<PAGE>
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, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to______________
Commission file number 1-3004
ILLINOIS POWER COMPANY
(Exact name of registrant as specified in its charter)
State of Illinois 37-0344645
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 South 27th Street, Decatur, Illinois 62526-1805
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 217-424-6600
Indicate by check mark whether the registrant (1) has 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) has been subject to such filing
requirements for the past 90 days. Yes X No________
Common Stock, without par value, 75,643,937 shares outstanding at
April 30, 1994.
Total number of sequentially number pages is 12.
</page>
<PAGE>
ILLINOIS POWER COMPANY
INDEX
Page No.
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1994 and December 31, 1993 3 - 4
Statements of Income - Three Months ended
March 31, 1994 and 1993 5
Statements of Cash Flows - Three Months ended
March 31, 1994 and 1993 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 -11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
</page>
<PAGE>
PART I. FINANCIAL INFORMATION
ILLINOIS POWER COMPANY
BALANCE SHEETS
(See accompanying Notes to Financial Statements)
<TABLE>
<S> <C> <C>
March 31, December 31,
1994 1993
ASSETS (Unaudited)
(Millions of Dollars)
Utility Plant, at original cost
Electric (includes construction work in progress
of $225.1 million and $218.7 million, respectively) $5,920.9 $ 5,889.4
Gas (includes construction work in progress
of $14.2 million and $18.8 million, respectively) 593.6 589.9
6,514.5 6,479.3
Less-Accumulated depreciation 2,013.1 1,974.6
4,501.4 4,504.7
Nuclear fuel in process 6.5 6.6
Nuclear fuel under capital lease 117.9 128.5
Total utility plant 4,625.8 4,639.8
Investments and Other Assets 21.1 20.1
Current Assets
Cash and cash equivalents 72.4 9.9
Accounts receivable (less allowance for doubtful
accounts of $4.0 million)
Service 83.8 85.2
Other 24.1 37.5
Accrued unbilled revenue 42.3 49.0
Material and supplies, at average cost 114.7 131.6
Prepayments and other 35.3 31.8
Total current assets 372.6 345.0
Deferred Charges
Deferred Clinton costs 113.4 114.3
Recoverable income taxes 115.5 108.0
Other 201.0 196.3
Total deferred charges 429.9 418.6
$ 5,449.4 $ 5,423.5
</TABLE>
</page>
<PAGE>
ILLINOIS POWER COMPANY
BALANCE SHEETS
(See accompanying Notes to Financial Statements)
<TABLE>
<S> <C> <C>
March 31, December 31,
1994 1993
CAPITAL AND LIABILITIES (Unaudited)
(Millions of Dollars)
Capitalization
Common stock -
No par value, 100,000,000 shares authorized;
75,643,937 shares outstanding, stated at $1,424.6 $ 1,424.6
Less - Deferred compensation - ESOP 27.5 28.2
Retained earnings (deficit) (31.4) (64.6)
Less - Capital stock expense 10.6 10.8
Preferred and preference stock 303.7 303.7
Mandatorily redeemable preferred stock 36.0 48.0
Long-term debt 1,946.5 1,926.3
Total capitalization 3,641.3 3,599.0
Current Liabilities
Accounts payable 108.7 128.8
Notes payable 60.5 92.3
Long-term debt and lease obligations maturing
within one year 185.2 187.7
Other 202.2 197.9
Total current liabilities 556.6 606.7
Deferred Credits
Accumulated deferred income taxes 929.4 906.4
Accumulated deferred investment tax credits 232.6 230.5
Other 89.5 80.9
Total deferred credits 1,251.5 1,217.8
$ 5,449.4 $ 5,423.5
</TABLE>
</page>
<PAGE>
ILLINOIS POWER COMPANY
STATEMENTS OF INCOME
(See accompanying Notes to Financial Statements)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
1994 1993
(Unaudited)
(Millions except per share)
Operating Revenues:
Electric $279.5 $249.4
Electric interchange 24.6 20.1
Gas 138.8 125.6
Total 442.9 395.1
Operating Expenses and Taxes:
Fuel for electric plants 71.0 56.6
Power purchased 10.0 3.9
Gas purchased for resale 97.6 83.3
Other operating expenses 66.1 63.0
Maintenance 20.1 22.2
Depreciation 43.9 41.5
Amortization of excess unprotected
deferred taxes (1.4) (1.4)
General taxes 38.6 34.8
Deferred Clinton costs 0.9 2.8
Income Taxes 24.8 20.1
Total 371.6 326.8
Operating Income 71.3 68.3
Other Income and Deductions:
Allowance for equity funds used
during construction 0.9 0.6
Miscellaneous - net (4.2) (0.1)
Total (3.3) 0.5
Income Before Interest Charges 68.0 68.8
Interest Charges:
Interest on long-term debt 34.7 40.2
Other interest charges 1.7 1.8
Allowance for borrowed funds used
during construction (1.6) (1.1)
Total 34.8 40.9
Net Income 33.2 27.9
Preferred dividend requirements 5.9 6.9
Net Income applicable to
common stock $ 27.3 $ 21.0
Net Earnings per common share $ 0.36 $ 0.28
Cash dividends declared per common share $ - $ 0.20
Cash dividends paid per common share $ 0.20 $ 0.20
