SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-4117-1
IES UTILITIES INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0331370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IE Tower, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 319-398-4411
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Preferred Stock Par Value $50 per share 4.80%
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Indicate by check mark whether the registrant (l) 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 reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The aggregate market value of the registrant's voting stock held by non-
affiliates, as of February 28, 1994 was $0.
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of February 28, 1994.
Common Stock, $2.50 par value - 13,370,788 shares
PART I
Item l. Business
IES Utilities Inc. (the Company) is a wholly-owned subsidiary of IES
Industries Inc. (Industries). On June 4, 1993, Industries announced that its
wholly-owned utility subsidiaries, Iowa Electric Light and Power Company (IE)
and Iowa Southern Utilities Company (IS), filed applications for regulatory
authority to merge. The merger became effective December 31, 1993, following
receipt of all necessary Boards of Directors, shareholder and regulatory
approvals. IE is the surviving corporation and has been renamed IES Utilities
Inc. The separate existence of IS has ceased.
The Company is a public utility operating company engaged in providing
electric energy, natural gas and, to a limited extent, steam used for heating
and industrial purposes, in the State of Iowa. The Company provided service
to approximately 325,000 electric and 170,000 natural gas retail customers as
well as 32 resale customers in more than 550 Iowa communities at
December 31, 1993. See Note 3 of the Notes to Financial Statements for a
discussion of the Company's acquisition on December 31, 1992, of the Iowa
retail service territory from Union Electric Company (UE).
The Company's sales of electricity (in Kwh), excluding off-system sales,
increased (decreased) 25%, (1.5%) and 5.3%, during the years 1993-1991,
respectively. The 1993 increase is attributable to the acquisition of the UE
service territory and a return to more normal weather conditions. The 1992
results were adversely affected by extremely mild weather conditions in the
Company's service territory. Total gas delivered by the Company, including
transported volumes, increased (decreased) 5.3%, (0.3%) and 1.8% during the
years 1993-1991, respectively.
The approximate percentages of the Company's revenue and operating
income before income taxes and interest derived from the sale of electricity
and gas during the years 1993-1991 are as follows:
1993 1992 1991
Revenues:
Electric 77% 76% 78%
Gas 22 23 21
Operating income before
income taxes and interest:
Electric 90% 91% 99%
Gas 10 8 0
The relationships between the electric and gas percentages presented
above are influenced by changes in energy sales, timing of rate proceedings
and changes in the costs of fuel billed to customers through fuel adjustment
clauses. The 1991 gas operating income was affected by a $3.9 million pre-tax
write-off of previously deferred Former Manufactured Gas Plant (FMGP) clean-up
costs pursuant to disallowance of recovery in an Iowa Utilities Board (IUB)
order.
For additional information concerning electric and gas operations, see
Item 7. "Management's Discussion and Analysis of the Results of Operations and
Financial Condition" and the Electric and Gas Operating Comparisons.
Other Information Relating to the Company
CONSTRUCTION AND ACQUISITION PROGRAM AND FINANCING. The capital
requirements, including $3.3 million of sinking funds that may be met by
pledging additional utility property, for the period 1994-1998 are estimated
at $882 million and are summarized as follows:
Capital Requirements
1994 1995 1996 1997 1998
(in thousands)
Construction expenditures
(excluding allowance
for equity funds used
during construction)-
Electric:
Generation $ 42,157 $ 57,032 $ 55,799 $ 51,512 $ 64,892
Transmission 26,225 28,136 22,465 26,318 21,110
Distribution 35,385 25,868 23,134 33,028 39,724
Other 9,493 7,079 7,314 7,581 7,831
Gas and other 35,972 31,762 35,760 31,871 27,179
Total construction
expenditures 149,232 149,877 144,472 150,310 160,736
Long-term debt
sinking funds and
maturities 1,004 100,920 15,770 8,690 690
Total capital
requirements $ 150,236 $ 250,797 $ 160,242 $ 159,000 $ 161,426
The Company intends to refinance the majority of the debt maturities
with long-term debt.
Approximately 36% of the Company's construction expenditures are related
to generation. Of this amount, approximately 53% represents capacity
expansions and other improvements at generating stations, 37% represents
modifications and improvements at the Duane Arnold Energy Center (DAEC) and
10% represents expenditures related to compliance with the Clean Air Act
Amendments Act of 1990.
For a discussion regarding the Company's assumptions in financing future
capital requirements, see the "Liquidity and Capital Resources" section of
Item 7. "Management's Discussion and Analysis of the Results of Operations and
Financial Condition."
REGULATION. The Company operates pursuant to the laws of the State of
Iowa and is thereby subject to the jurisdiction of the IUB. The IUB has
authority to regulate rates and standards of service, to prescribe accounting
requirements and to approve the location and construction of electric
generating facilities having a capacity in excess of 25,000 Kw. The IUB is
comprised of three Commissioners appointed by the Governor and ratified by the
State Senate. Requests for rate relief are based on historical test periods,
adjusted for certain known and measurable changes. The IUB must decide on
requests for rate relief within 10 months of the date of the application for
which relief is filed or the interim rates granted become permanent. Interim
rates, if allowed, are permitted to become effective, subject to refund, no
later than 90 days after the rate increase application is filed.
In Iowa, non-exclusive franchises, which cover the use of streets and
alleys for public utility facilities in incorporated communities, are granted
for a maximum of twenty-five years by a majority vote of local qualified
residents. In addition, all electric utilities are required by law to define
the boundaries of mutually exclusive service territories. The IUB has
jurisdiction and grants franchises for the use of public highway rights-of-way
for electric and gas facilities outside corporate limits.
The Company is subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) with respect to wholesale electric sales and the
issuance of securities. Revenues derived from the Company's wholesale and
off-system sales amounted to 9.0%, 10.1% and 11.7% of electric revenues for
1993-1991, respectively.
EMPLOYEES. At December 31, 1993, the Company had a total of 2,255
regular full-time employees, of which an aggregate of 1,134 employees were
subject to six collective bargaining arrangements.
RATE MATTERS. Refer to Note 4 of the Notes to Financial Statements for
a discussion of the Company's rate matters.
ELECTRIC OPERATIONS. The Company's net peak load (60 minutes
integrated) of 1,716,380 kilowatts occurred on August 26, 1993. At the time
of the peak load five customers were interrupted representing 53,294 kilowatts
of a possible 231,594 kilowatts available for interruption. The Company's
additional reserve obligation at that time was 214,861 kilowatts. The net
capability of the Company's generating stations at the time of this peak load
was 1,733,700 kilowatts, with an additional 248,000 kilowatts being available
under purchase contracts, thereby providing an aggregate capability of
1,981,700 kilowatts.
In order to meet its electric demand, the Company has firm contracts for
the purchase of capacity. See Note 12(b) of the Notes to Financial Statements
for a discussion of these contracts.
The Company is interconnected with other utilities in Iowa and
neighboring states and is a member of the Mid-Continent Area Power Pool
(MAPP). MAPP's purpose is to coordinate the planning, construction and
operation of generation and transmission facilities, and the purchase and sale
of power and energy among its members.
In addition, the Company, Midwest Power Systems Inc. and Iowa-Illinois
Gas & Electric Company are partners in ENEREX, a general partnership formed to
operate a common control system for dispatching electricity. Through ENEREX,
the most efficient electric generating plants are used to meet the combined
electric needs of the customers of all of the partners. The ENEREX control
center recommends the specific generating units to be operated each day
in order to provide the most economical and efficient use of such units
at any particular time.
The Company is a party to the Twin Cities-Iowa-St. Louis 345 Kv
Interconnection Coordinating Agreement (the Coordinating Agreement) with five
other midwestern utilities, three of which operate in the State of Iowa. The
Coordinating Agreement provides for the interconnection of the respective
systems of the companies through a 345 Kv transmission line and for the
interchange of power on various bases. The rates under the Coordinating
Agreement are primarily determined by agreement between the delivering and
receiving companies.
The Company maintains and operates transmission and substation
facilities connecting with its high voltage transmission systems pursuant to a
noncancellable operating agreement (the Operating Agreement) with Central Iowa
Power Cooperative (CIPCO). The Operating Agreement, which will terminate on
December 31, 2035, provides for the joint use of certain transmission
facilities of the Company and CIPCO.
For comments relating to agreements between the Company and its partners
for the joint ownership of the DAEC, the Ottumwa Generating Station (OGS), and
Neal Unit No. 3, see "Item 2. Properties."
FUEL SUPPLY. The following table details the sources of the electricity
sold by the Company during 1993 and expected sources for the following three
years:
Actual /-------- Expected --------\
1993 1994 1995 1996
Fossil, primarily coal 46% 61% 64% 64%
Nuclear 20 29 24 24
Purchases 34 10 12 12
100% 100% 100% 100%
The above percentages assume nuclear refueling outages will occur during
both 1995 and 1996. There also was a refueling outage in 1993. The 1993 and
1994 purchases include purchases by the Company from Terra Comfort Corporation
(a wholly-owned subsidiary of Industries). The increase in the expected
fossil percentages from the 1993 actual is a function of lower projected fuel
costs for 1994-1996. In addition, the Company anticipates the availability
and efficiency of its fossil generating stations to be greater in 1994-1996
due to improvements made to the stations in recent years.
The Company's primary fuel source is coal and the generation mix is
influenced directly by refueling outages at the DAEC. The average cost of
fuel used for generation by the Company for the years 1993-1991 is presented
below:
1993 1992 1991
Average cost of fuel:
Nuclear, per million Btu's $ .60 $ .55 $ .65
Coal, per million Btu's .97 1.08 1.18
Average for all fuels, per
million Btu's .90 .93 .98
The following table summarizes the Company's minimum coal contract
commitments:
Average Maximum estimated base price
Annual per ton of coal delivered
Quantity Termination Sulfur
(Tons) Date Content 1994 1995 1996
Cordero
Mining
Co. (OGS) (1) 787,000 12/31/01 0.6% $ 18.94 $ 19.22 $ 19.51
Koch Carbon Inc. 100,000 12/31/99 6.2 18.98 19.23 19.48
Exxon Coal USA
Inc. (Neal
No. 3) (1) 214,000 12/31/94 0.6% 13.21 N/A N/A
Short-term
contracts (2) 12/31/94 (2) 14.07 N/A N/A
(1) Cost under the contracts is comprised of base contract prices plus
specifically contracted periodic adjustments for increases in
certain specific costs of producing the coal. The effect of such
adjustments to the base contract prices of future coal cannot
currently be predicted with any certainty.
(2) Tonnage may range from 1,600,000 to 2,200,000 annual tons with
sulfur contents from 0.35% to 1.0%. Certain contracts contain
options for adjusting the shipments plus or minus 25%.
During 1993, the Company purchased a total of 3,342,898 tons of coal for
its generating plants.
At December 31, 1993, the Company had coal inventory at its principal
generating stations ranging from 43 to 93 days' usage during high demand
periods or a weighted average of 65 days' usage.
The Company estimates that its existing coal fired generating units will
require approximately 12,390,000 tons of coal to operate during the period
1994-1996. The Company believes that an ample supply of coal is available
in the spot market and intends to purchase such coal as necessary to
supplement its coal supply contracts and meet its generation requirements.
Some of the Company's contracted coal supply is provided by surface
mining operations which are regulated by the Federal Strip Mine Act. Most of
the surface mining coal contracts contain clauses which pass reclamation and
royalty costs through to the respective utility; such costs billed to the
Company are recoverable through its Energy Adjustment Clauses (EAC). See Note
2(g) of the Notes to Financial Statements for discussion of the EAC.
The Company has purchased a supply of UF6 pursuant to a contract with
Eldorado, Ltd. of Canada which, along with previously purchased and contracted
amounts, will provide the Company with sufficient UF6 to cover its needs
through the 1995 refueling. Plans are currently being developed for purchase
of additional uranium. Such uranium is being held without charge by the
United States Department of Energy (DOE) under a usage agreement between the
DOE and the Company, which allows the Company to retrieve the material as
needed. Enrichment services are being provided by the United States
Enrichment Corporation (USEC) under a contract which extends to the year 2014
or the retirement of the plant, whichever occurs first. Fabrication of the
nuclear fuel is being performed by General Electric Company for fuel through
the 2008 refueling of the DAEC. See Note 12(h) of the Notes to Financial
Statements for a discussion of the Company's assessment under the National
Energy Policy Act of 1992 for the "Uranium Enrichment Decontamination and
Decommissioning Fund," which is based upon prior nuclear fuel purchases.
The Company will be required to store its spent fuel until such time as
it can be shipped off site for storage or disposal. Additional in-plant
storage capability at the DAEC was installed in order to provide an interim
solution through approximately the year 1998. The Company has also signed a
contract with the DOE in which the DOE agrees to assume the responsibility for
the ultimate disposal of spent nuclear fuel beginning in 1998. The DOE has
proposed delaying the start-up date of the final repository until 2010. The
Company is taking additional measures regarding spent nuclear fuel storage and
anticipates spending approximately $1.9 million during 1994 to increase
in-plant storage capacity. This increase in capacity is currently projected
to provide storage capability through 2002, however, this may vary depending
on actual fuel usage during this time.
GAS OPERATIONS. With the advent of FERC Order 636 (Order 636),
effective in 1993, the nature of the Company's gas supply portfolio has
changed. Traditionally, the interstate pipelines serving the Company
(Northern Natural Gas Company (Northern) serving 51%, Natural Gas Pipeline
Company of America (Natural) serving 27% and ANR Pipeline Company (ANR)
serving 22%) were obligated to supply natural gas to the Company under peak
day conditions up to pre-determined contract levels. Order 636, among other
things, eliminated the interstate pipelines' obligation to serve as gas
suppliers and now requires the Company to purchase virtually 100% of gas
supply requirements from non-pipeline suppliers.
Order 636, as modified on rehearing, (1) requires the Company's pipeline
suppliers to unbundle their services so that gas supplies are obtained
separately from transportation service, and transportation and storage
services are operated and billed as separate and distinct services, (2)
requires the pipeline suppliers to offer "no notice" transportation service
under which firm transporters (such as the Company) can receive delivery of
gas up to their contractual capacity level on any day without prior
scheduling, (3) allows pipelines to abandon long-term (one year or more)
transportation service provided to a customer under an expiring contract
whenever the customer fails to match the highest rate and longest term (up to
20 years) offered to the pipeline by other customers for the particular
capacity, and (4) provides for a mechanism under which pipelines can recover
prudently incurred transition costs associated with the restructuring process.
The Company may benefit from enhanced access to competitively priced gas
supply and more flexible transportation services as a result of Order 636.
However, the Company will be required to pay certain transition costs passed
on from its pipeline suppliers as they implement Order 636.
The Company's three pipeline suppliers have filed new tariffs with the
FERC implementing Order 636 and the pipelines have also made filings with the
FERC to begin collecting their respective transition costs. The Company began
paying the transition costs in November 1993, and has recorded a liability of
$5.0 million for such transition costs that have been incurred by the
pipelines to date, including $1.7 million expected to be billed in 1994.
While the magnitude of the total transition costs to be charged to the Company
cannot yet be determined, the Company believes any transition costs the FERC
would allow the pipelines to collect would be recovered from its customers,
based upon past regulatory treatment of similar costs by the IUB.
Accordingly, regulatory assets, in amounts corresponding to the liabilities,
have been recorded to reflect the anticipated recovery.
As a result of each pipeline's Order 636 compliance filing, which became
effective November 1, 1993, for Northern and ANR and December 1, 1993, for
Natural, the Company restructured its gas supply portfolio to reflect
elimination of the pipelines' merchant service.
Contracts with the pipelines subsequent to Order 636 are comprised
primarily of firm transportation, firm storage and no-notice service. Firm
transportation contracts grant the Company access to firm pipeline capacity
which is used to transport gas supplies from non-pipeline suppliers on peak
day. Firm storage service allows the Company to purchase gas during off-peak
periods, and place this gas in an account with the pipelines. When the gas is
needed for peak day deliveries, the Company requests and the pipelines
deliver the gas back on a firm basis. No-notice service is a new service
offered as a result of Order 636. No-notice service grants the Company the
right to take more or less gas than is actually nominated up to the level of
no-notice service. No-notice service takes the form of transportation
balancing or storage service depending on the pipeline.
