Assets of $66 million reflects Illinova's increase in subsidiary investment. The consolidated financial statements of IP include the accounts of Illinois Power Capital, L.P. and the accounts of Illinois Power Financing I (IPFI). All significant intercompany balances and transactions have been eliminated from the consolidated financial statements. IP's consolidated financial position and results of operations are currently the principal factors affecting Illinova's consolidated financial position and results of operations. REGULATORY AND LEGAL MATTERS MANUFACTURED GAS PLANT SITES IP's liability for Manufactured Gas Plant (MGP) site remediation is $72.4 million. This amount represents IP's best estimate of its remaining costs to remediate the 24 MGP sites for which it is responsible. Because of the unknown and unique characteristics of each site, IP is not able to determine its ultimate liability for remediation. IP is recovering MGP site cleanup costs from its customers through tariff riders approved by the Illinois Commerce Commission (ICC) in March 1996. In anticipation of full recovery of MGP site costs, IP has recorded a regulatory asset equivalent to its liability. IP is continuing settlement discussions with its insurance carriers regarding the recovery of estimated MGP site remediation costs. A settlement has been reached with six carriers, and negotiations are scheduled with four other carriers. Litigation related to a suit filed by IP in October 1995 seeking a declaratory judgment and damages regarding insurance coverage for four MGP sites is in progress. Any insurance recoveries received will cause the regulatory asset to reduce by a corresponding amount. TREASURY STOCK IP repurchased 714,811 shares of its common stock from Illinova during the six months ended June 30, 1996. There were no additional purchases of treasury stock in the third quarter of 1996. Through September 30, 1996, IP has purchased 3,410,897 shares of its common stock, all of which are held as treasury stock and are deducted from common equity at the cost of the shares. ENHANCED SEVERANCE IP offered a voluntary enhanced severance program to certain eligible employees during the fourth quarter of 1995. In December 1995, IP recorded a liability of $11.0 million to reflect the anticipated costs of the program, based on the number of employees accepting severance. Payments made to severed employees during the first nine months of 1996 have reduced the liability by $8.9 million. ILLINOVA CORPORATION AND ILLINOIS POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to the Notes to the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Illinova's 1995 Annual Report to Shareholders (included in the Proxy Statement), the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations presented in IP's 1995 Annual Report to Shareholders (included in the Information Statement), and Illinova's and IP's Form 10-K for the year ended December 31, 1995, and Illinova's and IP's Report on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996. ILLINOVA SUBSIDIARIES IP is the primary business and subsidiary of Illinova and engages in the generation, transmission, distribution and sale of electric energy and the distribution, transportation and sale of natural gas in the State of Illinois. IGC is a wholly-owned independent power subsidiary of Illinova and invests in energy supply projects throughout the world. IGC's strategy is to invest in and develop "greenfield" power plants, acquire existing generation facilities and provide power plant operations and maintenance services. IPMI is a wholly-owned subsidiary of Illinova and engages in the brokering and marketing of electric power and gas. IPMI commenced operations in wholesale electricity transactions in the western United States in September 1995. In May 1996, IPMI expanded operations to include the Midwestern United States. IEPI is a wholly-owned subsidiary of Illinova formed in May 1996. IEPI develops and markets energy-related services to the unregulated energy market throughout the United States. IEPI has incorporated the project management practice of the Illinova Energy Services group, a division within Illinova. Illinova Insurance Company (IIC) is a wholly-owned subsidiary of Illinova and was licensed by the State of Vermont as a captive insurance company in August 1996. The primary business of IIC is to insure certain risks of Illinova and its subsidiaries. LIQUIDITY AND CAPITAL RESOURCES CAPITAL RESOURCES AND REQUIREMENTS Cash flows from operations during the first nine months of 1996 provided sufficient working capital to meet ongoing operating