Weighted average number of common
shares outstanding during period 75,643,937 75,643,937
</TABLE>
</page>
<PAGE>
ILLINOIS POWER COMPANY
STATEMENTS OF CASH FLOWS
(See accompanying Notes to Financial Statements)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31, March 31,
1994 1993
(Unaudited)
(Millions except per share)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 33.2 $ 27.9
Items not requiring cash, net 50.9 55.8
Changes in assets and liabilities 53.7 (23.2)
Net cash provided by operating activities 137.8 60.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (37.8) (33.2)
Other investing activities (1.8) (0.8)
Net cash used in investing activities (39.6) (34.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on preferred and common stock (21.3) (22.5)
Redemptions -
Short-term debt (61.7) (71.0)
Long-term debt -- (260.0)
Preferred Stock (12.0) (22.0)
Issuances -
Short-term debt 30.0 56.6
Long-term debt 35.6 345.0
Other financing activities (6.3) (16.0)
Net cash provided by (used in) financing activities (35.7) 10.1
NET CHANGE IN CASH AND CASH EQUIVALENTS 62.5 36.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9.9 8.7
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72.4 $ 45.3
</TABLE>
</page>
<PAGE>
ILLINOIS POWER COMPANY
_______________
NOTES TO FINANCIAL STATEMENTS
General
Financial Statement note disclosures, normally included in
financial statements prepared in conformity with generally
accepted accounting principles, have been omitted in this Form 10-
Q pursuant to the Rules and Regulations of the Securities and
Exchange Commission. However, in the opinion of Illinois Power
Company (the "Company"), the disclosures and information
contained in this Form 10-Q are adequate and not misleading. See
the Company's Form 10-K for the year ended December 31, 1993 and
the "Notes to Financial Statements" in the Company's 1993 Annual
Report incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1993 for information relevant to the
financial statements contained herein, including information as
to certain regulatory and environmental matters involving the
Company and as to the significant accounting policies followed by
the Company.
In the opinion of the Company, the accompanying unaudited
financial statements reflect all adjustments necessary to present
fairly the Balance Sheet as of March 31, 1994 and December 31,
1993, the Statement of Income for the three months ended March
31, 1994 and 1993, and the Statement of Cash Flows for the three
months ended March 31, 1994 and 1993. 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
Decommissioning
The Company is responsible for its ownership share of the
costs of decommissioning the Clinton Power Station (Clinton).
Based on Nuclear Regulatory Commission (NRC) regulations that
establish a minimum funding level, at December 31, 1993, the
Company's 86.8% share of Clinton decommissioning costs is
estimated to be approximately $344 million in 1993 dollars and
approximately $908 million in 2026 dollars. The NRC minimum is
based only on the cost of removing radioactive plant structures.
A site-specific study to estimate the costs of dismantling,
removal and disposal of Clinton has not been made; however, the
Company plans to undertake this study later in 1994. This study
may result in projected decommissioning costs higher than the NRC
specified funding level.
Decommissioning costs are accrued over the expected useful
service life of Clinton, which is approximately 33 years at March
31, 1994. The accrual is based on the annual levelized
unrecovered portion of estimated decommissioning costs, which are
escalated for inflation to the expected time of decommissioning
and are net of expected earnings on the decommissioning trust
funds. Decommissioning accruals are recorded as depreciation
expense and as a liability for decommissioning on the Statements
of Income and the Balance Sheets, respectively. The current
accrual for decommissioning costs is based on the estimates noted
above and include assumptions of a 3% escalation factor for
inflation and a return on decommissioning trust fund assets of 7%
after taxes.
The Company is collecting future decommissioning costs
through its rates based on an Illinois Commerce Commission (ICC)
approved formula that allows the Company to adjust rates annually
for changes in decommissioning cost estimates. External trusts,
as prescribed under Illinois law and authorized by the ICC, have
been established to accumulate funds for the future
decommissioning of Clinton. At March 31, 1994, the book value of
assets accumulated in the
</page>
<PAGE>
external trusts and the total
decommissioning liability were each approximately $19 million.