The Company's portfolio of firm transportation, firm storage and no-
notice service from pipelines is as follows:
Firm Firm
Transportation Storage No-Notice
Northern:
Volume (Dth/day) 140,996 48,218 10,000
Expiration Date 10/31/97 10/31/97 10/31/97
Natural:
Volume (Dth/day) 28,605 37,467 10,000
Expiration Date 11/30/2000 11/30/95 11/30/95
ANR:
Volume (Dth/day) 60,737 19,180 5,000
Expiration Date 10/31/2003 10/31/2003 10/31/2003
In addition to firm storage with pipelines, the Company also contracts
for firm storage from Llano, Inc. This contract calls for peak day deliveries
of 18,667 Dth/day and expires May 31, 1997.
Gas is purchased from a variety of non-pipeline suppliers located in the
United States and Canada having access to virtually all major natural gas
producing regions. For the calendar year 1993, the Company's maximum daily
load occurred on February 17, 1993, with total system flow of 268,419
dekatherms and total contract availability of 274,570 dekatherms.
As a result of Order 636, the Company accepted assignment of certain gas
supply contracts previously held by Northern. Accepting assignment of these
contracts is expected to result in lower costs to the Company than would have
been incurred had Northern bought out the agreements and billed the Company
for its share of such costs.
Contracts assigned to the Company from Northern have maximum delivery
requirements of 29,941 Dth, and minimum take requirements of 5,077 Dth, under
contracts ranging in length from one to fifteen years.
Additional firm gas supply agreements were independently negotiated by
the Company. These gas supply agreements have maximum and minimum obligations
as follows:
Maximum Minimum
Daily Daily
Quantity Quantity
(Dth/day) (Dth/day)
Northern 61,029 29,071
Natural 24,075 19,575
ANR 30,155 20,578
Terms on these gas supply contracts range from five months to five
years.
Rates charged by the Company's pipeline suppliers are subject to
regulation by the FERC. A purchased gas adjustment clause (PGA) allows the
Company to adjust customer rates as a result of changes in the cost of gas
purchased. See Note 2(g) of the Notes to Financial Statements for discussion
of the PGA.
NUCLEAR REGULATORY COMMISSION (NRC) AND OTHER NUCLEAR MATTERS. As an
owner and the operator of a nuclear generating unit at the DAEC, the Company
is subject to the jurisdiction of the NRC. The NRC has broad supervisory and
regulatory jurisdiction over the construction and operation of nuclear
reactors, particularly with regard to public health, safety and environmental
considerations.
The operation and design of nuclear power plants is under constant
review by the NRC. The Company has complied with and is currently complying
with all NRC requests for data relating to these reviews. As a result of such
reviews, further changes in operations or modifications of equipment may be
required, the cost of which cannot currently be estimated.
The NRC issued Generic Letter 88-20 which has required all licensees to
perform an evaluation of their plant's vulnerability to accidents that lead to
the melting of the nuclear core. The initial phase of this effort has been
completed, with the conclusion that an adequate level of safety exists. The
NRC has required an additional evaluation for accidents related to external
events; expenditures have been $0.3 million through 1993 and are estimated to
be an additional $0.4 million through 1995. The results of this evaluation
could indicate that additional safety improvements may be necessary.
Past performance of the Main Steam Isolation Valves (MSIVs) and the High
Pressure Coolant Injection System (HPCI) at the DAEC has required costly
repairs and has generated regulatory concern. The Company has worked with
General Electric to improve the performance of these systems. Through 1993,
$11.0 million has been spent on improvements to these systems. Performance
improvements have been realized and future related expenditures are expected
to be significantly lower. The amount of future expenditures continues to be
dependent on the performance of these systems.
Through 1993, $14.5 million has been expended for various security
system component and equipment upgrades at the DAEC. These upgrades are now
complete. The NRC has also issued new requirements for land vehicle intrusion
detection. The Company expects to spend approximately $2.2 million through
1995 to meet these requirements.
The large amount of change in regulations, designs and procedures that
occur for a nuclear power plant over a period of time presents a difficult
task to ensure that all affected design information documents, procedures and
specifications are continually updated. The Company has developed a
Configuration Management Plan and a Design Basis Program which are designed to
coordinate control of the updating and maintenance of plant documents to
ensure regulatory requirements are met. Through 1993, $5.3 million had been
spent on these programs. It is expected that an additional $1.9 million will
be expended through 1996 for the implementation of these programs.
The NRC has significantly revised federal regulations that deal with
radiation exposure to workers. These changes will require the Company to make
substantial changes in its computer tracking programs, monitoring devices and
training programs for radiation protection. Also, in response to an industry
initiative to further lower radiation exposure to workers, the Company is
undertaking a program to reduce the amount of a particular metal which
develops high radiation characteristics as the reactor is operated. The
Company has spent $4.5 million through 1993 and considers these programs to be
virtually completed.
The NRC has expressed concern to licensees over use of thermolag fire
proofing material in nuclear power plants. The Company anticipates spending
approximately $1.5 million through 1995 to determine if any deficiencies
exist.
A high level radioactive waste depository to be built under the
direction of the Department of Energy will not be ready for use before the
DAEC loses full core discharge capability in 1998. The Company has elected
to increase its spent fuel storage capability to allow for continued full
core discharge through 2002. The Company has expended $3.9 million through
1993 and anticipates expending an additional $1.9 million to complete this
portion of the project by the end of 1994.
Under the Price-Anderson Amendments Act of 1988 (1988 Act), the Company
currently has the benefit of $9.4 billion of public liability coverage which
would compensate the public in the event of an accident at a commercial
nuclear power plant. See Note 12(e) of the Notes to Financial Statements for
a discussion of the Company's exposure to retroactive premium assessments.
The 1988 Act permits such coverage to rise with increased availability of
nuclear insurance and the changing number of operating nuclear plants subject
to retroactive premium assessments. The 1988 Act provides for inflation
indexing (Consumer Price Index every fifth year) of the retroactive premium
assessments.
As an outgrowth of the Three Mile Island Nuclear Power Plant (TMI)
experience, nuclear plant owners have initiated a cooperative insurance
program designed to help cover replacement power expenses for participating
utilities arising from a possible nuclear plant accident. The Company is a
participant in this program. This type of insurance is an industry response
intended to lessen the cost burden on customers in the event of a lengthy
plant shutdown.
To provide this coverage, a nuclear utility mutual insurance company
known as Nuclear Electric Insurance Limited (NEIL) was formed. Under the
Company's policy, following a 21 week waiting period from the time of an
accident, coverage of up to 100% of estimated replacement power costs for an
ensuing one year period is provided and up to 67% of that amount will be
provided for a second and third year. The annual premium cost to the Company
is estimated to be less than the cost of replacement power for one week.
The Company currently carries primary property insurance coverage on the
DAEC facility of $500 million with the Nuclear Insurance Pools (American
Nuclear Insurers & Mutual Atomic Energy Liability Underwriters). Following
the TMI incident, it became apparent to nuclear plant owners that the
commercially available property insurance was inadequate considering the cost
of decontamination. Consequently, the Company obtained excess property
insurance through the Nuclear Insurance Pools and NEIL as it became available.
The Nuclear Insurance Pools excess insurance now provides $850 million of
coverage after losses exceed $500 million. The NEIL excess insurance provides
an additional $1.4 billion of coverage after losses exceed $1.35 billion.
These policies bring the total property coverage to $2.75 billion. The NEIL
policy limits also include $250 million for premature decommissioning.
For information concerning the potential assessment of retroactive
premiums relating to the above described public liability, replacement power
and excess property insurance coverages, refer to Note 12(e) of the Notes to
Financial Statements. The NRC established requirements with respect to
guaranteeing the ability of owners to make such retroactive payments on the
public liability policy. Of the various alternatives available, the Company
elected to submit certified financial statements showing that sufficient cash
flow could be generated and would be available for payment of the required
assessments within a three month period. The maximum of the annual
retroactive premiums was approximately $7 million at December 31, 1993.
The NRC has a backlog of generic and unresolved safety issues which it
is currently studying. Resolution of such issues may require additional
modifications to the DAEC.
NATIONAL ENERGY POLICY ACT. In 1992, the National Energy Policy Act of
1992 (Energy Act) was enacted. In addition to the assessments for the Uranium
Enrichment Decontamination and Decommissioning Fund discussed in Note 12(h) of
the Notes to Financial Statements, the Energy Act addresses a wide range of
energy issues. Title VII of the Energy Act creates exemptions from regulation
under PUHCA and creates a class of exempt wholesale generators consisting of
utility affiliates and nonutilities that are owners and operators of
facilities for the generation and transmission of power for wholesale sales.
In addition, PUHCA has been amended to allow utilities to compete on a global
scale with foreign entities to own and operate generation, transmission and
distribution facilities. The Energy Act also gives FERC the authority to
order investor owned utilities to transmit power and energy to or for
wholesale purchasers and sellers. FERC may also require electric utilities to
increase their transmission capacity to provide these services. The new law
creates the potential for electric utilities and other power producers to gain
increased access to the transmission systems of other entities to facilitate
wholesale sales. The Company is unable to predict the ultimate impact of the
Energy Act on its operations.
ENVIRONMENTAL MATTERS. In addition to the regulations imposed by the
NRC, the Company is regulated in environmental protection matters by a number
of Federal, state and local agencies. Such regulations are the result of a
number of environmental protection laws passed by the U. S. Congress, state
legislature and local governments and enforced by Federal, state and county
agencies. The laws impacting the Company's operations include the Clean Water
Act; Clean Air Act, as amended by the Clean Air Act Amendments Act of 1990;
National Environmental Policy Act; Resource Conservation and Recovery Act;
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), as amended by the Superfund Amendments and Reauthorization Act of
1986; Occupational Safety and Health Act; National Energy Policy Act of 1992
and a number of others.
The Company regularly secures and renews Federal, state and local
permits to comply with the environmental protection laws and regulations.
Costs associated with such compliances have increased in recent years and are
expected to increase moderately in the future. The Clean Air Act Amendments
Act of 1990 calls for significant reductions in sulfur dioxide and nitrogen
oxide air emissions. The majority of such reductions will be required from
utilities. It is anticipated that any costs incurred by the Company will be
recovered from its ratepayers under current regulatory principles. Refer to
Notes 12(a) and 12(g) of the Notes to Financial Statements for additional
information regarding the Company's expected capital expenditures.
The Company has been named as a Potentially Responsible Party (PRP) for
certain FMGP sites by either the Iowa Department of Natural Resources (IDNR)
or the United States Environmental Protection Agency (EPA). The Company is
working with the IDNR and EPA to investigate its 27 sites and to determine the
appropriate remediation activities that may be needed to mitigate health and
environmental concerns.
At December 31, 1993, the Company had recorded $13.1 million of
environmental liabilities, which, pursuant to generally accepted accounting
principles, represents the minimum amount of the estimated range of such costs
which the Company expects to incur. These estimates are subject to continuing
review and could ultimately exceed the recorded amounts.
The Company is investigating the possibility of insurance and third
party cost sharing for FMGP clean-up costs. The amount of shared costs, if
any, cannot be reasonably determined and, accordingly, no potential sharing
has been recorded. Consistent with past rate treatment, management
believes that the clean-up costs incurred by the Company for these FMGP
sites will not have a material adverse effect on the financial position
or results of operations of the Company. Refer to Note 12(f) of the
Notes to Financial Statements for more information.
The Company was notified in 1986 by the EPA of its investigation and
potential corrective action for the control of releases and threatened
releases of hazardous substances at the Maxey Flats Nuclear Disposal site at
Morehead, Kentucky. The EPA action is being taken pursuant to CERCLA, and
under such act the Company has been designated as a PRP (there are 832 in
total) as defined under CERCLA. The EPA notice encouraged all PRP's to
undertake voluntary clean-up activities at the site. A Steering Committee has
been organized and the Company is participating in its activities. Low-level
radioactive wastes were the only materials contributed to the site by the
Company. Such contributions comprise only 0.28% of the total volumes
deposited by all contributors.
The environmental concern is that a release of hazardous substances has
occurred at the Maxey Flats site and that such release may pose an
environmental threat to local surface waters, ground waters, wells and
landowners. The Company's portion of the costs of the remedial activities,
including the ultimate clean-up, are currently estimated at $275,000 which is
included in the $13.1 million of environmental liabilities the Company has
recorded at December 31, 1993. The Company has notified its nuclear insurance
carriers of the proceedings.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 (Act),
which mandates that by January 1, 1993, each state must take responsibility
for the storage of low-level radioactive waste produced within its borders,
will have an impact on disposal practices for low-level radioactive waste over
the next several years. The State of Iowa has joined the Midwest Interstate
Low-Level Radioactive Waste Compact Commission (Midwest Compact Commission),
which is planning a storage facility to be located in Ohio to store waste
generated by the six states in the Midwest Compact Commission. At December
31, 1993, the Company has prepaid costs of $1.1 million (included in "Current
assets - Prepayments and other" in the Balance Sheets) to the Midwest Compact
Commission for the building of such a facility. Due to the legal and
political concerns, the Company cannot estimate the future payments, if any,
that will be made to the Midwest Compact Commission.
Prior to January 1, 1993, the Company and the other members of the
Midwest Compact Commission shipped their low-level wastes to waste management
facilities in Barnwell, South Carolina, Hanford, Washington and Beatty,
Nevada. The Southeast Interstate Low-Level Radioactive Waste Management
Compact Commission permits access to the Barnwell, South Carolina disposal
facility for disposal of low-level radioactive waste at the normal disposal
fee plus an access surcharge of $220 per cubic foot and pursuant to certain
additional contract provisions. Currently, the Company will be required to
store its low-level radioactive waste on site after June 30, 1994, until new
disposal arrangements are finalized among the Midwest Compact Commission
members. On-site storage capability currently exists for low-level
radioactive waste expected to be generated through 1998 and work is in
progress to increase the capability to allow for continued full core discharge
through 2002.
In February 1993, the NRC proposed a rule which would not permit on-site
storage of low-level radioactive waste after January 1, 1996, unless the
generator of such waste can document that it has exhausted other reasonable
waste management options. The Company is currently investigating its options
for the disposal of its low-level radioactive waste.
Refer to Note 12 of the Notes to Financial Statements and Item 3. "Legal
Proceedings" for further discussion of environmental matters.
<PAGE>
<TABLE>
IES UTILITIES INC.
ELECTRIC OPERATING COMPARISON
<CAPTION>
Five year
rate of
1993 1992 1991 1990 1989 1988 growth (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue (000's):
Residential and Rural $206,561 $177,625 $189,194 $185,302 $175,899 $180,520
Commercial 145,898 124,829 124,320 119,908 112,662 110,587
Industrial 137,595 103,886 100,733 97,788 94,222 97,723
Street lighting and public
authorities 6,098 5,410 6,332 6,478 6,282 6,378
Total from ultimate
consumers 496,152 411,750 420,579 409,476 389,065 395,208
Sales for resale 20,254 18,602 19,745 19,582 18,214 17,104
Off-system 29,400 28,304 36,596 31,144 28,281 30,332
Other 4,715 4,343 5,658 3,047 2,973 3,015
$550,521 $462,999 $482,578 $463,249 $438,533 $445,659
Energy sales (000's Kwh):
Residential and Rural 2,528,220 2,158,768 2,367,979 2,254,913 2,222,152 2,269,001 2.2%
Commercial 2,078,635 1,771,357 1,764,495 1,686,132 1,626,046 1,579,086 5.7%
Industrial 3,674,217 2,612,803 2,467,533 2,312,109 2,236,388 2,359,596 9.3%
Street lighting and public
authorities 63,174 60,991 87,022 88,305 86,635 88,870 (6.6%)
Total to ultimate
consumers 8,344,246 6,603,919 6,687,029 6,341,459 6,171,221 6,296,553 5.8%
Sales for resale 561,276 528,752 557,180 538,677 500,253 463,172 3.9%
Sales of electricity to
customers 8,905,522 7,132,671 7,244,209 6,880,136 6,671,474 6,759,725 5.7%
Off-system 2,068,015 2,275,616 2,738,159 2,282,204 1,959,828 2,075,037 (0.1%)
10,973,537 9,408,287 9,982,368 9,162,340 8,631,302 8,834,762 4.4%
Sources of electric energy (000's Kwh):
Generation -
Fossil, primarily coal 5,356,930 4,317,154 4,758,720 4,354,697 4,063,974 4,403,738
Nuclear (2) 2,264,507 2,402,501 2,902,768 2,108,100 2,228,068 2,214,243
Hydro 7,201 7,579 6,547 4,195 1,902 3,300
7,628,638 6,727,234 7,668,035 6,466,992 6,293,944 6,621,281
Purchases 3,949,296 3,322,182 2,994,216 3,282,886 2,891,808 2,810,225
11,577,934 10,049,416 10,662,251 9,749,878 9,185,752 9,431,506
Net capability at time of peak load (Kw) -
Generating capability 1,733,700 1,718,600 1,719,150 1,684,700 1,633,000 1,632,500
Purchase capability 248,000 207,000 227,000 179,000 170,000 90,000
Capacity credits (3) 0 0 0 18,960 20,650 0
1,981,700 1,925,600 1,946,150 1,882,660 1,823,650 1,722,500 2.8%
Net peak load (Kw) (4) 1,716,380 1,425,441 1,607,606 1,547,826 1,486,243 1,543,864 2.1%
Number of customers at year-end 327,265 325,172 305,663 304,265 302,632 300,701 1.7%
Revenue per Kwh (excluding
off-system) in cents 5.85 6.09 6.16 6.28 6.15 6.14
<FN>
(1) The five-year compound growth rates include the effect of the acquisition
of the Iowa service territory from Union Electric Company on
December 31, 1992.