requirements, to service existing common and IP preferred stock dividends and debt requirements and all of IP's construction requirements. Additionally, Illinova expects 1996 cash flows will enable it to meet operating requirements and continue to service IP's existing debt, IP's preferred and Illinova's common stock dividends, IP's sinking fund requirements and IP's anticipated construction requirements. IP periodically repurchases shares of its common stock from Illinova to provide Illinova cash for operations, in accordance with authority granted by the ICC. During the first nine months of 1996, IP made purchases of 714,811 shares. IPFI is a statutory business trust in which IP serves as sponsor. IPFI issued $100 million of trust originated preferred securities (TOPrS) at 8% (4.8% after-tax rate) in January 1996. IPFI issued the TOPrS and invested the proceeds in an equivalent amount of IP subordinated debentures due in 2045. IP used the proceeds to repay short- term indebtedness on varying dates on or before March 1, 1996. IP incurred the indebtedness in December 1995, to redeem $95.3 million (principal value) of higher-cost outstanding preferred stock of IP. Since the beginning of 1996, IP has redeemed approximately $121 million of bonds and preferred stock through open-market purchases and the May 15, 1996 preferred stock redemption. In addition, on October 1, 1996, $40 million of IP's 5.85% first mortgage bonds matured. IP has been actively reducing its long-term debt as cash flows from operations and short-term debt borrowings allow. IP's capital requirements for construction were approximately $129 million and $143 million during the nine months ended September 30, 1996 and 1995, respectively. Illinova and IP currently have total lines of credit represented by bank commitments of $150 million and $354 million, respectively. Both Illinova and IP have adequate short- and intermediate-term bank borrowing capacity. Illinova has borrowed $57 million under its line of credit to support financing requirements of its non-regulated subsidiaries. Currently, Illinova is reviewing additional financing alternatives to provide cash for operations. Presently, IP's mortgage bonds are rated Baa1 by Moody's, BBB+ by Duff & Phelps, and BBB by Standard & Poor's. IP's preferred stock is rated Baa2 by Moody's and BBB- by both Duff & Phelps and Standard & Poor's. In September 1996, Illinova and IPMI announced an agreement in principle with Soyland Power Cooperative, Inc. (Soyland) addressing potential changes to the Clinton Power Station (Clinton) joint ownership agreement and power supply agreement between IP and Soyland. Soyland's ownership share of Clinton is expected to be transferred to a subsidiary of Illinova and IPMI is expected to become an agent of Soyland for administration of the IP-Soyland power supply agreement and for meeting Soyland's other capacity and energy needs. Illinova, IP, IPMI and Soyland are negotiating a definitive power supply agreement. ACCOUNTING ISSUES IP is considering seeking regulatory approval to increase the rate at which its generation-related assets are expensed. Because this change is viewed as discretionary, and subject to regulatory approval, the rate of such increase, if any, will be based on then current conditions and financial performance. The increase in expense could begin as early as the first quarter of 1997 and could amount to at least $400 million in the aggregate through the year 2001, and potentially more thereafter, depending on changes in regulation, the marketplace, and financial performance. This reduction in the installed cost of IP's generating assets should help position the Company to operate competitively and profitably in the changing business environment. This acceleration of expense would have a direct impact on earnings but not on cash flow. REGULATORY MATTERS NUCLEAR REGULATORY COMMISSION REVIEW OF CLINTON POWER STATION On September 6, 1996, leakage at a recirculation pump seal caused IP operations personnel to shut down Clinton. This event prompted two special teams inspections by the Nuclear Regulatory Commission (NRC). The first inspection covered the events associated with the leaking pump seal and the shutdown, while the second focused more broadly on operations at Clinton. In a public meeting held on October 4, 1996, the NRC discussed its findings, expressing concern over both the handling of the pump seal problem and general operating philosophies but also commending subsequent actions taken by IP to address the issues raised by the inspections. Clinton has been shut down since the September 6 