The Company recognizes earnings and expenses from the trust funds
as changes in the assets and liabilities relating to these funds.
The net earnings on the external decommissioning trust funds for
both quarters ended March 31, 1994 and 1993 were approximately
$.2 million.
See "Decommissioning" under "Management's Discussion and
Analysis of Financial Condition and Results of Operations " on
page 9 for further discussion. See "Notes to Financial
Statements" presented in the Company's 1993 Annual Report
incorporated by reference in the Company's Form 10-K for the year
ended December 31, 1993 for further discussion of
decommissioning.
</page>
<PAGE>
ILLINOIS POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Reference is made to Notes to Financial Statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations presented in the Company's 1993 Annual
Report incorporated by reference in the Company's Form 10-K for
the year ended December 31, 1993. Important factors affecting
financial condition and results of operations between the periods
indicted are as follows:
Liquidity and Capital Resources
Regulatory Matters
1993 Gas Rate Case
On April 6, 1994, the ICC approved an increase of $18.9
million or 6.1% in the Company's natural gas base rates. The
increase will be partially offset by approximately $15.3 million
in savings from lower gas costs resulting from the expansion of
the Hillsboro gas storage field. The net increase to customers
will be approximately $3.6 million or 1.1%. The approved
authorized rate of return on rate base is 9.29%, with a rate of
return on common equity of 11.24%. The Company's last gas rate
increase was effective January 1983 followed by a gas rate
decrease in December 1984.
In December 1992, the Company filed a petition with the ICC
to lower the gas utility plant composite depreciation rate to
3.4% The proposed reduction was based on new estimates of
remaining plant life as developed in a gas depreciation study
completed in 1992. In July 1993 the ICC issued an order
approving the new rate effective on the date of the order in the
Company's pending gas rate case, which was issued on April 6,
1994.
Formation of Holding Company
On May 3, the Federal Energy Regulatory Commission (FERC)
issued an order approving the Company's proposed formation of a
holding company structure. The Company is still awaiting action
by the Securities and Exchange Commission (SEC) on the
application it has filed with the SEC under the Public Utility
Holding Company Act of 1935 with respect to formation of the
holding company.
Decommissioning
The SEC staff has questioned certain current accounting
practices of the electric utility industry regarding the
recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements.
In response to these questions the Edison Electric Institute, on
behalf of the electric utility industry, has requested the
Financial Accounting Standards Board to review the accounting for
removal costs of nuclear generating stations, including
decommissioning. Although it is too early to determine whether
any changes to current electric utility industry accounting
practices for decommissioning will be adopted, some of the
proposals under consideration include: (1) an increase in the
annual provision for decommissioning; (2) recording the estimated
total cost for decommissioning as a liability; and (3) reporting
trust fund income from the external decommissioning trusts as
investment income. The Company believes that these changes, if
required, would not have an adverse effect on results of
operations due to its current and anticipated future ability to
recover decommissioning costs through rates.
</page>
<PAGE>
Capital Resources and Requirements
Cash flow from operations during the current quarter
provided sufficient working capital to meet ongoing operating and
construction requirements and to service existing preferred and
common stock dividends and debt requirements. Additionally, the
Company expects current rates will enable it to meet future
operating requirements and continue to service its existing debt,
preferred stock and common stock dividends, sinking fund
requirements and all or nearly all of its anticipated
construction requirements.
Capital requirements for construction were approximately $38
million and $33 million during the three months ended March 31,
1994 and 1993, respectively.
The Company's mortgage bonds are currently rated BBB by Duff
& Phelps, Baa2 by Moody's and BBB by Standard & Poor's. On April
13, 1994 Standard & Poor's lowered the Company's mortgage bonds
to a rating of BBB from BBB+. This action came after Standard
and Poor's reviewed the Company's specific business position in
light of revised standards it adopted in 1993 for review of
utility business and financial risks, based in part on a
subjective evaluation of factors such as anticipated growth in
service territory, industrial sales as a proportion of total
revenues, regulatory environment and nuclear plant ownership. On
April 4, 1994 Duff & Phelps upgraded the Company's preferred
stock rating from BB+ to BBB-. The Company's preferred stock is
currently rated baa3 by Moody's and BBB- by Standard & Poor's.
As a result of the September 1993 write-off relating to deferred
Clinton post-construction costs, based upon the most restrictive
earnings test contained in the Company's First Mortgage and Deed
of Trust, the Company anticipates that it will be prohibited from
issuing additional first mortgage bonds for other than refunding
purposes until mid-1994. The Company's ability to issue
additional first mortgage bonds for refunding purposes is
similarly limited by this earnings test in cases where the bonds
to be redeemed are not within two years of maturity. The Company
has adequate short- and intermediate-term bank borrowing
capacity.
