-----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, Pwkokahqt74LsUTW3qq1FJRuwPINZSXIU6hiv0IuRw1u4ZWTUv+Dq9RcwzTkcI+z 9kxvDkWweGlE1xEBhk+17g== 0000049816-96-000010.txt : 19960515 0000049816-96-000010.hdr.sgml : 19960515 ACCESSION NUMBER: 0000049816-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96562851 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 10-Q BASE DOCUMENT 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 MARCH 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to __________ Commission Registrants; State of Incorporation; IRS Employer 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 April 30,1996 Illinois Power Company Common stock, no par value, 72,704,254 shares outstanding held by Illinova Corporation at April 30, 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 MARCH 31, 1996 INDEX PAGE NO. Part 1. 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 - 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for Illinova Corporation and Illinois Power Company 14 - 17 Part II. OTHER INFORMATION Item 1: Legal Proceedings 18 Item 4: Submission of Matters to a Vote of Security Holders 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) MARCH 31, DECEMBER 31, 1996 1995 ASSETS (Unaudited) (Millions of Dollars) Utility Plant, at original cost Electric (includes construction work in progress of $234.1 million and $199.8 million, respectively) $ 6,223.4 $ 6,189.0 Gas (includes construction work in progress of $10.5 million and $10.2 million, respectively) 628.3 625.9 ---------- ---------- 6,851.7 6,814.9 Less-Accumulated depreciation 2,298.3 2,251.7 ---------- ---------- 4,553.4 4,563.2 Nuclear fuel in process 5.8 5.7 Nuclear fuel under capital lease 90.4 95.2 ---------- ---------- Total utility plant 4,649.6 4,664.1 ---------- ---------- Investments and Other Assets 80.9 65.8 ---------- ---------- Current Assets Cash and cash equivalents 16.5 11.3 Notes receivable -- 6.1 Accounts receivable (less allowance for doubtful accounts of $3.0 million) Service 134.9 129.4 Other 20.0 13.2 Accrued unbilled revenue 88.0 89.1 Materials and supplies, at average cost 94.5 111.1 Prepayments and other 35.0 40.4 ---------- ---------- Total current assets 388.9 400.6 ---------- ---------- Deferred Charges Deferred Clinton costs 106.5 107.3 Recoverable income taxes 107.6 128.7 Other 245.8 243.3 ---------- ---------- Total deferred charges 459.9 479.3 ---------- ---------- $ 5,579.3 $ 5,609.8 ========== ========== ILLINOVA CORPORATION CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements) MARCH 31, 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 17.1 18.4 Retained earnings 151.7 129.6 Less - Capital stock expense 8.8 8.8 Preferred stock of subsidiary 125.3 125.6 Mandatorily redeemable preferred stock of subsidiary 197.0 97.0 Long-term debt of subsidiary 1,723.5 1,739.3 ---------- ---------- Total capitalization 3,597.3 3,488.9 ---------- ---------- Current Liabilities Accounts payable 129.1 119.9 Notes payable 204.6 359.6 Long-term debt and lease obligations maturing within one year 96.6 95.0 Other 182.9 173.0 ---------- ---------- Total current liabilities 613.2 747.5 ---------- ---------- Deferred Credits Accumulated deferred income taxes 995.3 1,012.8 Accumulated deferred investment tax credits 221.1 222.8 Other 152.4 137.8 ---------- ---------- Total deferred credits 1,368.8 1,373.4 ---------- ---------- $ 5,579.3 $ 5,609.8 ========== ========== ILLINOVA CORPORATION CONSOLIDATED STATEMENTS OF INCOME (See accompanying Notes to Consolidated Financial Statements) THREE MONTHS ENDED MARCH 31, 1996 1995 (Unaudited) (Millions except per share) Operating Revenues: Electric $ 278.7 $ 288.1 Electric interchange 31.9 22.4 Gas 136.1 115.0 ----------- ----------- Total 446.7 425.5 ----------- ----------- Operating Expenses and Taxes: Fuel for electric plants 66.6 64.3 Power purchased 9.8 14.0 Gas purchased for resale 73.0 64.6 Other operating expenses 65.7 64.2 Maintenance 20.5 28.1 Depreciation & amortization 48.1 45.3 General taxes 37.8 38.2 Income taxes 37.1 28.5 ----------- ----------- Total 358.6 347.2 ----------- ----------- Operating Income 88.1 78.3 ----------- ----------- Other Income and Deductions: Allowance for equity funds used during construction - 0.2 Miscellaneous - net (7.1) (2.4) ----------- ----------- Total (7.1) (2.2) ----------- ----------- Income Before Interest Charges 81.0 76.1 ----------- ----------- Interest Charges: Interest on long-term debt 31.2 34.5 Other interest charges 2.6 3.9 Allowance for borrowed funds used during construction (1.7) (1.2) Preferred dividend requirements of subsidiary 5.6 6.5 ----------- ----------- Total 37.7 43.7 ----------- ----------- Net Income $ 43.3 $ 32.4 =========== =========== Earnings per common share $0.57 $0.43 Cash dividends declared per common share $0.28 $0.25 Cash dividends paid per common share $0.28 $0.25 Weighted average number of common shares outstanding during period 75,674,514 75,643,937 ILLINOVA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (See accompanying Notes to Consolidated Financial Statements) THREE MONTHS ENDED MARCH 31, 1996 1995 (Unaudited) (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 43.3 $ 32.4 Items not requiring cash, net 45.0 58.2 Changes in assets and liabilities 56.0 3.0 -------- -------- Net cash provided by operating activities 144.3 93.6 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (47.9) (48.2) Other investing activities (3.0) (2.6) -------- -------- Net cash used in investing activities (50.9) (50.8) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on common stock (21.2) (18.9) Exercise of stock options 1.1 -- Redemptions - Short-term debt (209.9) (64.6) Long-term debt of subsidiary (10.0) -- Preferred stock of subsidiary (0.3) (15.2) Issuances - Short-term debt 55.0 9.6 Preferred Stock of subsidiary 100.0 -- Other financing activities (2.9) 0.5 --------- --------- Net cash used in financing activities (88.2) (88.6) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 5.2 (45.8) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11.3 50.7 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16.5 $ 4.9 ========= ========= ILLINOIS POWER COMPANY CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements) MARCH 31, DECEMBER 31, 1996 1995 ASSETS (Unaudited) (Millions of Dollars) Utility Plant, at original cost Electric (includes construction work in progress of $234.1 million and $199.8 million, respectively) $ 6,223.4 $ 6,189.0 Gas (includes construction work in progress of $10.5 million and $10.2 million, respectively) 628.3 625.9 ------------ ------------ 6,851.7 6,814.9 Less-Accumulated depreciation 2,298.3 2,251.7 ------------ ------------ 4,553.4 4,563.2 Nuclear fuel in process 5.8 5.7 Nuclear fuel under capital lease 90.4 95.2 ------------ ------------ Total utility plant 4,649.6 4,664.1 ------------ ------------ Investments and Other Assets 15.7 16.4 ------------ ------------ Current Assets Cash and cash equivalents 5.9 4.3 Accounts receivable (less allowance for doubtful accounts of $3.0 million) Service 134.9 129.4 Other 19.6 18.2 Accrued unbilled revenue 88.0 89.1 Materials and supplies, at average cost 94.5 111.1 Prepayments and other 34.9 40.4 ------------ ------------ Total current assets 377.8 392.5 ------------ ------------ Deferred Charges Deferred Clinton costs 106.5 107.3 Recoverable income taxes 107.6 128.7 Other 259.8 258.2 ------------ ------------ Total deferred charges 473.9 494.2 ------------ ------------ $ 5,517.0 $ 5,567.2 ============ ============ ILLINOIS POWER COMPANY CONSOLIDATED BALANCE SHEETS (See accompanying Notes to Consolidated Financial Statements) MARCH 31, 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 151.9 129.6 Less - Capital stock expense 8.8 8.8 Less - 2,977,683 and 2,696,086 shares of common stock in treasury, respectively, at cost 75.0 67.3 Preferred stock 125.3 125.6 Mandatorily redeemable preferred stock 197.0 97.0 Long-term debt 1,723.5 1,739.3 ------------ ------------ Total capitalization 3,538.5 3,440.0 ------------ ------------ Current Liabilities Accounts payable 123.1 119.9 Notes payable 204.6 359.6 Long-term debt and lease obligations maturing within one year 96.6 95.0 Other 182.8 173.0 ------------ ------------ Total current liabilities 607.1 747.5 ------------ ------------ Deferred Credits Accumulated deferred income taxes 1,002.4 1,019.1 Accumulated deferred investment tax credits 221.1 222.8 Other 147.9 137.8 ------------ ------------ Total deferred credits 1,371.4 1,379.7 ------------ ------------ $ 5,517.0 $ 5,567.2 ============ ============ ILLINOIS POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (See accompanying