(2) Represents IES Utilities' 70% undivided interest in the Duane Arnold
Energy Center which is operated by IES Utilities.
(3) Represents capacity credits from municipals served by IES Utilities.
(4) 60 minutes integrated.
</TABLE>
<PAGE>
<TABLE>
IES UTILITIES INC.
GAS OPERATING COMPARISON
<CAPTION>
Five year
compound
rate of
1993 1992 1991 1990 1989 1988 growth
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue (000's):
Residential $90,462 $78,685 $74,114 $66,513 $68,751 $71,484
Commercial 45,528 39,780 37,614 35,378 38,035 38,918
Industrial 15,593 18,649 17,383 21,500 25,172 24,693
151,583 137,114 129,111 123,391 131,958 135,095
Other 2,735 2,341 1,908 1,884 1,923 1,514
$154,318 $139,455 $131,019 $125,275 $133,881 $136,609
Energy sales (000's dekatherms):
Residential 16,971 15,098 15,571 14,315 15,878 15,573 1.7%
Commercial 10,133 8,479 9,389 8,798 9,854 9,523 1.2%
Industrial 4,618 6,175 5,980 6,640 7,409 7,780 (9.9%)
31,722 29,752 30,940 29,753 33,141 32,876 (0.7%)
Industrial - transported
volumes 7,284 7,283 6,189 6,733 6,909 6,498 2.3%
Total volumes delivered 39,006 37,035 37,129 36,486 40,050 39,374 (0.2%)
Operating Statistics:
Cost per dekatherm of gas
purchased for resale $3.49 $3.36 $3.10 $3.23 $2.95 $3.42
Sendout capability at time of
peak demand
(in dekatherms) 274,570 273,270 266,563 267,443 271,140 300,231 (1.8%)
Peak daily sendout
(in dekatherms) 268,419 254,989 266,344 272,089 311,600 286,196 (1.3%)
Number of customers at year-end 170,719 167,813 164,078 161,794 160,792 159,931 1.3%
Revenue per dekatherm sold
(excluding transported volumes) $4.78 $4.61 $4.17 $4.15 $3.98 $4.11
</TABLE>
<PAGE>
Item 2. Properties
The Company's principal electric generating stations at December 31,
1993, are as follows:
Net
Kilowatts
Accredited
Major Generating
Name and Location of Station Fuel Type Capability
Duane Arnold Energy Center, Palo, Iowa Nuclear 371,000 (1)
Ottumwa Generating Station, Ottumwa, Iowa Coal 339,840 (2)
Prairie Creek Station, Cedar Rapids, Iowa Coal 234,000
Sutherland Station, Marshalltown, Iowa Coal 145,500
Sixth Street Station, Cedar Rapids, Iowa Coal 66,000
Peaking Turbines, Marshalltown, Iowa Oil 210,000
Diesel Stations, all in Iowa Oil 12,200
Burlington Generating Station, Burlington, Iowa Coal 211,800
Grinnell Station, Grinnell, Iowa Gas 47,200
George Neal Unit 3, Sioux City, Iowa Coal 144,200 (3)
Total generating capability 1,781,740
(1) The capability represents the Company's 70% ownership interest in
the 530,000 Kw generating station. The other owners are Central
Iowa Power Cooperative (20%) and Corn Belt Power Cooperative
(10%). The plant is operated by the Company.
(2) The Company owns 48% of this 708,000 Kw generating station. The
plant is operated by the Company.
(3) This represents the Company's 28% ownership interest in this
515,000 Kw generating station which is operated by an unaffiliated
utility.
At December 31, 1993, the transmission lines of the Company, operating
from 34,000 to 345,000 volts, approximated 4,259 circuit miles (all located in
Iowa). The Company owned 107 transmission substations (all located in Iowa)
with a total installed capacity of 8,426.4 MVa and 464 distribution
substations (all located in Iowa) with a total installed capacity of 2,445.3
MVa.
The Company's principal properties are suitable for their intended use
and are held subject to liens of indentures relating to its First Mortgage
Bonds.
Item 3. Legal Proceedings
On December 24, 1990, IS filed in the United States Federal District
Court (Court) for the Southern District of Iowa, a Complaint for Declaratory
and Other Relief against the Iowa Department of Transportation (IDOT) for
declaratory relief and contribution under CERCLA to recover costs that have
been and will be incurred by IS (subsequently the Company) in connection with
FMGP clean-up costs related to certain real property located in the City of
Burlington, Iowa, and nearby areas, including the Mississippi River. On
February 11, 1991, IDOT filed an Answer and Counterclaim against IS pursuant
to CERCLA, alleging that it had incurred costs and expenses in excess of $1.3
million responding to the release of contamination and requesting judgment
against IS for such costs and for all such future costs. Subsequently, in
correspondence to IS's counsel, IDOT alleged that it had incurred in excess of
$4.7 million in response costs.
On June 3, 1993, the Court approved a Settlement Agreement and Order
Confirming Settlement between IS (subsequently the Company) and IDOT. Under
the terms of the agreement, the Company and IDOT agreed to dismiss the suit
and countersuit discussed above. Additionally, the Company and IDOT have
agreed to a cost-sharing arrangement for future investigation and clean-up
costs at the Burlington site, whereby the Company will absorb the next $15
million of such costs and 75% of additional costs thereafter, to the extent
any such costs are incurred pursuant to clean-up plans acceptable to
regulatory agencies. The Company will also supervise the investigation and
clean-up activities.
Reference is made to Notes 4 and 12 of the Notes to Financial Statements
for a discussion of the Company's rate proceedings and environmental matters.
Also see Item 1. "Business - Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
At a special meeting of the IE preferred shareholders held on
October 22, 1993, the proposed merger of IE and IS was voted upon and
approved. A summary of the results of the vote is as follows:
Shares
Eligible
Shareholder Class to Vote For Against Abstain
4.30% preferred 120,000 110,917 - 308
4.80% preferred 146,406 91,625 267 2,535
6.10% preferred 100,000 63,174 - 2,853
The Company's sole common shareholder, Industries, approved the merger
on May 4, 1993.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
All outstanding common stock of the Company is held by its parent
(Industries) and is not publicly traded.
The amounts of dividends declared for the last two years are as follows:
Quarter Dividends Declared
(000's)
1993
First Quarter $ 10,000
Second Quarter 5,700
Third Quarter 3,800
Fourth Quarter 11,800
$ 31,300
1992
First Quarter $ 13,231
Second Quarter 3,000
Third Quarter 4,462
Fourth Quarter 4,028
$ 24,721
Under terms of the Fifty-fifth and Fifty-sixth Supplemental Indentures
relating to Series W and Series X First Mortgage Bonds, the Company has agreed
that no cash dividends shall be paid or declared, nor shall any distribution
be made on any capital stock, nor shall any shares of such stock be purchased,
redeemed or otherwise acquired for any consideration by the Company or any
subsidiary of the Company, if after immediately giving effect to such payment,
distribution or retirement, (A) the principal amount of all outstanding
defined Unsecured Indebtedness exceeds 20% of defined Total Capitalization, or
(B) the aggregate amount of all such payments, distributions and retirements
made since December 31, 1987 exceeds net income since December 31, 1987 plus
$50,000,000. Pursuant to these terms, at December 31, 1993, $18,209,000 of
retained earnings was restricted as to the payment of cash dividends. The
Company may periodically pay cash dividends on any shares of its preferred or
preference stock at any time issued and outstanding, provided that all such
payments shall be included in the above payments as determined since
December 31, 1987.
Item 6. Selected Financial Data
The following selected financial data, in the opinion of the Company,
includes adjustments, which are normal and recurring in nature, necessary for
the fair presentation of the results of operations and financial position.
See Item 7. "Management's Discussion and Analysis of the Results of
Operations and Financial Condition" for a discussion of transactions that
affect the comparability of the years 1993-1991.
The 1993 results were affected by the acquisition of the Iowa service
territory from Union Electric Company, as discussed in Note 3 of the Notes to
Financial Statements. The 1989 results were affected by a $5.0 million pre-
tax estimated liability to pipeline suppliers recorded in 1988 and eliminated
in 1989 when the issue was favorably resolved. The Selected Financial Data
should be read in conjunction with the Financial Statements, the Notes to
Financial Statements and Management's Discussion and Analysis of the Results
of Operations and Financial Condition contained elsewhere in this report.
Year Ended December 31
1993 1992 1991 1990 1989
($ in thousands, except times interest earned)
Operating revenues $ 713,750 $ 610,262 $ 621,993 $ 595,477 $ 579,834
Operating income 103,919 78,939 78,293 72,446 80,029
Net income 67,970 45,291 47,563 45,969 53,454
Net income available
for common stock 67,056 43,562 45,393 43,569 50,849
Cash dividends declared
on common stock 31,300 24,721 45,321 49,516 45,323
Total assets 1,546,978 1,440,891 1,304,110 1,256,211 1,214,931
Times interest earned
before income taxes 3.64 2.67 2.93 3.04 3.36
Capitalization Ratios:
Common equity 50% 48% 49% 50% 49%
Preferred and
preference stock 2 2 4 4 5
Long-term debt 48 50 47 46 46
100% 100% 100% 100% 100%
<PAGE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion analyzes significant changes in the components
of net income and financial condition during the years 1993 and 1992. See
Note 1 of the Notes to Financial Statements for a discussion of the merger
of Iowa Electric Light and Power Company (IE) and Iowa Southern Utilities
Company (IS), effective December 31, 1993, that formed the Company.
RESULTS OF OPERATIONS
The Company's net income increased $23.5 million during 1993 and
decreased $1.8 million during 1992. The 1993 results reflect the acquisition
of the Iowa service territory of Union Electric Company (UE) (as discussed in
Note 3 of the Notes to Financial Statements) and a return to more normal
weather conditions in the Company's service territory. The floods in Iowa
in 1993 did not significantly affect the Company's results of operations.
The 1992 results were adversely affected by extremely cool summer weather and
a mild winter in the Company's service territory.
The Company's operating income increased $25.0 million and $0.6 million
during 1993 and 1992, respectively, as compared to prior years. Reasons for
the changes in the results of operations are explained in the following
discussion.
ELECTRIC REVENUES
Electric revenues and Kwh sales (excluding off-system sales) increased
$87.5 million and 25%, respectively, during 1993. In 1992, electric revenues
and Kwh sales decreased $19.6 million and 1.5%, respectively. The 1993 sales
increase is attributable to the acquisition of the UE territory and a return
to more normal weather conditions. After adjusting for these items,
underlying electric sales increased 6% in 1993, which reflects the economic
growth in the industrial and commercial customer base.
The 1992 Kwh sales decrease reflects unusually mild weather conditions in
the Company's service territory. Residential sales, which are the most
weather sensitive, decreased 9.5%. However, industrial sales, which are less
sensitive to weather, increased approximately 5.5%. Adjusting for the
effects of weather, Kwh sales increased 2.7%, reflecting economic growth in
the Company's service territory.
The Company's electric tariffs include energy adjustment clauses (EAC)
that are designed to currently recover the costs of fuel and the energy
portion of purchased power billings to customers. See Note 2(g) of the Notes
to Financial Statements for discussion of the EAC. The increase in electric
revenues for 1993 is primarily because of the sales increase and increased
recovery of fuel costs through the EAC.
The revenue decrease in 1992 was primarily related to the lower Kwh sales
discussed above and lower off-system sales to other utilities. A rate decrease
in the former IS service territory that became effective in September 1991
contributed to the revenue decrease to a lesser extent. These items were
partially offset by the effect of the rate increase in the former IE service
territory that became effective in December 1991. See Note 4(b) of the
Notes to Financial Statements for a discussion of the electric rate case
in the former IE service territory.
GAS REVENUES
Gas revenues increased $14.9 million and $8.4 million during 1993 and
1992, respectively. Gas sales in therms (including transported volumes)
increased 5.3% in 1993 and were flat in 1992. Gas sales also reflect the
effects of weather. Adjusting for the effects of weather, gas sales decreased
1.5% in 1993 and increased 1.5% in 1992.
The Company's tariffs include purchased gas adjustment clauses (PGA) that
are designed to currently recover the cost of gas sold. See Note 2(g) of the
Notes to Financial Statements for discussion of the PGA.
Gas revenues increased in 1993 and 1992 substantially because of
increased costs of gas recovered through the PGA and the effect of gas rate
increases in the former service territory of both IE and IS, that became
effective in September 1992. The 1993 sales increase also contributed
to the revenue increase for that year. See Note 4(a) of the Notes to
Financial Statements for a discussion of the gas rate increases.
STEAM REVENUES
Steam revenues increased $1.1 million during 1993 and decreased $0.6
million during 1992, primarily related to fluctuations in sales volumes among
large industrial customers.
OPERATING EXPENSES
Fuel for production increased $14.3 million in 1993 because of increased
availability of the Company's fossil-fueled generating stations, which
experienced extended maintenance outages in 1992, and because of increased
sales. Fuel for production decreased $17.8 million during 1992 primarily
because of a nuclear refueling outage at the Duane Arnold Energy Center
(DAEC), maintenance outages at the fossil-fueled generating stations and
the lower electric sales. There were refueling outages in 1993 and 1992, but
no such outage in 1991. The decrease in Kwh generation during the refueling
and maintenance outages was substantially replaced by purchased power.
Purchased power increased $18.7 million in 1993, of which approximately
$14.7 million represents increased energy purchases and approximately $4.0
million is a net increase in capacity charges. The increase in energy
purchases is because of the increased Kwh sales. The increased capacity
costs reflect the contracts associated with the acquisition of the UE service
territory, partially offset by the expiration, in April 1993, of the purchase
power agreement with the City of Muscatine. (See Note 12(b) of the Notes
to Financial Statements). Purchased power increased $4.5 million in 1992
because of increased purchases during the refueling and maintenance outages,
partially offset by lower purchases related to lower off-system sales.
Gas purchased for resale increased $7.5 million and $5.1 million during
1993 and 1992, respectively. The increases are primarily because of increased
per unit gas costs, and in 1993, increased sales.
Other operating expenses increased $3.6 million in 1993 and decreased
$5.2 million during 1992. The 1993 increase is primarily because of
increased labor and benefit costs and higher electric and gas transmission
and distribution costs, partially offset by lower non-labor costs at the
DAEC. The 1992 decrease was substantially related to a regulatory
disallowance of $3.9 million recorded in April 1991, after the Iowa Utilities
Board (IUB) denied recovery of previously deferred former manufactured gas
plant (FMGP) clean-up costs. Lower non-labor costs at the DAEC and lower
Nuclear Regulatory Commission fees, partially offset by increased labor and
benefit costs, also affected 1992.
Maintenance expenses increased $6.6 million during 1993 and were flat in
1992. The 1993 increase is primarily because of increased maintenance at the
Company's fossil-fueled generating stations and the DAEC. The 1992 maintenance
expenses reflect increased maintenance at fossil-fueled generating stations,
substantially offset by lower maintenance costs at the DAEC.
Depreciation and amortization increased during both years primarily
because of increases in utility plant in service, including the
acquisition of the UE territory on December 31, 1992. An increase in the
average gas utility property depreciation rate, resulting from an updated
depreciation study, also contributed to the 1993 increase. Depreciation and
amortization expenses for both years include $5.5 million for the DAEC
decommissioning provision, which is collected through rates.
Property taxes increased $4.8 million during 1993, primarily because of
the acquisition of the UE service territory and increases assessed values.