The Company has current Board and ICC authorization to issue
up to an additional $117 million of debt securities for
refinancing purposes. The Company has received ICC authorization
to sell up to $50 million of additional accounts receivable and
to issue up to $56.5 million of preferred stock.
In February 1994 the Company redeemed $12 million of
mandatorily redeemable serial preferred stock and issued $35.6
million of 5.7% First Mortgage Bonds pursuant to a forward
contract entered into in June 1992. In May, the forward contract
proceeds will be used to retire $35.6 million First Mortgage
Bonds, 11 5/8% Series due 2014 (Pollution Control Series D).
</page>
<PAGE>
Results of Operations
Three Months Ended March 31, 1994 and 1993
Electric Operations - The current quarter increase of $30.1
million in electric revenues is primarily due to increased sales
to the residential, commercial and industrial sectors and to the
effects of recovery of higher fuel costs through the Uniform Fuel
Adjustment Clause. Total kilowatt-hour sales (excluding
interchange and sales to municipalities) increased 10.6% or 414
million kwh from the first quarter 1993. This resulted primarily
from an increase in residential sales of 9.0% (107 million kwh),
an increase in commercial sales of 5.6% (45 million kwh), and an
increase in industrial sales of 13.1% (245 million kwh).
Interchange sales increased $4.5 million due to increased sales
opportunities.
The current quarter cost of fuel for electric plants
increased $14.4 million and electric generation increased 3.3%.
The increase in fuel cost was attributable to increased
generation and the effects of the Uniform Fuel Adjustment Clause.
The equivalent availability of Clinton was 99% for both the
three months ended March 31, 1994 and 1993, respectively. The
equivalent availability of the Company's coal-fired plants was
71% and 80% for the three months ended March 31, 1994 and 1993,
respectively, decreasing primarily due to scheduled outages.
Power purchased for the current quarter increased $6.1 million
due to increased purchases at lower-than-expected prices and
increased sales opportunities.
Gas Operations - Gas revenues increased $13.2 million in the
first quarter of 1994 primarily due to the effects of the Uniform
Gas Adjustment Clause. Therm sales increased 7.4% (21 million
therms) and therms transported increased 5.8% (4 million therms)
resulting in a combined increase in gas consumption of 7.1% (25
million therms). Residential sales increased 8.3% (16 million
therms), commercial sales and transport increased 9.9% (7 million
therms) and industrial sales and transport increased 2.3% (2
million therms).
The cost of gas purchased for resale increased $14.3 million
in the current quarter as a result of higher costs of gas,
increased sales and the effects of the Uniform Gas Adjustment
Clause.
Gas bypass (i.e., connection by the natural gas customer
directly to a pipeline, "bypassing" the Company's transportation
service) continues to be actively considered and utilized by
several of the Company's large customers. The Company is
aggressively competing with the bypass options available to these
customers in an attempt to minimize the potential loss in
earnings.
Miscellaneous - net - The current quarter increase of $4.1
million is primarily a result of increased coal transportation
costs related to the 1993 United Mine Workers' strike and the
flooding in the Midwest.
Interest on Long-Term Debt - The current quarter decrease of
$5.5 million (13.7%) in interest on long-term debt is a result of
the Company's continued refinancing plans to replace existing
debt with lower-cost debt.
Earnings per Common Share - The earnings per common share
during the first quarter of 1994 and 1993 resulted from the
interaction of all other factors discussed herein and lower
dividend requirements due to the redemption of preferred stock
in 1994 and 1993.
</page>
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting on February 9, 1994, the
stockholders of the Company approved an agreement and plan
of merger for creation of a holding company. 57,647,534
shares were voted for the proposal, 2,087,569 against,
1,334,718 abstained, and there were no broker non-votes.
The holding company has been named Illinova Corporation.
This action was taken as part of the ICC's approval for the
funding of IP Group, Inc., a non-regulated subsidiary of
the Company. Documents have been filed relating to the
formation of a holding company with the ICC, the FERC, the
SEC under the Public Utility Holding Company Act and the
NRC. In January 1994, the NRC gave its consent to the
restructuring. On May 3, the FERC issued an order
approving the Company's holding company filing. The
Company is still awaiting action by the SEC on the
Company's application to the SEC under the Public Utility
Holding Company Act of 1935.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K since December 31, 1993:
A Current Report on Form 8-K, dated February 9,
1994, was filed reporting under Item 5, Other Events.
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/ Alec G. Dreyer
Alec G. Dreyer, Controller
on behalf of the Registrant
and as Principal Accounting Officer
Date: May 10, 1994