Notes to Consolidated Financial Statements) THREE MONTHS ENDED MARCH 31, 1996 1995 (Unaudited) (Millions of Dollars) Operating Revenues: Electric $ 278.7 $ 288.1 Electric interchange 31.9 22.4 Gas 136.1 115.0 ----------- ___________ Total 446.7 425.5 ----------- ___________ Operating Expenses and Taxes: Fuel for electric plants 66.6 64.3 Power purchased 9.8 14.0 Gas purchased for resale 73.0 64.6 Other operating expenses 65.7 64.2 Maintenance 20.5 28.1 Depreciation & amortization 48.1 45.3 General taxes 37.8 38.2 Income taxes 37.1 28.5 ----------- __________ Total 358.6 347.2 ___________ __________ Operating Income 88.1 78.3 ----------- __________ Other Income and Deductions: Allowance for equity funds used during construction - 0.2 Miscellaneous - net (6.9) 0.5 ____________ __________ Total (6.9) 0.7 ____________ __________ Income Before Interest Charges 81.2 79.0 _____________ ___________ Interest Charges and Other: Interest on long-term debt 31.2 34.5 Other interest charges 2.6 3.9 Allowance for borrowed funds used during construction (1.7) (1.2) ----------- ----------- Total 32.1 37.2 ___________ __________ Net Income 49.1 41.8 Preferred dividend requirements 5.6 6.5 ___________ __________ Net Income applicable to common stock $ 43.5 $ 35.3 =========== ========== ILLINOIS POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (See accompanying Notes to Consolidated Financial Statements) THREE MONTHS ENDED MARCH 31, 1996 1995 (Unaudited) (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 49.1 $ 41.8 Items not requiring cash, net 45.9 58.6 Changes in assets and liabilities 51.7 27.0 ------------- ------------ Net cash provided by operating 146.7 127.4 activities ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (47.9) (48.2) Other investing activities 3.1 (1.0) ------------- ------------ Net cash used in investing (44.8) (49.2) activities ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on preferred and (24.5) (25.7) common stock Repurchase of common stock (7.7) (30.5) Redemptions - Short-term debt (209.9) (64.5) Long-term debt (10.0) -- Preferred Stock (0.3) (15.2) Issuances Short-term debt 55.0 9.6 Preferred Stock 100.0 -- Other financing activities (2.9) 0.5 ------------- ------------ Net cash used in financing (100.3) (125.8) activities ------------- ------------ NET CHANGE IN CASH AND CASH 1.6 (47.6) EQUIVALENTS CASH AND CASH EQUIVALENTS AT 4.3 47.9 BEGINNING OF YEAR ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5.9 $ 0.3 ============ ============= 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) and Illinova's and IP's 1995 Form 10- K filings to the Securities and Exchange Commission 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 March 31, 1996 and December 31, 1995, the Consolidated Statements of Income for the three months ended March 31, 1996 and 1995, and the Consolidated Statements of Cash Flows for the three months ended March 31, 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 March 31, 1996 and December 31, 1995, the Consolidated Statements of Income for the three months ended March 31, 1996 and 1995, and the Consolidated Statements of Cash Flows for the three months ended March 31, 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) and Illinova Power Marketing, Inc. (IPMI). 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. 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. See "Liquidity and Capital Resources" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information on IPFI. IP's consolidated financial position and results of operation are currently the principal factors affecting Illinova's consolidated financial position and results of operations. DECOMMISSIONING COSTS On February 7, 1996, the Financial Accounting Standards Board issued an exposure draft entitled "Accounting for Certain Liabilities Related to Closure or Removal of Long- Lived Assets". The proposed accounting standard would require changes to current electric utility industry accounting practices and will likely be effective beginning January 1, 1997. The proposed changes may result in: 1) increasing annual provisions for decommissioning through increases in depreciation; 2) recording the estimated total cost for decommissioning as a liability with a gross-up to plant balances; and 3) reporting trust fund income from the external