Federal and state income taxes included in operating expenses increased
$18.0 million in 1993 primarily because of increases in taxable income and an
increase of 1% in the Federal statutory income tax rate. Such income taxes
decreased $1.9 million in 1992 primarily because of adjustments of
$1.5 million recorded in the second quarter of 1992 to previously recorded
tax reserves and a reduction in taxable income.
INTEREST EXPENSE
Interest expense (long-term debt and other combined) increased in 1993
and 1992 primarily because of an increase in the average amount of debt
outstanding. A reduction in the average interest rate in 1993 substantially
offset the effect of the higher average outstanding debt. The lower average
interest rate reflects the refinancing of certain long-term debt issues at
lower rates and lower-cost short-term borrowings outstanding for interim
periods between the redemption of certain long-term debt series and the
issuance of their long-term replacements. Interest expense related to the
Company's reserves for rate refunds also contributed to the increase in 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily attributable to its
construction programs and debt maturities. Cash and temporary cash investments
increased $16.6 million during 1993. In 1993, cash flows from operating
activities were $149 million. These funds were primarily used for construction
and acquisition expenditures and to pay dividends.
It is anticipated that the Company's future capital requirements will be
met by cash generated from operations and external financing. The level of
cash generated from operations is partially dependent upon economic conditions,
legislative activities, environmental matters and timely rate relief. (See
Notes 4 and 12 of the Notes to Financial Statements). Access to the long-term
and short-term capital and credit markets is necessary for obtaining funds
externally.
The Company's liquidity and capital resources will be affected by
environmental and legislative issues, including the ultimate disposition of
remediation issues surrounding the FMGP issue, the Clean Air Act as amended,
the National Energy Policy Act of 1992, and Federal Energy Regulatory
Commission (FERC) Order 636, as discussed in Note 12 of the Notes to
Financial Statements. Consistent with rate making principles of the IUB,
management believes that the costs incurred for the above matters will
not have a material adverse effect on the financial position or results of
operations of the Company.
The IUB has adopted rules which require the Company to spend 2% of
electric and 1.5% of gas gross retail operating revenues annually for energy
efficiency programs. Energy efficiency costs in excess of the amount in the
most recent electric and gas rate cases are being recorded as regulatory
assets. At December 31, 1993, the Company had $18.5 million of such costs
recorded as regulatory assets. The Company will make its initial filing for
recovery of the costs in 1994.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program anticipates
expenditures of $150 million for 1994, of which approximately 44% represents
expenditures for electric transmission and distribution facilities, 18%
represents fossil-fueled generation expenditures and 10% represents
nuclear generation expenditures. Substantial commitments have been made in
connection with such expenditures.
The Company's levels of construction and acquisition expenditures are
projected to be $149 million in 1995, $144 million in 1996, $149 million in
1997 and $160 million in 1998. It is estimated that approximately 80% of
construction expenditures will be provided by cash from operating activities
(after payment of dividends) for the five year period 1994-1998.
Capital expenditure and investment and financing plans are subject to
continual review and change. The capital expenditure and investment program
may be revised significantly as a result of many considerations including
changes in economic conditions, variations in actual sales and load growth
compared to forecasts, requirements of environmental, nuclear and other
regulatory authorities, acquisition opportunities, the availability of
alternate energy and purchased power sources, the ability to obtain adequate
and timely rate relief, escalations in construction costs and
conservation and energy efficiency programs.
LONG-TERM FINANCING
Other than periodic sinking fund requirements which the Company intends to
meet by pledging additional property, $124 million of long-term debt, including
four series of First Mortgage Bonds aggregating $123 million, will mature prior
to December 31, 1998. The Company intends to refinance the majority of the
debt maturities with long-term debt.
In order to provide an up-to-date instrument for the issuance of bonds,
notes or other evidence of indebtedness, the Company has entered into an
Indenture of Mortgage and Deed of Trust dated September 1, 1993 (New Mortgage).
The lien of the New Mortgage is subordinate to the lien of the Company's first
mortgages until such time as all bonds issued under the first mortgages have
been retired and such mortgages satisfied. The New Mortgage provides for,
among other things, the issuance of Collateral Trust Bonds upon the basis of
First Mortgage Bonds being issued. Accordingly, to the extent that the
Company issues Collateral Trust Bonds on the basis of First Mortgage Bonds,
it must comply with the requirements for the issuance of First Mortgage
Bonds under the Company's first mortgages. Under the terms of the New
Mortgage, the Company has covenanted not to issue any additional First
Mortgage Bonds under its first mortgages except to provide the basis for
issuance of Collateral Trust Bonds.
In November 1993, the Company entered into arrangements with various
cities in the State of Iowa (Cities), whereby the Cities issued an aggregate
of $19.4 million of pollution control revenue refunding bonds (PCRRBs),
all at 5.5%, due 2023. Each series of the PCRRBs is secured, in part, by
payments on a corresponding principal amount of Collateral Trust Bonds, at
5.5%, due 2023. The proceeds received by the Company in the transaction were
used to redeem $10.2 million of Pollution Control Obligations, 5.75%, due
serially 1995-2003 and an aggregate of $9.2 million of First Mortgage Bonds,
Series P & Q, 6.7%, due 2006.
In October 1993, the Company sold $100 million aggregate principal amount
of Collateral Trust Bonds, 6% Series, due 2008, and 7% Series, due 2023. A
portion of the proceeds from the Collateral Trust Bonds was used to retire
short-term debt, with the balance used for general corporate purposes,
including support of the Company's construction program.
In May 1993, the Company redeemed First Mortgage Bonds Series K, 8-5/8%,
principal amount of $20 million, and Series R, 8-1/4%, principal amount of
$25 million and First Mortgage Bonds Series 8-3/4%, principal amount of $15
million. The redemptions were completed with proceeds from short-term
borrowings and, as discussed above, long-term debt was ultimately issued to
replace the short-term borrowings.
The Indentures pursuant to which the Company issues First Mortgage Bonds
constitute direct first mortgage liens upon substantially all tangible public
utility property and contain covenants which restrict the amount of additional
bonds which may be issued. At December 31, 1993, such restrictions would have
allowed the Company to issue $258 million of additional First Mortgage Bonds.
The Company intends to file in the first quarter of 1994 with the FERC for
authority to issue $250 million of long-term debt. The Company is currently
authorized by the SEC to issue $50 million of long-term debt under an existing
registration statement. The Company expects to issue up to $150 million in
1994. The proceeds are expected to be used for the early redemption of three
series of First Mortgage Bonds aggregating $55 million, which have not yet
been called, and for general corporate purposes, including support of its
construction program.
The Articles of Incorporation of the Company authorize and limit the
aggregate amount of additional shares of Cumulative Preferred Stock and
Cumulative Preference Stock which may be issued. At December 31, 1993, the
Company could have issued an additional 700,000 shares of Cumulative Preference
Stock and 100,000 additional shares of Cumulative Preferred Stock.
The Company's capitalization ratios at year-end were as follows:
1993 1992
Long-term debt 48% 50%
Preferred stock 2 2
Common equity 50 48
100% 100%
SHORT-TERM FINANCING
For interim financing, the Company is authorized by the FERC to issue,
through 1994, up to $125 million of short-term notes. This availability of
short-term financing provides the Company flexibility in the issuance of
long-term securities. At December 31, 1993, the Company had outstanding
short-term borrowings of $24 million.
The Company has two agreements, both of which expire in 1994, with
separate financial institutions to sell up to $65 million of its utility
accounts receivable. The Company intends to consolidate the agreements
into one new agreement in 1994. At December 31, 1993, the Company had sold
$53.2 million under the agreements.
At December 31, 1993, the Company had bank lines of credit aggregating
$67.7 million and was using $19.0 million of its lines to support commercial
paper and $7.7 million to support certain pollution control obligations.
Commitment fees are paid to maintain these lines and there are no conditions
which restrict the unused lines of credit. In addition to the above, the
Company has an uncommitted credit facility with a financial institution
whereby it can borrow up to $50 million. Rates are set at the time of
borrowing and no fees are paid to maintain this facility. At December 31,
1993, $5.0 million was borrowed at 3.4% under this facility. The Company
also has a letter of credit in the amount of $3.4 million supporting two
of its variable rate pollution control obligations.
EFFECTS OF INFLATION
Under the rate making principles prescribed by the regulatory commissions
to which the Company is subject, only the historical cost of plant is
recoverable in revenues as depreciation. As a result, the Company has
experienced economic losses equivalent to the current year's impact of
inflation on utility plant.
In addition, the regulatory process imposes a substantial time lag between
the time when operating and capital costs are incurred and when they are
recovered. The Company does not expect the effects of inflation at current
levels to have a significant effect on its results of operations.
<PAGE>
Selected Quarterly Financial Data (unaudited)
The following unaudited quarterly data, in the opinion of the Company,
includes adjustments, which are normal and recurring in nature, necessary for
the fair presentation of the results of operations and financial position.
Quarter Ended
March June September December
31 30 30 31
(in thousands)
1993
Operating revenues $193,784 $148,919 $187,392 $183,655
Operating income 24,100 18,095 36,095 25,629
Net income 14,422 10,491 26,213 16,844
Net income available
for common stock 14,193 10,262 25,985 16,616
1992
Operating revenues $166,494 $132,843 $145,003 $165,922
Operating income 17,721 15,755 26,034 19,429
Net income 9,522 7,501 17,561 10,707
Net income available
for common stock 9,022 7,002 17,059 10,479
The above amounts were affected by seasonal weather conditions and the
timing of utility rate changes. Rate activities are discussed in Note 4 of
the Notes to Financial Statements.
The 1993 results were affected by the acquisition of the Iowa service
territory from Union Electric Company, as discussed in Note 3 of the Notes
to Financial Statements. Refer to Management's Discussion and Analysis for
discussion of the adverse effect of weather upon 1992 results, primarily
in the third quarter.
Item 8. Financial Statements and Supplementary Data
Information required by Item 8. begins on page 48.
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Company's management has prepared and is responsible for
the presentation, integrity and objectivity of the financial
statements and related information included in this report. The
financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent
basis and, in some cases, include estimates that are based upon
management's judgment and the best available information, giving
due consideration to materiality. Financial information
contained elsewhere in this report is consistent with that in the
financial statements.
The Company maintains a system of internal accounting controls
which it believes is adequate to provide reasonable assurance
that assets are safeguarded, transactions are executed in
accordance with management authorization and the financial
records are reliable for preparing the financial statements. The
system of internal accounting controls is supported by written
policies and procedures, by a staff of internal auditors and by
the selection and training of qualified personnel. The internal
audit staff conducts comprehensive audits of the Company's system
of internal accounting controls. Management strives to maintain
an adequate system of internal controls, recognizing that the
cost of such a system should not exceed the benefits derived. In
accordance with generally accepted auditing standards, the
independent public accountants (Arthur Andersen & Co.), obtained
a sufficient understanding of the Company's internal controls to
plan their audit and determine the nature, timing and extent of
other tests to be performed. No material internal control
weaknesses have been reported to management, nor is management
aware of any such weaknesses.
The Board of Directors, through its Audit Committee comprised
entirely of outside directors, meets periodically with
management, the internal auditor and Arthur Andersen & Co. to
discuss financial reporting matters, internal control and
auditing. To ensure their independence, both the internal
auditor and Arthur Andersen & Co. have full and free access to
the Audit Committee.
/s/ Lee Liu
(Signature)
Lee Liu
Chairman of the Board,
President & Chief
Executive Officer
/s/ Blake O. Fisher, Jr.
(Signature)
Blake O. Fisher, Jr.
Executive Vice President &
Chief Financial Officer
/s/ Richard A. Gabbianelli
(Signature)
Richard A. Gabbianelli
Controller & Chief
Accounting Officer
<PAGE>
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
IES Utilities Inc.:
We have audited the accompanying balance sheets and statements of
capitalization of IES UTILITIES INC. (an Iowa corporation) as of
December 31, 1993 and 1992, and the related statements of income,
retained earnings and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements
and the financial statement schedules
referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of IES Utilities Inc. as of December 31, 1993 and 1992, and the
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial statement
schedules listed in Item 14(a)2 are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. These schedules have been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
As discussed in Note 8 to the financial statements, effective
January 1, 1993, IES Utilities Inc. changed its method of
accounting for postretirement benefits other than pensions.
/s/ Arthur Andersen & Co.
(Signature)
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
January 28, 1994
<PAGE>
IES UTILITIES INC.
STATEMENTS OF INCOME
Year Ended December 31
1993 1992 1991
(in thousands)
Operating revenues:
Electric $550,521 $462,999 $482,578
Gas 154,318 139,455 131,019
Steam 8,911 7,808 8,396
713,750 610,262 621,993
Operating expenses:
Fuel for production 87,702 73,368 91,182
Purchased power 93,449 74,794 70,245
Gas purchased for resale 109,122 101,605 96,504
Other operating expenses 123,210 119,607 124,855
Maintenance 46,219 39,573 39,571
Depreciation and amortization 69,407 64,107 61,466
Property taxes 36,426 31,586 31,770
Federal and state income taxes 39,411 21,422 23,307
Miscellaneous taxes 4,885 5,261 4,800
609,831 531,323 543,700
Operating income 103,919 78,939 78,293
Other income and deductions:
Allowance for equity funds used
during construction 824 1,831 820
Miscellaneous, net 2,248 2,803 3,950
3,072 4,634 4,770
Interest:
Long-term debt 34,926 35,689 31,171
Other 5,243 3,939 5,595
Allowance for debt funds used
during construction (1,148) (1,346) (1,266)
39,021 38,282 35,500
Net income 67,970 45,291 47,563
Preferred and preference dividend
requirements 914 1,729 2,170
Net income available for
common stock $ 67,056 $ 43,562 $ 45,393
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
IES UTILITIES INC.
STATEMENTS OF RETAINED EARNINGS
Year Ended December 31
1993 1992 1991
(in thousands)
Balance at beginning of year $153,106 $134,822 $134,750
Add:
Net income 67,970 45,291 47,563
221,076 180,113 182,313
Deduct:
Cash dividends declared -
Common stock 31,300 24,721 45,321
Preferred stock, at stated rates 914 1,665 1,956
Preference stock, at stated rates - 64 214
Preferred stock redemption premiums - 557 -
32,214 27,007 47,491
Balance at end of year
($18,209,000 restricted as to payment
of cash dividends) $188,862 $153,106 $134,822
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
IES UTILITIES INC.
BALANCE SHEETS
December 31
1993 1992
(in thousands)
ASSETS
Utility plant, at original cost:
Plant in service -
Electric $1,707,278 $1,641,536
Gas 147,956 137,227
Other 75,845 73,970
1,931,079 1,852,733
Less - Accumulated depreciation 813,312 759,754
1,117,767 1,092,979
Leased nuclear fuel, net of amortization 51,681 48,505
Construction work in progress 41,937 30,324
1,211,385 1,171,808
Current assets:
Cash and temporary cash investments 18,313 1,743
Accounts receivable -
Customer, less reserve 22,679 24,517
Other 10,330 10,429
Income tax refunds receivable 8,767 -
Production fuel, at average cost 14,338 19,418
Materials and supplies, at average cost 26,861 28,765
Adjustment clause balances - 1,217
Regulatory assets 6,421 3,636
Prepayments and other 31,502 26,085
139,211 115,810
Other assets:
Regulatory assets 149,978 118,215
Nuclear decommissioning trust funds 28,059 21,327
Deferred charges and other 18,345 13,731
196,382 153,273
$1,546,978 $1,440,891
CAPITALIZATION AND LIABILITIES
Capitalization (See Statements of Capitalization):
Common stock $ 33,427 $ 33,427
Paid-in surplus 279,042 229,042
Retained earnings 188,862 153,106
Total common equity 501,331 415,575
Cumulative preferred stock 18,320 18,320
Long-term debt 480,074 441,522
999,725 875,417
Current liabilities:
Short-term borrowings 24,000 92,000
Notes payable - associated companies - 560
Capital lease obligations 15,345 13,211
Sinking funds and maturities 224 224
Accounts payable 47,179 45,384
Dividends payable 5,229 229
Accrued interest 9,438 9,247
Accrued taxes 39,763 41,987
Accumulated refueling outage provision 2,660 7,549
Adjustment clause balances 5,149 -
Provision for rate refund liability 8,670 9,020
Other 27,038 17,848
184,695 237,259
Long-term liabilities:
Capital lease obligations 36,336 35,294
Liability under National Energy Policy Act of 1992 11,984 12,054
Environmental liabilities 9,130 9,815
Other 25,197 17,645
82,647 74,808
Deferred credits:
Accumulated deferred income taxes 237,464 206,099
Accumulated deferred investment tax credits 42,447 47,308
279,911 253,407
Commitments and contingencies (Note 12)
$1,546,978 $1,440,891
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
IES UTILITIES INC.