event. On October 4, IP announced that the station would not be restarted prior to the refueling outage that began on October 13. The outage plan calls for Clinton to be back on line by the end of 1996. Currently, the Company does not expect the shutdown to have a material impact on the consolidated financial position or results of operations. OPEN ACCESS AND WHEELING IP continues to work with other interested parties in the state to propose legislation that would allow a managed transition to direct access for all consumers. Such legislation would be designed to provide an orderly transition to direct access for all customers, and balance financial stability for current utility providers with customer choice. Although there is support for such legislation among a number of constituencies, there are no assurances that such legislation will be introduced or be adopted, or what its final form may be. ENVIRONMENTAL MATTERS GAS MANUFACTURING SITES See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters" of the Notes to Consolidated Financial Statements on page 11. NITROGEN OXIDE Regulators in the Chicago and metropolitan areas of the Northeast are examining potential approaches for compliance with current federal ozone level requirements impacted by nitrogen oxide (NOx) emissions. A regulatory initiative is underway to examine recommendations on reducing the amount of ozone transported across the eastern United States. Such actions could make IP's fossil-fuel generating plants less competitive. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Electric Operations - The electric margin (revenue less cost of fuel and purchased power) for the third quarter of 1996 decreased by $18.2 million compared to the third quarter of 1995. This decrease in margin was primarily caused by a decrease in electric revenues for the current quarter of $33.4 million, representing a 6.4% decrease in kwh sales. There were approximately 270 fewer cooling degree days in the third quarter of 1996 compared to the same time frame in 1995, resulting in a 12.4% decrease in kwh sales and $22.7 million decrease in revenues to the temperature- sensitive residential market. The industrial and commercial revenue markets decreased $6.2 million and $3.8 million respectively, representing decreases of 3.2% and 3.7% in kwh sales. Costs of fuel for electric plants decreased $17.4 million during the third quarter due to decreased sales and the impacts of the Uniform Fuel Adjustment Clause (UFAC). The equivalent availability of IP's Clinton Power Station (Clinton) was 71.5% and 94.2% for the three months ended September 30, 1996 and 1995, respectively. The lower equivalent availability for Clinton in 1996 was due to an unscheduled outage which began September 6. The equivalent availability for IP's coal-fired plants was 88.1% and 91.8% for the three months ended September 30, 1996 and 1995, respectively. Gas Operations - Gas revenues increased $3.2 million in the third quarter of 1996. Although therms transported decreased 10.5% (6.4 million therms) and therm sales decreased 2.2% (1.0 million therms) resulting in a total decrease in gas consumption of 7.1% (7.4 million therms), an increase in the Purchased Gas Adjustment(PGA) price resulted in an overall increase to gas revenues. A revision in the methodology of the PGA calculation in the third quarter resulted in an increase to the Uniform Gas Adjustment Clause (UGAC) underrecovery of $4.0 million. Operation and Maintenance Expense - The current quarter decrease of $2.2 million dollars is primarily due to lower labor expenses resulting from IP's reengineering efforts. These savings were partially offset by increased MGP remediation costs. While this has had the effect of increasing operation expense, the increase has been offset by increased revenues collected under the riders. Interest Charges - Total interest charges decreased by $4.2 million due to lower short-term interest rates and the impact of refinancing efforts and capitalization reduction during the third quarter of 1996. Earnings per Common Share - The earnings per common share for Illinova during the third quarter of 1996 and 1995 resulted from the interaction of all other factors discussed herein. NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Electric Operations - The electric margin (revenue less cost of fuel and purchased power) for the first nine months of 1996 decreased by $2.6 million compared to the same period of 1995. This decrease in margin was primarily caused by a decrease in electric revenues of $38.8 million. This was partially offset by the greater availability of IP's