decommissioning trusts as investment income rather than as a reduction to decommissioning expense. IP believes that, based on current information, these changes will not have an adverse effect on results of operations due to existing and anticipated future ability to recover decommissioning costs through rates. This belief is based on management's assessment of policies expressed, by both state and federal regulatory agencies, regarding the need to allow recovery mechanisms for such expenses. This belief could be affected in the future by unanticipated changes in these policies. REGULATORY AND LEGAL MATTERS MANUFACTURED GAS PLANT SITES IP is currently recovering Manufactured Gas Plant (MGP) site cleanup costs from its customers through tariff riders approved by the Illinois Commerce Commission (ICC) in March 1996. Previous tariffs allowed IP to recover MGP site remediation costs over a five-year period but did not allow for the recovery of carrying costs. In April 1995, the Illinois Supreme Court ruled that carrying costs should be recoverable. Consequently, the ICC has approved the present tariffs, which allow IP to recover MGP site remediation costs in the year in which they are incurred, eliminating the need to recover carrying costs. Due to the change in cost recovery methods, IP is allowed to collect prior year remediation expense balances and retroactive carrying costs associated with those balances throughout 1996. IP's current estimate of liability for MGP site remediation is $74 million. This amount represents IP's current best estimate of its cost 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 has begun settlement discussions with its insurance carriers regarding the recovery of estimated MGP site remediation costs. A settlement has been reached with one carrier, and an agreement in principle has been reached with two other carriers. On October 17, 1995, IP filed a lawsuit in the Circuit Court of Macon County seeking a declaratory judgment and damages regarding insurance coverage for four MGP sites. Any insurance recoveries received will be credited to IP's customers through the tariff rider mechanism. TREASURY STOCK On March 31, 1996, IP repurchased 281,597 shares of its common stock from Illinova. Through March 31, 1996, IP has purchased 2,977,683 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. COMMON STOCK During the first quarter of 1996, the number of shares of Illinova common stock outstanding increased by 38,000. These new shares were issued to several current and retired officers of IP when they exercised stock purchase options. ENHANCED SEVERANCE In December 1994, IP announced plans for voluntary enhanced retirement and severance programs. These programs were offered to IP employees during the fourth quarter of 1995. At the expiration of the time to accept the enhanced severance offer, IP recorded a liability of $11.0 million to reflect the anticipated costs of the severance program. During the first quarter of 1996, this liability has been reduced by $5.2 million to reflect payments made to severed employees under the program. 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. 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 to various customers outside of IP's present service territory. In September 1995, IPMI began buying and selling wholesale electricity in the western United States. In March 1996, IPMI announced plans to begin buying and selling wholesale electricity in the central United States. On April 10, 1996, Illinova announced its intent to form a new subsidiary to be named Illinova Energy Partners (IEP). The new company will offer a wide range of customized energy services nationwide. IEP will incorporate the ongoing business initiatives of IPMI and the Illinova Energy Services group, a division within Illinova. LIQUIDITY AND CAPITAL RESOURCES CAPITAL RESOURCES AND REQUIREMENTS Cash flows from operations during the first three 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 repurchased 281,597 shares of its common stock from Illinova on March 31, 1996, to provide Illinova cash for operations, in accordance with authority granted by the ICC. Additionally, Illinova currently is reviewing additional financing alternatives to provide cash for operations. Illinois Power Financing I (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. On