STATEMENTS OF CAPITALIZATION
December 31
1993 1992
(in thousands)
Common equity:
Common stock - par value $2.50 per share -
authorized 24,000,000 shares; outstanding
13,370,788 shares $ 33,427 $ 33,427
Paid-in surplus 279,042 229,042
Retained earnings 188,862 153,106
501,331 415,575
Cumulative preferred stock - par value $50 per
share - authorized 466,406 shares; outstanding
366,406 shares -
6.10% - Outstanding 100,000 shares 5,000 5,000
4.80% - Outstanding 146,406 shares 7,320 7,320
4.30% - Outstanding 120,000 shares 6,000 6,000
18,320 18,320
Long-term debt:
Collateral trust bonds -
6% series, due 2008 50,000 -
7% series, due 2023 50,000 -
5.5% series, due 2023 19,400 -
119,400 -
First mortgage bonds -
Series J, 6-1/4%, due 1996 15,000 15,000
Series K, 8-5/8%, retired in 1993 - 20,000
Series L, 7-7/8%, due 2000 15,000 15,000
Series M, 7-5/8%, due 2002 30,000 30,000
Series P & Q, 6.70%, retired in 1993 - 9,200
Series R, 8-1/4%, retired in 1993 - 25,000
Series W, 9-3/4%, due 1995 50,000 50,000
Series X, 9.42%, due 1995 50,000 50,000
Series Y, 8-5/8%, due 2001 60,000 60,000
Series Z, 7.60%, due 1999 50,000 50,000
6-1/8% series, due 1997 8,000 8,000
9-1/8% series, due 2001 21,000 21,000
7-3/8% series, due 2003 10,000 10,000
7-1/4% series, due 2007 30,000 30,000
8-3/4% series, retired in 1993 - 15,000
339,000 408,200
Pollution control obligations -
5.75%, retired in 1993 - 10,200
4.90% to 5.75%, due serially 1994 to 2003 3,920 4,144
5.95%, due 2007, secured by First mortgage bonds 10,000 10,000
Variable rate (3.15% at December 31, 1993),
due 2000 to 2010 11,100 11,100
25,020 35,444
Unamortized debt premium and (discount), net (3,122) (1,898)
480,298 441,746
Less - Amount due within one year 224 224
480,074 441,522
$ 999,725 $ 875,417
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
IES UTILITIES INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31
1993 1992 1991
(in thousands)
Cash flows from operating activities:
Net income $67,970 $45,291 $47,563
Adjustments to reconcile net income to
net cash flows from operating activities -
Depreciation and amortization 69,407 64,107 61,466
Principal payments under capital
lease obligations 11,429 11,725 15,471
Deferred taxes and investment tax credits 10,531 (2,406) (13,068)
Amortization of deferred charges 860 961 7,778
Refueling outage provision (4,889) (5,503) 11,553
Allowance for equity funds used during
construction (824) (1,831) (820)
(Gain) loss on disposition of assets, net (655) - 30
Other (1,321) (4,742) (4,026)
Other changes in assets and liabilities -
Accounts receivable (8,553) (571) (3)
Sale of utility accounts receivable 10,490 7,710 (5,000)
Accounts payable 5,620 345 569
Accrued taxes (10,991) 6,118 3,375
Production fuel 5,080 2,579 1,234
Adjustment clause balances 6,366 (4,122) 184
Deferred energy efficiency costs (9,747) (6,877) (1,905)
Provision for rate refunds (350) 7,528 (197)
Other (1,281) (4,519) 2,307
Net cash flows from operating activities 149,142 115,793 126,511
Cash flows from financing activities:
Dividends declared on common stock (31,300) (24,721) (45,321)
Dividends on preferred and preference stock (914) (1,729) (2,170)
Proceeds from issuance of long-term debt 119,400 83,400 88,700
Equity infusion from parent company 50,000 - 40,000
Net change in short-term borrowings (68,560) 51,660 (55,750)
Sinking fund requirements and reductions in
long-term debt and preferred and
preference stock (79,624) (39,429) (31,589)
Principal payments under capital lease
obligations (11,276) (12,337) (14,738)
Dividends payable 5,000 - -
Other (1,295) 476 (500)
Net cash flows from financing activities (18,569) 57,320 (21,368)
Cash flows from investing activities:
Construction and acquisition expenditures (113,212) (171,013) (105,009)
Nuclear decommissioning trust funds (5,532) (5,532) (5,505)
Proceeds from disposition of assets 837 - 203
Other 3,904 (246) (620)
Net cash flows from investing activities (114,003) (176,791) (110,931)
Net increase (decrease) in cash and
temporary cash investments 16,570 (3,678) (5,788)
Cash and temporary cash investments
at beginning of year 1,743 5,421 11,209
Cash and temporary cash investments
at end of year $ 18,313 $ 1,743 $ 5,421
Supplemental cash flow information:
Cash paid during the year for -
Interest $ 39,747 $ 36,503 $ 36,932
Income taxes $ 40,130 $ 23,640 $ 32,925
Noncash investing and financing activities -
Capital lease obligations incurred $ 14,605 $ 1,973 $ 11,874
The accompanying Notes to Financial Statements are an integral part of these
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) GENERAL:
IES Utilities Inc. (the Company) is a wholly-owned subsidiary of IES
Industries Inc. (Industries) and is subject to regulation by the Iowa
Utilities Board (IUB) and the Federal Energy Regulatory Commission (FERC).
On June 4, 1993, Industries announced that its wholly-owned utility
subsidiaries, Iowa Electric Light and Power Company (IE) and Iowa Southern
Utilities Company (IS), filed applications for regulatory authority to merge.
The merger became effective December 31, 1993, following receipt of all
necessary Boards of Directors, shareholder and regulatory approvals.
IE is the surviving corporation and has been renamed IES Utilities Inc.
The separate existence of IS has ceased. The Company serves a total of
325,000 electric and 170,000 natural gas retail customers as well as 32 resale
customers in more than 550 Iowa communities.
The merger was accounted for under a method of accounting similar to
pooling of interests, which combined the ownership interests of IE and IS.
The assets and liabilities of IE and IS were combined at their recorded
amounts as of the merger date.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Regulatory Assets -
The Company is subject to the provisions of Statement of Financial
Accounting Standards No. 71 "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71). The regulatory assets represent probable future
revenue associated with certain incurred costs as these costs are recovered
through the ratemaking process. At December 31, 1993, regulatory assets
were comprised of the following items, and were reflected in the Balance
Sheets as follows:
Regulatory Assets
(in millions)
Deferred income taxes (Note 2(b)) $ 88.6
Energy efficiency programs 18.5
Employee pension and benefit costs (Note 8) 14.1
Environmental liabilities (Note 12(f)) 12.9
National Energy Policy Act of 1992 (Note 12(h)) 12.5
FERC Order No. 636 transition costs (Note 12(i)) 5.0
Cancelled plant costs 3.3
Regulatory study costs 1.5
156.4
Less current amounts 6.4
$150.0
Refer to the individual footnotes referenced above for a discussion of
the specific items reflected in regulatory assets. The amounts reflected
for energy efficiency programs are a result of an IUB mandate whereby 2% of
electric and 1.5% of gas gross retail operating revenues are to be expended
annually for energy efficiency programs. Under this mandate, the Company will
make its initial filing for recovery of the costs in 1994.
(b) Income Taxes -
The Company follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax liabilities and
assets, as appropriate, for all temporary differences between the tax basis
of assets and liabilities and the amounts reported in the financial
statements. Deferred taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for
deferred taxes to reflect the tax effects of temporary differences between
the time when certain costs are recorded in the accounts and when they are
deducted for tax return purposes. As temporary differences reverse, the
related accumulated deferred income taxes are reversed to income. Investment
tax credits have been deferred and are subsequently credited to income over
the average lives of the related property.
Consistent with ratemaking practices, deferred tax expense is not
recorded for certain temporary differences (primarily related to utility
property, plant and equipment). Accordingly, the Company has recorded
deferred tax liabilities and regulatory assets, as discussed in Note 2(a).
(c) Temporary Cash Investments -
Temporary cash investments are stated at cost which approximates market
value and are considered cash equivalents for the Statements of Cash Flows.
These investments consist of short-term liquid investments which have
maturities of less than 90 days from the date of acquisition and at
December 31, 1993, include $15 million invested with affiliated companies.
(d) Depreciation of Utility Property, Plant and Equipment -
The average rates of depreciation for electric and gas properties,
including the Company's nuclear generating station, the Duane Arnold Energy
Center (DAEC), which is being depreciated over a 36 year life using a
remaining life method, were as follows:
1993 1992 1991
Electric 3.5% 3.5% 3.5%
Gas 3.5% 3.0% 3.0%
Based on the most recent site specific study, completed in 1992, the
Company's 70% share of the estimated cost to decommission the DAEC and return
the underlying property to its original state approximated $223 million
in 1992 dollars. The study is based on the prompt removal and dismantling
decommissioning alternative and is assumed to begin at the end of the DAEC's
operating license in 2014. The level of annual recovery through rates of
decommissioning costs is $5.5 million, which is deposited in external trust
funds, and is based on a remaining life recovery method. The annual recovery
level is reviewed and, if necessary, adjusted in each rate case.
Decommissioning costs, at the level collected through rates, are included in
"Depreciation and amortization" expense in the Statements of Income.
In addition to the $28.1 million invested in the external trust funds
as indicated in the Balance Sheets, the Company has an internal
decommissioning reserve of $21.7 million recorded as accumulated depreciation.
Earnings on the external funds are recognized as income and a corresponding
amount of interest expense is recorded for the reinvestment of the earnings.
(e) Allowance for Funds Used During Construction -
The allowance for funds used during construction (AFC), which represents
the cost during the construction period of funds used for construction
purposes, is capitalized as a component of the cost of utility plant.
The amount of AFC applicable to debt funds and to other (equity) funds,
a non-cash item, is computed in accordance with the prescribed FERC formula.
The aggregate gross rates used for 1993-1991 were 5.7%, 9.2% and 8.5%,
respectively.
(f) Operating Revenues -
The Company accrues revenues for services rendered but unbilled at
month-end in order to more properly match revenues with expenses.
(g) Adjustment Clauses -
The Company's tariffs provide for subsequent adjustments to its electric
and natural gas rates for changes in the cost of fuel and purchased energy and
in the cost of natural gas purchased for resale. Changes in the under/over
collection of these costs are reflected in "Fuel for production" and "Gas
purchased for resale" in the Statements of Income. The cumulative effects
are reflected in the Balance Sheets as a current asset or current
liability, pending automatic reflection in future billings to customers.
(h) Accumulated Refueling Outage Provision -
The IUB allows the Company to collect, as part of its base revenues,
funds to offset other operating and maintenance expenditures incurred
during refueling outages at the DAEC. As these revenues are collected, an
equivalent amount is charged to other operating and maintenance expenses
with a corresponding credit to a reserve. During a refueling outage, the
reserve is reversed to offset the refueling outage expenditures.
(i) Reclassifications -
Certain prior period amounts have been reclassified on a basis consistent
with the 1993 presentation.
(3) ACQUISITION OF IOWA SERVICE TERRITORY OF UNION ELECTRIC COMPANY:
Effective December 31, 1992, the Company acquired the Iowa distribution
system and a portion of the Iowa transmission facilities of Union Electric
Company (UE) for $65.0 million in cash. The acquisition was accounted for as
a purchase. The net book value of the acquired assets was approximately
$34.4 million and the amount of the purchase price in excess of the
book value ($30.6 million) has been recorded as an acquisition adjustment.
The acquisition adjustment is being amortized over the life of the property
and is included in "Other income and deductions - Miscellaneous, net" in the
Statements of Income. Recovery of the acquisition adjustment through rates
will be addressed in future rate proceedings. See Note 12(b) for a
discussion of the purchase power contracts with UE associated with this
acquisition.
(4) RATE MATTERS:
(a) Gas Rate Cases -
Former IE Service Territory
In July 1992, IE applied to the IUB for an increase in gas rates of
$6.3 million annually, or 5.9%. Effective September 30, 1992, the
IUB authorized an interim increase of $5.4 million, subject to refund. On
April 30, 1993, the IUB issued its "Final Decision and Order," which
approved stipulations between IE and certain intervenors providing for an
annual increase in revenues of $5.5 million. IE did not have any refund
liability as a result of the Order.
Former IS Service Territory
In July 1992, IS applied to the IUB for an increase in gas rates of
$2.3 million annually, or 6.2%. Effective September 30, 1992, the IUB
authorized an interim increase of $1.9 million, subject to refund. In
February 1993, the IUB approved stipulations between IS and certain
intervenors in the proceeding that provided for an annual increase in revenues
of $1.6 million. As a result of the Order, IS refunded approximately
$0.2 million, including interest, in the second quarter of 1993.
(b) 1991 Electric Rate Case -
In October 1991, IE applied to the IUB for an increase in interim and
final retail electric rates of $18.9 million annually, or 6.0%. The IUB
approved an interim rate increase of $15.6 million, annually, which became
effective in December 1991, subject to refund.
In July 1992, the IUB issued its "Final Decision and Order" approving an
annual electric rate increase of $7.9 million. The application of double
leverage ratemaking theory to IE's capital structure accounted for
approximately $4 million of the difference between the interim rate level
and the amount allowed in the Order. After a limited rehearing of
the double leverage issue, the IUB issued its "Order On Rehearing" in
December 1992, which affirmed the original decision.
IE appealed the IUB's Order to the Iowa District Court (Court). In
December 1993, the Court issued its decision, which upholds the IUB's Order.
The Company did not appeal the Court's decision to the Iowa Supreme Court.
In the second quarter of 1993, IE refunded approximately $4.1 million,
including interest, which represented a refund down to the level of revenues
that would have resulted had it won the appeal. An additional refund,
including interest, of $8.7 million is required at December 31, 1993, as a
result of the Court's decision. The refund is expected to be completed in
the second quarter of 1994. There will be no effect on electric revenues
and net income when the additional refund is made because the Company has
been reserving for the effect of the additional refund.
(5) LEASES:
The Company has a capital lease covering its 70% undivided interest in
nuclear fuel purchased for the DAEC. Future purchases of fuel may also be
added to the fuel lease. This lease provides for annual one year extensions
and the Company intends to exercise such extensions through the DAEC's
operating life. Interest costs under the lease are based on commercial paper
costs incurred by the lessor. The Company is responsible for the payment of
taxes, maintenance, operating cost, risk of loss and insurance relating
to the leased fuel.
The lessor has an $80 million credit agreement with a bank supporting the
nuclear fuel lease. The agreement continues on a year to year basis, unless
either party provides at least a three year notice of termination; no such
notice of termination has been provided by either party.
Annual nuclear fuel lease expenses include the cost of fuel, based on the
quantity of heat produced for the generation of electric energy, plus the
lessor's interest costs related to fuel in the reactor and administrative
expenses. These expenses (included in "Fuel for production" in the Statements
of Income) for 1993-1991 were $12.4 million, $12.9 million and $17.5 million,
respectively.
The Company's operating lease rental expenses for 1993-1991 were
$8.4 million, $6.8 million and $7.0 million, respectively.
The Company's future minimum lease payments by year are as follows:
Capital Operating
Year Lease Leases
(in thousands)
1994 $ 16,994 $ 6,511
1995 11,970 6,353
1996 10,784 4,865
1997 9,940 3,420
1998 4,145 3,549
1999-2003 4,111 12,130
57,944 $ 36,828
Less: Amount
representing interest 6,263
Present value of net
minimum capital
lease payments $ 51,681
(6) UTILITY ACCOUNTS RECEIVABLE:
Customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At
December 31, 1993, the Company was serving a diversified base of residential,
commercial and industrial customers consisting of approximately
325,000 electric and 170,000 gas customers.
The Company has entered into two agreements, one with limited recourse, to
sell undivided fractional interests of an aggregate of $65 million in its pool
of utility accounts receivable. At December 31, 1993, $53.2 million was sold
under the agreements. The agreements expire in June and December 1994. The
Company intends to consolidate the agreements into one new agreement in 1994.