generating stations by improved sales opportunities in 1996 which resulted in an $21 million increase in interchange revenues. Additionally, the same increase in availability also allowed IP to cut the cost of purchased power by $1.3 million during the current period. Revenues were unfavorably impacted by a decrease in industrial sales. Led by declining sales in the foods, metals and mining segments, industrial revenues decreased by 6.9%. Total residential revenues decreased 4.3% while commercial revenues remained relatively constant. The decrease in residential revenue is largely due to 206 fewer cooling degree days in the first nine months of 1996. The equivalent availability of Clinton was 87.9% and 71.5% for the nine months ended September 30, 1996 and 1995, respectively. The lower equivalent availability for Clinton in 1995 was due to a 49-day scheduled maintenance and refueling outage. The equivalent availability for IP's coal- fired plants was 83.3% and 81.7% for the nine months ended September 30, 1996 and 1995, respectively. Gas Operations - Gas revenues increased $32.7 million in the first nine months of 1996. Therm sales increased 18.0% (71.0 million therms) and therms transported decreased resulting in an increase in gas consumption of 7.7% (46.3 million therms). Residential sales increased 16.9% (40.3 million therms), commercial sales increased 20.6% (20.1 million therms) and industrial sales decreased 5.4% (14.1 million therms). The increase in gas sales is due primarily to colder winter weather as compared to 1995, which had a milder than normal winter. The cost of gas purchased for resale increased $24.2 million in the first nine months of 1996. Higher prices increased the cost of gas by $25.7 million and an increase in the volume sold further increased the cost of gas. These increases were partially offset by the effects of the UGAC. Operation and Maintenance Expense - The decrease of $22.9 million dollars is primarily due to lower labor expenses resulting from IP's reengineering efforts and the absence of costs associated with a Clinton refueling outage occurring in the first half of 1995. Additionally, new tariff riders approved by the ICC in March 1996 have resulted in the accelerated recognition of MGP site remediation costs. While this has had the effect of increasing operation expense, the increase has been offset by increased revenues collected under the riders. Miscellaneous - Net - The increase in net deductions of $5.9 million is due to increased operating costs at Illinova and its unregulated subsidiaries, partially offset by increased equity earnings of the subsidiaries. Interest Charges - Total interest charges decreased by $15.1 million due to lower short-term interest rates and the impact of refinancing efforts and capitalization reduction during the first nine months of 1996. Earnings per Common Share - The earnings per common share for Illinova during the first nine months of 1996 and 1995 resulted from the interaction of all other factors discussed herein. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings See "Notes to Consolidated Financial Statements" in Part I for a discussion of certain legal proceedings related to manufactured gas plant sites. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits The Exhibits filed with this 10-Q are listed on the Exhibit Index. (b) Reports on Form 8-K since June 30, 1996: Report filed on Form 8K on August 21, 1996 Report filed on Form 8K on September 13, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOVA CORPORATION (Registrant) By -------------------------- Larry F. Altenbaumer, Chief Financial Officer, Treasurer and Controller on behalf of Illinova Corporation Date: November 14, 1996 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOIS POWER COMPANY (Registrant) By ---------------------- Larry F. Altenbaumer, Senior Vice President, Chief Financial Officer and Treasurer on behalf of Illinois Power Company Date: November 14, 1996 EXHIBIT INDEX PAGE NO. WITHIN SEQUENTIAL NUMBERING EXHIBIT DESCRIPTION SYSTEM 27 Financial Data Schedule UT (filed herewith) EX-27 2 FINANCIAL DATA SCHEDULE UT FOR 1996 THIRD QUARTER 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT OF ILLINOIS POWER COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE BALANCE SHEET, INCOME STATEMENT AND CASH FLOW STATEMENT OF ILLINOIS POWER COMPANY. 1,000,000 DEC-31-1996 JUL-01-1996 SEP-30-1996 3-MOS 1 PER-BOOK 4657 15 414 430 0 5516 1330 0 245 1575 197 97 1587 75 0 191 62 0 62 33 1637 5516 1271 127 848 975 296 (3) 293 95 198 17 181 64 90 360 0 0
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