April 15, 1996, IP issued a notice of redemption to all holders of its Adjustable Rate Series B Preferred Stock. All 410,250 shares outstanding will be redeemed on May 15, 1996, at the redemption price of $50.00 per share. Additionally, since the beginning of 1996, IP has redeemed $39.5 million of bonds through open-market purchases. IP is actively reducing its short-term debt as cash flows from operations allow. IP's capital requirements for construction were approximately $48 million for each of the three months ended March 31, 1996 and 1995. Illinova and IP currently have total lines of credit represented by bank commitments of $404 million. Both Illinova and IP have adequate short- and intermediate-term bank borrowing capacity. IP has remaining shelf authority with the Securities and Exchange Commission to issue $120 million in debt securities and $56.5 million in preferred stock. In March 1996, Duff & Phelps established credit ratings for IP's fixed income securities. IP's mortgage bonds were given a BBB+ rating, and IP's preferred stock was given a BBB- rating. IP's mortgage bonds currently are rated Baa2 by Moody's and BBB by Standard & Poor's. IP's preferred stock currently is rated Baa3 by Moody's and BBB- by Standard & Poor's. REGULATORY MATTERS OPEN ACCESS AND WHEELING On September 11, 1995, IP announced its intention to seek ICC and Federal Energy Regulatory Commission (FERC) approval to conduct an open-energy access experiment beginning in 1996 and ending on December 31, 1999. IP received approval for the experiment from the ICC on March 13, 1996, and from the FERC on April 24, 1996. The experiment allows certain industrial customers to purchase electricity and related services from other sources. On April 25, 1996, the first of the 21 eligible customers began buying electricity from a supplier other than IP. The electricity is being wheeled from another supplier to an IP transmission system. As of May 4, 1996, eight customers were participating in the experiment, and IP expects that as many as ten more eligible customers will participate. IP is studying the feasibility of offering a similar experiment to commercial and residential customers. The maximum total load involved in this experiment represents approximately one percent of IP's total load or about $7.5 million in net annual revenue. IP expects the earnings impact to be immaterial, because any loss of sales would be offset by revenues obtained by selling the surplus energy and capacity on the open market, by transmission and ancillary service charges necessary for customers to obtain energy from an alternative supplier, as well as by corresponding reductions in fuel and other variable operating costs. ENVIRONMENTAL MATTERS GAS MANUFACTURING SITES See "Manufactured Gas Plant Sites" under "Regulatory and Legal Matters" of the Notes to Consolidated Financial Statements on page 12. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 Electric Operations - The current quarter decrease of $9.3 million in electric revenues is primarily due to a decrease in sales to the industrial sector. Total industrial sales decreased 3.6%. The mining sector caused most of the decrease due to decreased mining activity in IP service territory. Reduced pumping activity in the pipeline industry also contributed to the decline in industrial sales. Total kilowatt-hour sales (excluding interchange and sales to municipalities) increased 22 million kwh, or less than 1.0%, from the first quarter 1995. Interchange revenues increased $9.5 million primarily due to greater availability of IP's generating stations and increased sales opportunities. The current quarter cost of fuel for electric plants increased $2.3 million while electric generation increased 25.0%. The increase in fuel cost was due to a higher level of generation and the impact of the Uniform Fuel Adjustment Clause, being partially offset by lower per-unit generation costs at nearly all of IP's power plants. The equivalent availability of IP's Clinton Power Station (Clinton) was 99.7% and 66.2% for the three months ended March 31, 1996 and 1995, respectively. The lower equivalent availability for Clinton in 1995 was due to a scheduled maintenance and refueling outage that began March 12, 1995. The equivalent availability for IP's coal-fired plants