(7) INCOME TAXES:
The components of federal and state income taxes for the years ended
December 31, were as follows:
1993 1992 1991
(in millions)
Classified as Federal and
State Income Taxes:
Current tax expense $ 28.4 $ 24.0 $ 36.3
Deferred tax expense 15.9 0.2 (10.1)
Amortization and adjustment
of investment tax credits (4.9) (2.8) (2.9)
39.4 21.4 23.3
Included in Miscellaneous, net:
Current tax expense (0.9) (0.8) 0.4
Deferred tax expense (0.5) 0.1 (0.2)
(1.4) (0.7) 0.2
Total income tax expense $ 38.0 $ 20.7 $ 23.5
The overall effective income tax rates shown below were computed by
dividing total income tax expense by income before income taxes.
Year Ended December 31
1993 1992 1991
Statutory Federal income tax rate 35.0% 34.0% 34.0%
Add (deduct):
Amortization of investment tax credits (2.5) (4.2) (4.0)
State income taxes, net of Federal
benefits 5.8 5.6 6.4
Property basis and other temporary
differences for which deferred taxes are
not provided under ratemaking principles 1.5 0.5 2.1
Reversal through tariffs of deferred
taxes provided at rates in excess
of the current statutory Federal
income tax rate (1.7) (2.7) (3.7)
Adjustment of prior period taxes (2.0) (2.0) (1.3)
Other items, net (0.3) 0.2 (0.4)
Overall effective income tax rate 35.8% 31.4% 33.1%
The accumulated deferred income taxes as set forth below and in the
Balance Sheets arise from the following temporary differences:
December 31
1993 1992
(in millions)
Property related $ 272 $ 256
Decommissioning related (12) (11)
Investment tax credit related (30) (32)
Other 7 (7)
$ 237 $ 206
(8) BENEFIT PLANS:
The Company has one contributory and two non-contributory retirement plans
which, collectively, cover substantially all of its employees. Plan benefits
are generally based on years of service and compensation during the employees'
latter years of employment. Payments made from the pension funds to
retired employees and beneficiaries during 1993 totaled $10.4 million. In
addition to these payments, the Company purchased annuities totaling
$6.3 million for all previous employees who had retired as of January 1993,
under one of the plans. The cost of the annuities and the reduction
in the projected benefit obligation were substantially equivalent.
The Company's policy is to fund the pension cost at an amount which is at
least equal to the minimum funding requirements mandated by the Employee
Retirement Income Security Act (ERISA) and which does not exceed the maximum
tax deductible amount for the year.
Pursuant to the provisions of SFAS 71, certain adjustments to the Company's
pension provision are necessary to reflect the accounting for pension costs
allowed in the most recent rate cases.
The components of the pension provision are as follows:
Year Ended December 31
1993 1992 1991
(in thousands)
Service cost $ 4,275 $ 4,439 $ 4,517
Interest cost on projected
benefit obligation 11,131 9,999 8,959
Assumed return on plans' assets (12,177) (11,640) (10,026)
Amortization of unrecognized gain (763) (135) (19)
Amortization of prior service cost 1,195 938 775
Amortization of unrecognized plans'
assets as of January 1, 1987 (384) (382) (392)
Pension cost 3,277 3,219 3,814
Adjustment to funding level (2,867) 301 (228)
Total pension costs paid to the
Trustees $ 410 $ 3,520 $ 3,586
Actual return on plans' assets $ 12,718 $ 8,861 $ 37,085
A reconciliation of the funded status of the plans to the amounts
recognized in the Balance Sheets is presented below:
December 31
1993 1992
(in thousands)
Fair market value of plans' assets $ 174,133 $ 177,514
Actuarial present value of benefits
rendered to date -
Accumulated benefits based on
compensation to date, including
vested benefits of $100,905,000
and $91,303,000, respectively 110,676 100,288
Additional benefits based on estimated
future salary levels 42,938 31,324
Projected benefit obligation 153,614 131,612
Plans' assets in excess of projected
benefit obligation 20,519 45,902
Remaining unrecognized net asset existing
at January 1, 1987, being amortized over
20 years (4,109) (5,256)
Unrecognized prior service cost 16,708 14,961
Unrecognized net gain (28,830) (52,709)
Prepaid pension cost recognized in the
Balance Sheets $ 4,288 $ 2,898
Assumed rate of return, all plans 8.00% 8.00%
Weighted average discount rate of
projected benefit obligation, all plans 7.50% 8.25%
Range of assumed rates of increase in
future compensation levels for
the plans 4.00-5.75% 4.00-5.75%
The decrease in the discount rate used to compute the projected benefit
obligation, from 8.25% at December 31, 1992 to 7.50% at December 31, 1993,
accounted for a significant portion of the reduction in the unrecognized net
gain between periods and, similarly, contributed to the increase in the
projected benefit obligation at December 31, 1993.
The Company provides certain benefits to retirees (primarily health care
benefits). Through 1992, the Company expensed such costs as benefits were
paid, which was consistent with ratemaking practices. Such costs totaled
$2.2 million for 1992 and $1.9 million for 1991.
Effective January 1, 1993, the Company adopted SFAS 106, which requires
the accrual of the expected cost of postretirement benefits other than
pensions during the employees' years of service. The IUB has adopted rules
stating that postretirement benefits other than pensions will be included in
rates pursuant to the provisions of SFAS 106. The rules permit the Company
to amortize the transition obligation as of January 1, 1993 over 20 years
and require that all amounts collected are to be funded into an external
trust to pay benefits as they become due. Beginning in 1993, the gas
portion of these costs is being recovered in the Company's gas rates, and are
funded in external trust funds; recovery of the electric portion will be
addressed in future electric proceedings. The IUB has adopted a rule that
permits a deferral of the incremental electric SFAS 106 costs until the
earlier of: 1) an order in an electric rate case, or 2) December 31, 1995.
Accordingly, pursuant to the provisions of SFAS 71, the Company had deferred
$2.9 million of such costs at December 31, 1993, and it expects to file
electric rate cases seeking recovery of the deferred costs before
December 31, 1995.
The components of postretirement benefit costs for the year ended
December 31, 1993, are as follows:
1993
(in thousands)
Service cost $ 1,685
Interest cost on accumulated postretirement
benefit obligation 3,247
Amortization of transition obligation existing
at January 1, 1993 2,024
Postretirement benefit costs 6,956
Less: Deferred postretirement benefit costs 2,858
Net postretirement benefit costs $ 4,098
A reconciliation of the funded status of the plans to the amounts
recognized in the Balance Sheets is presented below:
December 31, January 1,
1993 1993
(in thousands)
Fair market value of plans' assets $ 1,171 $ -
Accumulated postretirement benefit obligation -
Active employees not yet eligible 18,325 18,232
Active employees eligible 4,130 3,698
Retirees 20,140 18,558
Total accumulated postretirement benefit obligation 42,595 40,488
Accumulated postretirement benefit obligation
in excess of plans' assets (41,424) (40,488)
Unrecognized transition obligation 38,463 40,488
Unrecognized net gain (1,167) -
Accrued postretirement benefit cost in the
Balance Sheets $ (4,128) $ -
Assumed rate of return 8.0% -
Weighted average discount rate of
accumulated postretirement benefit obligation 7.5% 8.25%
Medical trend on paid charges:
Initial trend rate 12.0% 13.0%
Ultimate trend rate 6.5% 8.0%
The assumed medical trend rates are critical assumptions in determining
the service cost and accumulated postretirement benefit obligation related to
postretirement benefit costs. A 1% change in the medical trend rates, holding
all other assumptions constant, would have changed the 1993 service cost by
$1.1 million (22%) and the accumulated postretirement benefit obligation at
December 31, 1993 by $6.7 million (16%).
The Company will adopt the provisions of SFAS 112 "Employers' Accounting
for Postemployment Benefits" as of January 1, 1994 and its adoption will not
have a material effect on the Company's financial position or results of
operations. This statement requires that benefits offered to former or
inactive employees after termination of employment, but before retirement, be
accrued over the service lives of the employees if all of the following
conditions are met: 1) the obligation relates to services already performed,
2) the employees' rights vest, 3) the payments are probable, and 4) the
amounts are reasonably determinable. Otherwise, such obligations are to be
recognized at the time they become probable and reasonably determinable.
The Company has generally accounted for these obligations as they were paid.
(9) PREFERRED AND PREFERENCE STOCK:
The Company has 466,406 shares of Cumulative Preferred Stock, $50 par
value, authorized for issuance at December 31, 1993, of which the 6.10%,
4.80% and 4.30% Series had 100,000, 146,406 and 120,000 shares, respectively,
outstanding at both December 31, 1993 and 1992. These shares are redeemable
at the Company's option upon 30 days notice at $51.00, $50.25 and $51.00 per
share, respectively, plus accrued dividends.
The Company also has 700,000 shares of Cumulative Preference Stock
($100 par value) authorized for issuance, of which none were outstanding at
December 31, 1993.
(10) DEBT:
(a) Long-Term Debt -
In November 1993, the Company entered into arrangements with various
cities in the State of Iowa (Cities), whereby the Cities issued an aggregate
of $19.4 million of pollution control revenue refunding bonds (PCRRBs), all
at 5.5%, due 2023. Each series of the PCRRBs is secured, in part, by
payments on a corresponding principal amount of Collateral Trust Bonds,
at 5.5%, due 2023. The proceeds received by the Company in the transaction
were used to redeem $10.2 million of Pollution Control Obligations, 5.75%, due
serially 1995-2003 and an aggregate of $9.2 million of First Mortgage Bonds,
Series P & Q, 6.7%, due 2006.
In October 1993, the Company sold $100 million aggregate principal amount
of Collateral Trust Bonds, 6% Series, due 2008, and 7% Series, due 2023. A
portion of the proceeds from the Collateral Trust Bonds was used to retire
short-term debt, with the balance used for general corporate purposes,
including support of its construction program.
In May 1993, the Company redeemed First Mortgage Bonds Series K, 8-5/8%,
principal amount of $20 million, and Series R, 8-1/4%, principal amount of
$25 million and First Mortgage Bonds Series 8-3/4%, principal amount of
$15 million. The redemptions were completed with proceeds from short-term
borrowings and, as discussed above, long-term debt was ultimately issued to
replace the short-term borrowings.
The Company's Indentures and Deeds of Trust securing its First Mortgage
Bonds constitute direct first mortgage liens upon substantially all tangible
public utility property. The Company's Indenture and Deed of Trust securing
its Collateral Trust Bonds constitutes a second lien on substantially all
tangible public utility property while First Mortgage Bonds remain
outstanding.
Total sinking fund requirements, which the Company intends to meet by
pledging additional property under the terms of the Company's Indentures and
Deeds of Trust, and debt maturities for 1994-1998 are as follows:
Debt maturities
(in thousands)
Debt Issue 1994 1995 1996 1997 1998
Sinking Fund
Requirements $ 780 $ 780 $ 630 $ 550 $ 550
Pollution
Control 224 140 140 140 140
Series W - 50,000 - - -
Series X - 50,000 - - -
Series J - - 15,000 - -
6 1/8% Series - - - 8,000 -
$1,004 $100,920 $ 15,770 $ 8,690 $ 690
The Company intends to refinance the majority of the debt maturities with
long-term debt.
(b) Short-Term Debt -
At December 31, 1993, the Company had bank lines of credit aggregating
$67.7 million and was using $19.0 million to support commercial paper and
$7.7 million to support certain pollution control obligations. Commitment
fees are paid to maintain these lines and there are no conditions which
restrict the unused lines of credit. In addition to the above, the Company
has an uncommitted credit facility with a financial institution whereby it
can borrow up to $50 million. Rates are set at the time of borrowing and no
fees are paid to maintain this facility. At December 31, 1993, $5.0 million
was borrowed at 3.4% under this facility. The Company also has a letter
of credit in the amount of $3.4 million supporting two of its variable
rate pollution control obligations.
(11) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of financial instruments at December 31, 1993,
and the basis upon which they were estimated are as follows:
Current assets and current liabilities -
The carrying amount approximates fair value because of the short
maturity of such financial instruments.
Nuclear decommissioning trust funds -
The estimated fair value of these trust funds, as reported by the
trustee based upon current market values, is $29.5 million.
Cumulative preferred stock -
The estimated fair value of this stock of $12.8 million is based
upon quoted market prices.
Long-term debt -
The carrying amount of long-term debt was $480 million compared to
estimated fair value of $507 million. The estimated fair value of
long-term debt is based upon quoted market prices.
Since the Company is subject to regulation, any gains or losses related
to the difference between the carrying amount and the fair value of financial
instruments may not be realized by the Company's parent.
(12) COMMITMENTS AND CONTINGENCIES:
(a) Construction Program -
The Company's construction and acquisition program anticipates
expenditures of approximately $150 million, for which substantial commitments
have been made.
(b) Purchase Power Contracts -
The Company has a purchase power contract with Terra Comfort Company
(Terra Comfort), a wholly-owned subsidiary of Industries, for annual capacity
purchases of 114 Mw that expires on December 31, 1994.
In connection with the acquisition of the UE properties discussed in
Note 3, the Company is purchasing power from UE under a five-year firm
capacity contract with a 1994 requirement of 120 Mw of delivered capacity
declining to 60 Mw in 1997. The Company will also purchase an additional
maximum interruptible capacity of up to 54 Mw of 25 Hz power. This 25 Hz
power purchase will extend through 1998 and will continue thereafter unless
either party gives a three-year notice of cancellation.
The costs of capacity purchases for these contracts are reflected in
"Purchased power" in the Statements of Income.
Total capacity charges under all existing contracts will approximate
$21.0 million, $14.7 million, $11.4 million, $8.7 million and $0.3 million
for the years 1994-1998, respectively.
(c) Coal Contract Commitments -
The Company has entered into coal supply contracts which expire between
1994 and 2001 for its fossil-fueled generating stations. At December 31,
1993, the contracts cover approximately $147 million of coal over the life
of the contracts, which includes $34 million expected to be incurred in
1994. The Company expects to supplement these coal contracts with spot
market purchases to fulfill its future fossil fuel needs.
(d) Information Technology Services -
In 1992, the Company entered into an agreement with Electronic Data
Systems Corporation (EDS) for information technology services. The term of
the contract is twelve years and the contract is subject to declining
termination fees. The Company's anticipated expenditures under the agreement
for 1994 are estimated to be approximately $8.9 million. Future costs under
the agreement are variable and are dependent upon the Company's level of
usage of technological services from EDS, as well as inflation.
(e) Nuclear Insurance Programs -
The Price-Anderson Amendments Act of 1988 (1988 Act) provides the Company
with the benefit of $9.4 billion of public liability coverage consisting of
$200 million of insurance and $9.2 billion of potential retroactive
assessments from the owners of nuclear power plants. Under the 1988 Act,
the Company could be assessed a maximum of $79 million per nuclear incident,
with a maximum of $10 million per year (of which the Company's 70% ownership
portion would be $55 million and $7 million, respectively) if losses
relating to the incidents exceeded $200 million. These limits are subject to
adjustments for inflation in future years.
Pursuant to provisions in various nuclear insurance policies, the Company
could be assessed retroactive premiums in connection with future accidents at
a nuclear facility owned by a utility participating in the particular
insurance plan. With respect to excess property damage and replacement
power coverages, the Company could be assessed annually a maximum of
$8.5 million and $1 million, respectively, if the insurer's losses relating
to accidents exceeded its reserves. While assessments may also be made for
losses in certain prior years, the Company is not aware of any losses in such
years that it believes are likely to result in an assessment.
(f) Environmental Liabilities -
At December 31, 1993, the Company's Balance Sheet reflects $13.1 million
(including $4.0 million as current) of environmental liabilities, which,
pursuant to generally accepted accounting principles, represents the minimum
amount of the estimated range of such costs that the Company expects to
incur. The minimum amount of the range is used because no amount within
the range represents a better estimate. These estimates are subject to
continuing review.
The Company has been named as a Potentially Responsible Party (PRP) for
certain former manufactured gas plant (FMGP) sites by either the Iowa
Department of Natural Resources (IDNR) or the Environmental Protection
Agency (EPA). The Company is working with the IDNR and EPA to investigate
its 27 sites and to determine the appropriate remediation activities that may
be needed to mitigate health and environmental concerns. Such investigations
are expected to be completed by 1999 and site-specific remediations are
anticipated to be completed within 3 years after the completion of the
investigations of each site. The Company may be required to monitor these
sites for a number of years upon completion of remediation.
The Company is investigating the possibility of insurance and third party
cost sharing for FMGP clean-up costs. The amount of shared costs, if any, can
not be reasonably determined and, accordingly, no potential sharing has been
recorded. Regulatory assets of $12.9 million have been recorded in the
Balance Sheets, which reflects the future recovery that is being provided
through the Company's rates (See Note 2(a)). Considering the recorded
reserves for environmental liabilities and the past rate treatment
allowed by the IUB, management believes that the clean-up costs incurred
by the Company for these FMGP sites will not have a material adverse effect on
its financial position or results of operations.
(g) Clean Air Act -
The Clean Air Act Amendments of 1990 (Act) requires emission reductions
of sulfur dioxide and nitrogen oxides to achieve reductions of atmospheric
chemicals believed to cause acid rain. The provisions of the Act will be
implemented in two phases with Phase I affecting two of the Company's units
beginning in 1995 and Phase II affecting all units beginning in the
year 2000.
The Company expects to meet the requirements of the Act by switching to
lower sulfur fuels and through capital expenditures primarily related to fuel
burning equipment and boiler modifications. The Company estimates capital
expenditures at approximately $28 million, including $4 million in 1994, in
order to meet these requirements of the Act.
(h) National Energy Policy Act of 1992 -
The National Energy Policy Act of 1992 requires owners of nuclear power
plants to pay a special assessment into a "Uranium Enrichment Decontamination
and Decommissioning Fund." The assessment is based upon prior nuclear fuel
purchases and, for the DAEC, averages $1.3 million annually through 2007,
of which the Company's 70% share is $0.9 million. The Company is recovering
the costs associated with this assessment through its electric fuel adjustment
clauses over the period the costs are assessed. The Company's 70% share of
the future assessment, $12.7 million payable through 2007, has been recorded
as a liability in the Balance Sheets, including $0.7 million included
in "Current liabilities - other," with a related regulatory asset for the
unrecovered amount (See Note 2(a)).
(i) FERC Order No. 636 -
The FERC issued Order No. 636 (Order 636) in 1992. Order 636 as modified
on rehearing, (1) requires the Company's pipeline suppliers to unbundle their
services so that gas supplies are obtained separately from transportation
service, and transportation and storage services are operated and billed as
separate and distinct services, (2) requires the pipeline suppliers to offer
"no notice" transportation service under which firm transporters (such as the
Company) can receive delivery of gas up to their contractual capacity level on
any day without prior scheduling, (3) allows pipelines to abandon long-term
(one year or more) transportation service to a customer whenever the customer
fails to match the highest rate and longest term (up to 20 years) offered to
the pipeline by other customers for the particular capacity, and (4) provides
for a mechanism under which pipelines can recover prudently incurred
transition costs associated with the restructuring process. The Company may
benefit from enhanced access to competitively priced gas supply and more
flexible transportation services as a result of Order 636. However, the
Company will be required to pay certain transition costs passed on from its
pipeline suppliers as they implement Order 636.
The Company's three pipeline suppliers have filed new tariffs with the
FERC implementing Order 636 and the pipelines have also made filings with the
FERC to begin collecting their respective transition costs. The Company
began paying the transition costs in November 1993, and has recorded a
liability of $5.0 million for such transition costs that have been
incurred by the pipelines to date, including $1.7 million expected to be
billed in 1994. While the magnitude of the total transition costs to be
charged to the Company cannot yet be determined, the Company believes any
transition costs the FERC would allow the pipelines to collect would be
recovered from its customers, based upon past regulatory treatment of
similar costs by the IUB. Accordingly, regulatory assets, in amounts
corresponding to the liabilities, have been recorded to reflect the
anticipated recovery.
(13) JOINTLY-OWNED ELECTRIC UTILITY PLANT:
Under joint ownership agreements with other Iowa utilities, the Company
has undivided ownership interests in jointly-owned electric generating
stations and related transmission facilities. Each of the respective owners
is responsible for the financing of its portion of the construction
costs. Kilowatt-hour generation and operating expenses are divided on the
same basis as ownership with each owner reflecting its respective
costs in its Statements of Income. Information relative to the Company's
ownership interest in these facilities at December 31, 1993 is as follows:
Ottumwa Neal
DAEC Unit 1 Unit 3
($ in millions)
Utility plant in service $ 484 $ 179 $ 43
Accumulated depreciation $ 221 $ 69 $ 22
Construction work in progress $ 7 $ - $ -
Plant capacity - Mw 530 708 515
Percent ownership 70% 48% 28%
In-service date 1974 1981 1975
(14) SEGMENTS OF BUSINESS:
The principal business segments of the Company are the generation,
transmission, distribution and sale of electric energy and the purchase,
distribution and sale of natural gas. Certain financial information relating to
the Company's significant segments of business is presented below:
Year Ended December 31
1993 1992 1991
(in thousands)
Operating results:
Revenues -
Electric $ 550,521 $ 462,999 $ 482,578
Gas 154,318 139,455 131,019
Operating income (pre-tax) -
Electric 128,994 90,891 100,402
Gas 13,750 8,367 (360)*
Other information:
Depreciation and amortization -
Electric 63,832 59,707 57,612
Gas 5,186 4,024 3,480
Construction and acquisition
expenditures -
Electric 84,720 154,902 77,646
Gas 12,582 17,308 21,100
Assets -
Identifiable assets -
Electric 1,288,505 1,226,614 1,115,310
Gas 164,773 141,801 108,851
1,453,278 1,368,415 1,224,161
Other corporate assets 93,700 72,476 79,949
Total assets $1,546,978 $1,440,891 $1,304,110
* Includes a $3.9 million pre-tax write-off of previously deferred
FMGP clean-up costs pursuant to disallowance of recovery in an
IUB order.
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant
Information regarding the identification of directors is included in
Exhibit 99 and is incorporated herein by reference. Exhibit 99 is primarily
an excerpt from IES Industries Inc. definitive proxy statement prepared for
the 1994 annual meeting of stockholders, which will be filed on or about
April 4, 1994. The executive officers of the registrant are as follows:
Executive Officers of the Registrant (Effective February 1, 1994)
Lee Liu, 60, Chairman of the Board, President & Chief Executive Officer.
First elected officer in 1975.
Larry D. Root, 57, President and Group Executive, Energy Delivery and
Nuclear Group and Director. First elected officer in 1979.
Rene H. Males, 61, President and Group Executive, Generation and
Engineering Group and Director. First elected officer in 1991. (i)
Blake O. Fisher, Jr., 49, Executive Vice President & Chief Financial
Officer and Director. First elected officer in 1991. (ii)
Dr. Robert J. Latham, 51, Senior Vice President, Finance and Corporate
Affairs, & Treasurer. First elected officer in 1985.
Stephen W. Southwick, 47, Vice President & General Counsel. First
elected officer in 1982.
John F. Franz, Jr., 54, Vice President, Nuclear. First elected officer
in 1992. (iii)
Phillip D. Ward, 53, Vice President, Engineering. First elected officer
in 1990.
Harold W. Rehrauer, 56, Vice President, Field Operations. First elected
officer in 1987.
Thomas R. Seldon, 55, Vice President, Human Resources. First elected
officer in 1987.
Robert J. Kucharski, 61, Vice President, Administration & Secretary.
First elected officer in 1976.
Richard A. Gabbianelli, 37, Controller & Chief Accounting Officer.
First elected officer in 1994.
Officers are elected annually by the Board of Directors and each of the
officers named above, except Rene H. Males, Blake O. Fisher, Jr. and John F.
Franz, Jr., have been employed by the Company (or IS) as an officer or in
other responsible positions at such companies for at least five years. There
are no family relationships among these officers. There are no arrangements
or understandings with respect to election of any person as an officer.
(i) Prior to the appointment of Rene H. Males as an officer of IS in
1990, he was President of Joy Environment Equipment Company of
Monrovia, California. He was Senior Vice President for Wisconsin
Electric Power Company from 1987 to 1989.
(ii) Prior to the appointment of Blake O. Fisher, Jr. as Executive Vice
President & Chief Financial Officer of the Company in January
1991, he was employed by Consumers Power Company as Vice President
Finance and Treasurer.
(iii) Prior to the appointment of John F. Franz, Jr. as Vice President,
Nuclear in 1992, he was employed by Philadelphia Electric Company
as Plant Manager, Peach Bottom Atomic Power Station.
Item 11. Executive Compensation
Information regarding executive compensation is included in Exhibit 99
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is included in Exhibit 99 and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is
included in Exhibit 99 and is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page No.
(a) 1. Financial Statements -
Included in Part II of this report -
Management's Responsibility for Financial
Statements. 45 - 46
Report of Independent Public Accountants. 47
Statements of Income for the years ended
December 31, 1993, 1992 and 1991. 48
Statements of Retained Earnings for the years
ended December 31, 1993, 1992 and 1991. 49
Balance Sheets at December 31, 1993 and 1992. 50 - 51
Statements of Capitalization at
December 31, 1993 and 1992. 52
Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991. 53
Notes to Financial Statements. 54 - 81
(a) 2. Financial Statement Schedules -
Included in Part IV of this report -
Schedule II - Amounts Receivable from Related
Parties and Underwriters, Promoters
and Employees Other Than
Related Parties for the years ended
December 31, 1993, 1992 and 1991. 87
Schedule V - Utility Plant for the years ended
December 31, 1993, 1992 and 1991. 88 - 90
Schedule VI - Accumulated Depreciation for the years
ended December 31, 1993, 1992 and 1991. 91
Schedule VII - Guarantees of Securities of Other
Issuers as of December 31, 1993. 92
Schedule VIII - Valuation and Qualifying Accounts
and Reserves for the years ended
December 31, 1993, 1992 and 1991. 93
Schedule IX - Short-term Borrowings for the years
ended December 31, 1993, 1992 and 1991. 94
Other schedules are omitted as not required under Rules of
Regulation S-X.
(a) 3. Exhibits -
See Exhibit Index beginning on page 97.
(b) Reports on Form 8-K and Form 8-K/A -
Items Financial
Reported Statements Date of Report File No.
5,7 None December 9, 1993 0-4117-1 (1)
5,7 None December 9, 1993 0-849 (2)
2,5,7 None January 7, 1994 0-4117-1 (3)
2,7 None January 7, 1994 0-849 (3)
7 (4) March 2, 1994 0-4117-1 (4)
Notes:
(1) Form 8-K filed by Iowa Electric Light and Power Company.
(2) Form 8-K filed by Iowa Southern Utilities Company.
(3) Form 8-K filed by IES Utilities Inc. subsequent to the merger
of Iowa Electric Light and Power Company and Iowa Southern
Utilities Company effective December 31, 1993.
(4) Form 8-K/A filed by IES Utilities Inc. amending Form 8-K filed on
January 7, 1994, File No. 0-4117-1, providing the audited
financial statements of the Company for the year ended
December 31, 1993.
<PAGE>
IES UTILITIES INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
BALANCE AT DECEMBER 31
(in thousands)
Affiliated Company 1991 1992 1993
Cedar Rapids and Iowa City
Railway Company $ 54 $ 46 $ 19
IES Industries Inc. 842 613 985
IES Diversified Inc. - - 48
Industrial Energy
Applications, Inc. 41 130 21
Total $ 937 $ 789 $1,073
NOTE: All receivables are collected from the affiliated companies
within one month, thus all amounts are current and are recorded
in the Balance Sheets as Current Assets - Accounts
Receivable - Other.
<PAGE>
<TABLE>
IES UTILITIES INC.
SCHEDULE V -- UTILITY PLANT
FOR THE YEAR ENDED DECEMBER 31, 1993
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions Retirements Reclassification Balance
Classification Jan. 1, 1993 at Cost At Cost and Transfers Dec. 31, 1993
- --------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ELECTRIC:
Electric plant in service -
Intangibles $6,536 $693 $14 $186 $7,401
Production 875,881 33,214 3,684 (2,190) 903,221
Transmission 226,521 15,139 257 (453) 240,950
Distribution 467,540 26,036 3,584 (3,956) 486,036
General 30,060 3,374 1,407 3,589 35,616
Leased Nuclear Fuel 48,505 14,606 0 (11,429) 51,682
Construction Work in Progress 28,135 7,987 0 0 36,122
Plant Held For Future 1,858 0 0 (656) 1,202
Acquisition Adjustment 33,140 0 0 (292) 32,848
------------- ------------- ------------- ------------- -------------
1,718,176 101,049 8,946 (15,201) 1,795,078
------------- ------------- ------------- ------------- -------------
GAS:
Gas plant in service -
Intangibles 472 196 4 0 664
Production 602 4 0 0 606
Transmission 15,282 538 14 848 16,654
Distribution 115,345 10,458 855 (784) 124,164
General 5,345 673 265 (64) 5,689
Construction Work in Progress 471 2,789 0 0 3,260
Acquisition Adjustment 181 0 0 0 181
------------- ------------- ------------- ------------- -------------
137,698 14,658 1,138 0 151,218
------------- ------------- ------------- ------------- -------------
STEAM:
Steam plant in service 13,766 429 43 0 14,152
Construction Work in Progress 0 546 0 0 546
------------- ------------- ------------- ------------- -------------
13,766 975 43 0 14,698
------------- ------------- ------------- ------------- -------------
COMMON:
Common plant in service 60,204 9,009 7,519 0 61,694
Construction Work in Progress 1,718 291 0 0 2,009
------------- ------------- ------------- ------------- -------------
61,922 9,300 7,519 0 63,703
------------- ------------- ------------- ------------- -------------
TOTAL UTILITY PLANT $1,931,562 $125,982 (1) $17,646 ($15,201) (2) $2,024,697
============= ============= ============= ============= =============
BALANCE SHEET CAPTION:
Utility plant in service -
Electric $1,641,536 $1,707,278
Gas 137,227 147,956
Other 73,970 75,845
------------- -------------
1,852,733 1,931,079
Leased Nuclear Fuel 48,505 51,681
Construction work in progress 30,324 41,937
------------- -------------
TOTAL UTILITY PLANT $1,931,562 $2,024,697
============= =============
<FN>
(1) Construction and acquisition expenditures $113,212
Additions to leased nuclear fuel 14,606
Other (1,836)
-------------
$125,982
=============
(2) Amortization of leased nuclear fuel ($11,429)
Other (3,772)
-------------
($15,201)
=============
</TABLE>
<PAGE>
<TABLE>
IES UTILITIES INC.
SCHEDULE V -- UTILITY PLANT
FOR THE YEAR ENDED DECEMBER 31, 1992
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions Retirements Reclassification Balance
Classification Jan. 1, 1992 at Cost At Cost and Transfers Dec. 31, 1992
- --------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ELECTRIC:
Electric plant in service -
Intangibles $5,400 $333 $18 $821 $6,536
Production 850,720 30,155 3,398 (1,596) 875,881
Transmission 207,154 21,020 3,690 2,037 226,521
Distribution 396,441 76,605 3,139 (2,367) 467,540
General 27,598 3,137 747 72 30,060
Leased Nuclear Fuel 58,256 1,974 0 (11,725) 48,505
Construction Work in Progress 23,005 5,130 0 0 28,135
Plant Held For Future 1,038 820 0 0 1,858
Acquisition Adjustment 2,570 30,570 0 0 33,140
------------- ------------- ------------- ------------- -------------
1,572,182 169,744 10,992 (12,758) 1,718,176
------------- ------------- ------------- ------------- -------------
GAS:
Gas plant in service -
Intangibles 411 7 6 60 472
Production 602 0 0 0 602
Transmission 12,437 2,915 2 (68) 15,282
Distribution 101,953 14,268 884 8 115,345
General 5,014 600 292 23 5,345
Construction Work in Progress 1,988 (1,517) 0 0 471
Acquisition Adjustment 181 0 0 0 181
------------- ------------- ------------- ------------- -------------
122,586 16,273 1,184 23 137,698
------------- ------------- ------------- ------------- -------------
STEAM:
Steam plant in service 13,615 169 18 0 13,766
Construction Work in Progress 18 (18) 0 0 0
------------- ------------- ------------- ------------- -------------
13,633 151 18 0 13,766
------------- ------------- ------------- ------------- -------------
COMMON:
Common plant in service 54,974 6,694 1,530 66 60,204
Construction Work in Progress 1,359 359 0 0 1,718
------------- ------------- ------------- ------------- -------------
56,333 7,053 1,530 66 61,922
------------- ------------- ------------- ------------- -------------
TOTAL UTILITY PLANT $1,764,734 $193,221 (1) $13,724 ($12,669) (2) $1,931,562
============= ============= ============= ============= =============
BALANCE SHEET CAPTION:
Utility plant in service -
Electric $1,490,921 $1,641,536
Gas 120,598 137,227
Other 68,589 73,970
------------- -------------
1,680,108 1,852,733
Leased Nuclear Fuel 58,256 48,505
Construction work in progress 26,370 30,324
------------- -------------
TOTAL UTILITY PLANT $1,764,734 $1,931,562
============= =============
<FN>
(1) Construction and acquisition expenditures $171,013
Additions to leased nuclear fuel 1,974
Union Electric (3) 18,967
Other 1,267
-------------
$193,221
=============
(2) Amortization of leased nuclear fuel ($11,725)
Other (944)
-------------
($12,669)
=============
(3) Utility construction and acquisition expenditures include $61 million for
the acquisition of Iowa Service territory from Union Electric Company.