was 82.9% and 76.3% for the three months ended March 31, 1996 and 1995, respectively. The increased availability is due to fewer planned outages in the first quarter of 1996. Consequently, power purchased and interchanged for the current quarter decreased $4.2 million, with volume of kwh purchased decreasing by 29.6%. Gas Operations - Gas revenues increased $21.1 million in the first quarter of 1996. Therm sales increased 18.5% (50.1 million therms) and therms transported decreased resulting in an increase in gas consumption of 9.6% (33.3 million therms). Because of the effects of the Uniform Gas Adjustment Clause (UGAC), revenues increased at a greater rate than the increase in volume. Residential sales increased 12.7% (23.8 million therms), commercial sales and transport increased 14.7% (10.7 million therms) and industrial sales and transport decreased 1.4% (1.2 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 $8.4 million in the first quarter. Higher prices increased the cost of gas by $14.5 million and an increase in the quantity purchased further increased the cost of gas purchased. These increases were partially offset by the effects of the UGAC. Gas bypass (connection by the natural gas customer directly to a pipeline, "bypassing" IP's sales and transportation service) is occasionally considered or utilized by several of IP's large customers. IP continues to compete with the bypass options available to these customers in an attempt to minimize the potential loss in earnings. Operation and Maintenance Expense - The current quarter decrease of $6.1 million dollars is due primarily to the absence of costs associated with a Clinton refueling outage which was in progress during the first quarter of 1995. IP's reengineering efforts caused a decrease of $5 million dollars in labor expenses during the first quarter. These decreases have been partially offset by increased pension and benefit funding and increased use of outside consulting services. Miscellaneous - Net - The current quarter increase in net deductions of $4.7 million is partially a result of costs recorded to reflect the planned disposition of property, partially offset by the equity earnings of Illinova's subsidiaries and increased interest revenues. Additionally, in 1995, a favorable ICC decision related to 1993 transportation costs resulted in a one-time positive impact on miscellaneous income. Other Interest Charges - The current quarter decrease of $1.3 million in other interest charges is due to lower short-term borrowings and lower short-term interest rates. Earnings per Common Share - The earnings per common share for Illinova during the first quarter 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 4. Submission of Matters to a Vote of Security Holders At the annual shareholders' meeting held on April 10, 1996, Illinova shareholders elected the Illinova Board of Directors. A total of 66,973,194 shares were voted, with 66,531,800 voted for the nominees named on the proxy solicited by the Illinova Board of Directors. The nominees were: Richard R. Berry, Larry D. Haab, C. Steven McMillan, Donald S. Perkins, Robert M. Powers, Walter D. Scott, Ronald L. Thompson, Walter M. Vannoy, Marilou von Ferstel, John D. Zeglis and Vernon K. Zimmerman. No other business was submitted for a vote at the meeting. 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 December 31, 1995: None. 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 /s/ Larry F. Altenbaumer --------------------------- Larry F. Altenbaumer, Chief Financial Officer, Treasurer and Controller on behalf of Illinova Corporation Date: May 8, 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 /s/ Larry F. Altenbaumer --------------------------- Larry F. Altenbaumer, Senior Vice President, Chief Financial Officer and Treasurer on behalf of Illinois Power Company Date: May 8, 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 This schedule contains summary financial information extracted from the balance sheet, income statements 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. 0000049816 ILLINOIS POWER COMPANY 3-mos DEC-31-1996 MAR-31-1996 PER-BOOK 4649 16 378 474 0 5517 1341 0 152 1493 197 125 1668 56 0 149 62 0 56 35 1676 5517 447 37 322 359 88 (7) 81 32 49 6 43 19 31 147 0 0
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