The above amount represents the difference between the gross basis of
plant and cash paid.
</TABLE>
<PAGE>
<TABLE>
IES UTILITIES INC.
SCHEDULE V-UTILITY PLANT
FOR THE YEAR ENDED DECEMBER 31, 1991
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance Additions Retirements Reclassification Balance
Classification Jan. 1, 1991 at Cost At Cost and Transfers Dec. 31, 1991
- --------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ELECTRIC:
Electric plant in service -
Intangibles $5,400 $2 $4 $2 $5,400
Production 828,191 24,681 2,143 (9) 850,720
Transmission 194,389 14,498 529 (1,204) 207,154
Distribution 362,697 35,990 3,440 1,194 396,441
General 24,961 3,419 832 50 27,598
Leased Nuclear Fuel 61,853 11,874 0 (15,471) 58,256
Construction Work in Progress 24,222 (1,217) 0 0 23,005
Plant Held For Future 836 202 0 0 1,038
Acquisition Adjustment 2,570 0 0 0 2,570
------------- ------------- ------------- ------------- -------------
1,505,119 89,449 6,948 (15,438) 1,572,182
------------- ------------- ------------- ------------- -------------
GAS:
Gas plant in service -
Intangibles 388 26 5 2 411
Production 602 0 0 0 602
Transmission 5,835 6,591 0 11 12,437
Distribution 91,278 11,443 773 5 101,953
General 4,599 603 218 30 5,014
Construction Work in Progress 85 1,903 0 0 1,988
Acquisition Adjustment 181 0 0 0 181
------------- ------------- ------------- ------------- -------------
102,968 20,566 996 48 122,586
------------- ------------- ------------- ------------- -------------
STEAM:
Steam plant in service 13,334 285 4 0 13,615
Construction Work in Progress 0 18 0 0 18
------------- ------------- ------------- ------------- -------------
13,334 303 4 0 13,633
------------- ------------- ------------- ------------- -------------
COMMON:
Common plant in service 52,624 5,792 3,358 (84) 54,974
Construction Work in Progress 586 773 0 0 1,359
------------- ------------- ------------- ------------- -------------
53,210 6,565 3,358 (84) 56,333
------------- ------------- ------------- ------------- -------------
TOTAL UTILITY PLANT $1,674,631 $116,883 (1) $11,306 ($15,474) (2) $1,764,734
============= ============= ============= ============= =============
BALANCE SHEET CAPTION:
Utility plant in service -
Electric $1,419,044 $1,490,921
Gas 102,883 120,598
Other 65,958 68,589
------------- -------------
1,587,885 1,680,108
Leased Nuclear Fuel 61,853 58,256
Construction work in progress 24,893 26,370
------------- -------------
TOTAL UTILITY PLANT $1,674,631 $1,764,734
============= =============
<FN>
(1) Construction and acquisition expenditures $105,009
Additions to leased nuclear fuel 11,874
-------------
$116,883
=============
(2) Amortization of leased nuclear fuel ($15,471)
Other (3)
-------------
($15,474)
=============
</TABLE>
<PAGE>
<TABLE>
IES UTILITIES INC.
SCHEDULE VI-ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED 1993, 1992 AND 1991
(in thousands)
<CAPTION>
Additions Removal
Charged to Cost and
Balance Costs and Property Salvage (net) Balance
Classification January 1 Expenses Retired and Other December 31
- -------------- --------------- ------------ ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
1993
Department
Electric 681,282 60,552 8,726 (262) 732,846
Gas 43,048 4,896 1,138 (14) 46,792
Steam 3,965 360 43 (56) 4,226
Common 31,459 3,674 7,517 1,832 29,448
--------------- ------------ ------------ --------------- --------------
Total 759,754 69,482 17,424 1,500 813,312
=============== ============ ============ =============== ==============
1992
Department
Electric 618,491 56,759 10,991 17,023 681,282
Gas 40,499 3,573 1,185 161 43,048
Steam 3,639 355 18 (11) 3,965
Common 28,386 3,206 1,528 1,395 31,459
--------------- ------------ ------------ --------------- --------------
Total 691,015 63,893 13,722 18,568 759,754
=============== ============ ============ =============== ==============
1991
Department
Electric 571,090 54,573 6,925 (247) 618,491
Gas 38,292 3,068 997 136 40,499
Steam 3,297 350 4 (4) 3,639
Common 26,532 3,880 3,358 1,332 28,386
--------------- ------------ ------------ --------------- --------------
Total 639,211 61,871 11,284 1,217 691,015
=============== ============ ============ =============== ==============
1993 1992 1991
------------ --------------- ---------------
Reconciliation of additions per this
schedule and the statement
of income:
Additions per above schedule 69,482 63,893 61,871
Amortization of unrecovered plant costs 1,125 1,125 1,125
Earnings on Nuclear decommissioning trust
funds (1,200) (911) (773)
Other 0 0 (757)
---------------------------- --------------
Depreciation and amortization per the
statements of income 69,407 64,107 61,466
============ =============== ==============
Reconciliation of retirements per this
schedule to Schedule V:
Retirements per above 17,424 13,722 11,284
Other 222 2 22
------------ --------------- --------------
Retirements per Schedule V 17,646 13,724 11,306
============ =============== ==============
Note: Included in Removal Cost and Salvage (net) and other for 1992 is
$18,967,000, of accumulated depreciation recorded for the Union
Electric purchase.
</TABLE>
<PAGE>
<TABLE>
IES UTILITIES INC.
SCHEDULE VII--GUARANTEES OF SECURITIES OF OTHER ISSUERS
AS OF DECEMBER 31, 1993
<CAPTION>
Nature of any
Default by Issuer of
Securities Guaranteed
in Principal, Interest,
Total Amount Sinding Fund or
Name of Issuer of Title of Guaranteed Redemption Provisions,
Securities Guaranteed Issue of Each Class of and Nature of or Payment of
by Registrant Securities Guaranteed Outstanding Guarantee Dividends
<S> <C> <C> <C> <C>
Kwik-Way Industries, Second Mortgage Note and $ 618,295 Principal and Kwik-Way filed to
Inc. Second Mortgage, 12% interest reorganize under
dated May 29, 1987 protection of the
Federal Bankruptcy
Law on 9-20-91
</TABLE>
<PAGE>
IES UTILITIES INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Column A Column B Column E
Balance Balance
Description January 1 December 31
(in thousands)
1993:
Accumulated provision for
uncollectible accounts $ 567 $ 268
Accumulated provision for
rate refunds $ 9,020 $ 8,670
1992:
Accumulated provision for
uncollectible accounts $ 804 $ 567
Accumulated provision for
rate refunds $ 1,492 $ 9,020
1991:
Accumulated provision for
uncollectible accounts $ 727 $ 804
Accumulated provision for
rate refunds $ 2,022 $ 1,492
<PAGE>
IES UTILITIES INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Column A Column B Column C Column D Column E Column F
Average Weighted
Category of Weighted Maximum Daily Daily
Aggregate Average Amount Amount Average
Short-term Balance Interest Outstanding Outstanding Interst Rate
Borrowings December 31 Rate During During During
the Period the Period the Period
1993:
Commercial
paper $19,000,000 3.50% $92,000,000 $39,182,000 3.33%
Uncommitted
Credit
Facility $ 5,000,000 3.40% $ 5,000,000 $ 1,027,000 3.30%
1992:
Commercial
paper $92,000,000 3.71% $92,000,000 $ 9,160,000 4.14%
1991:
Commercial
paper $40,900,000 5.02% $51,000,000 $30,298,000 6.43%
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 29th day
of March 1994.
IES UTILITIES INC.
By /s/ Blake O. Fisher, Jr.
Blake O. Fisher, Jr.
Executive Vice President &
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
indicated on March 29, 1994:
/s/ Lee Liu Chairman of the Board, President &
Lee Liu Chief Executive Officer
(Principal Executive Officer)
/s/ Blake O. Fisher, Jr. Executive Vice President & Chief
Blake O. Fisher, Jr. Financial Officer and Director
(Principal Financial Officer)
/s/ Richard A. Gabbianelli Controller & Chief Accounting Officer
Richard A. Gabbianelli (Principal Accounting Officer)
/s/ C.R.S. Anderson Director
C.R.S. Anderson
/s/ J. Wayne Bevis Director
J. Wayne Bevis
/s/ Robert F. Brewer Director
Robert F. Brewer
/s/ Dr. George Daly Director
Dr. George Daly
/s/ G. Sharp Lannom, IV Director
G. Sharp Lannom, IV
/s/ Salomon Levy Director
Dr. Salomon Levy
/s/ Rene H. Males Director
Rene H. Males
/s/ Robert D. Ray Director
Robert D. Ray
/s/ David Q. Reed Director
David Q. Reed
/s/ Larry D. Root Director
Larry D. Root
/s/ Henry Royer Director
Henry Royer
/s/ Robert W. Schlutz Director
Robert W. Schlutz
/s/ Anthony R. Weiler Director
Anthony R. Weiler
<PAGE>
EXHIBIT INDEX
The Exhibits designated by an asterisk are filed herewith and all other
Exhibits as stated to be filed are incorporated herein by reference.
Exhibit
2(a) Agreement and Plan of Merger between IE and IS dated as of June 4,
1993 (Agreement and Plan of Merger) (Filed as Exhibit 2 to the
Company's Current Report on Form 8-K, dated June 4, 1993 (File No.
0-4117-1).
2(b) Amendment 1 dated June 16, 1993, to the Agreement and Plan of
Merger (Filed as Exhibit 2(b) to the IE Registration Statement on
Form S-3, dated September 14, 1993 (File No. 33-68796)).
2(c) Amendment 2 dated September 8, 1993, to the Agreement and Plan of
Merger (Filed as Exhibit 2(c) to the IE Registration Statement on
Form S-3, dated September 14, 1993 (File No. 33-68796)).
2(d) Amendment 3 dated September 27, 1993, to the Agreement and Plan of
Merger (Filed as Exhibit 2(d) to the IE Current Report on Form
8-K, dated December 9, 1993 (File No. 0-4117-1)).
3(a) Articles of Incorporation of the Registrant, Amended and Restated
as of January 6, 1994. (Filed as Exhibit 4(b) to the Company's
Current Report on Form 8-K, dated January 7, 1994 (File No.
0-4117-1)).
* 3(b) Bylaws of Registrant, Amended as of February 1, 1994.
4(a) Indenture of Mortgage and Deed of Trust, dated as of
September 1, 1993, between the Company (formerly IE) and the First
National Bank of Chicago, as Trustee (Mortgage) (Filed as
Exhibit 4(c) to IE's Form 10-Q for the quarter ended
September 30, 1993).
4(b) Supplemental Indentures to the Mortgage:
IE File
Number Dated as of Reference Exhibit
First October 1, 1993 Form 10-Q, 11/12/93 4(d)
Second November 1, 1993 Form 10-Q, 11/12/93 4(e)
4(c) Indenture of Mortgage and Deed of Trust, dated as of August 1,
1940, between the Company (formerly IE) and the First National
Bank of Chicago, Trustee (1940 Indenture) (Filed as Exhibit 2(a)
to IE's Registration Statement File No. 2-25347).
4(d) Supplemental Indentures to the 1940 Indenture:
Number Dated as of IE File Reference Exhibit
First March 1, 1941 2-25347 2(a)
Second July 15, 1942 2-25347 2(a)
Third August 2, 1943 2-25347 2(a)
Fourth August 10, 1944 2-25347 2(a)
Fifth November 10, 1944 2-25347 2(a)
Sixth August 8, 1945 2-25347 2(a)
Seventh July 1, 1946 2-25347 2(a)
Eighth July 1, 1947 2-25347 2(a)
Ninth December 15, 1948 2-25347 2(a)
Tenth November 1, 1949 2-25347 2(a)
Eleventh November 10, 1950 2-25347 2(a)
Twelfth October 1, 1951 2-25347 2(a)
Thirteenth March 1, 1952 2-25347 2(a)
Fourteenth November 5, 1952 2-25347 2(a)
Fifteenth February 1, 1953 2-25347 2(a)
Sixteenth May 1, 1953 2-25347 2(a)
Seventeenth November 3, 1953 2-25347 2(a)
Eighteenth November 8, 1954 2-25347 2(a)
Nineteenth January 1, 1955 2-25347 2(a)
Twentieth November 1, 1955 2-25347 2(a)
Twenty-first November 9, 1956 2-25347 2(a)
Twenty-second November 6, 1957 2-25347 2(a)
Twenty-third November 4, 1958 2-25347 2(a)
Twenty-fourth November 3, 1959 2-25347 2(a)
Twenty-fifth November 1, 1960 2-25347 2(a)
Twenty-sixth January 1, 1961 2-25347 2(a)
Twenty-seventh November 7, 1961 2-25347 2(a)
Twenty-eighth November 6, 1962 2-25347 2(a)
Twenty-ninth November 5, 1963 2-25347 2(a)
Thirtieth November 4, 1964 2-25347 2(a)
Thirty-first November 2, 1965 2-25347 2(a)
Thirty-second September 1, 1966 Form 10-K, 1966 4.10
Thirty-third November 30, 1966 Form 10-K, 1966 4.10
Thirty-fourth November 7, 1967 Form 10-K, 1967 4.10
Thirty-fifth November 5, 1968 Form 10-K, 1968 4.10
Thirty-sixth November 1, 1969 Form 10-K, 1969 4.10
Thirty-seventh December 1, 1970 Form 8-K, 12/70 1
Thirty-eighth November 2, 1971 2-43131 2(g)
Thirty-ninth May 1, 1972 Form 8-K, 5/72 1
Fortieth November 7, 1972 2-56078 2(i)
Forty-first November 7, 1973 2-56078 2(j)
Forty-second September 10, 1974 2-56078 2(k)
Forty-third November 5, 1975 2-56078 2(l)
Forty-fourth July 1, 1976 Form 8-K, 7/76 1
Forty-fifth November 1, 1976 Form 8-K, 12/76 1
Forty-sixth December 1, 1977 2-60040 2(o)
Forty-seventh November 1, 1978 Form 10-Q, 6/30/79 1
Forty-eighth December 1, 1979 Form S-16, 2-65996 2(q)
Forty-ninth November 1, 1981 Form 10-Q,3/31/82 2
Fiftieth December 1, 1980 Form 10-K, 1981 4(s)
Fifty-first December 1, 1982 Form 10-K, 1982 4(t)
Fifty-second December 1, 1983 Form 10-K, 1983 4(u)
Fifty-third December 1, 1984 Form 10-K, 1984 4(v)
Fifty-fourth March 1, 1985 Form 10-K, 1984 4(w)
Fifty-fifth March 1, 1988 Form 10-Q, 5/12/88 4(b)
Fifty-sixth October 1, 1988 Form 10-Q, 11/10/88 4(c)
Fifty-seventh May 1, 1991 Form 10-Q, 8/31/91 4(d)
Fifty-eighth March 1, 1992 Form 10-K, 1991 4(c)
Fifty-ninth October 1, 1993 Form 10-Q, 11/12/93 4(a)
Sixtieth November 1, 1993 Form 10-Q, 11/12/93 4(b)
4(e) Indenture or Deed of Trust dated as of February 1, 1923, between
the Company (successor to IS as result of merger of IS and IE) and
The Northern Trust Company (The First National Bank of Chicago,
successor) and Harold H. Rockwell (Richard D. Manella, successor),
as Trustees (1923 Indenture) (Filed as Exhibit B-1 to File No. 2-
1719).
4(f) Supplemental Indentures to the 1923 Indenture:
IS File
Dated as of Reference Exhibit
May 1, 1940 2-4921 B-1-k
May 2, 1940 2-4921 B-1-l
October 1, 1945 2-8053 7(m)
October 2, 1945 2-8053 7(n)
January 1, 1948 2-8053 7(o)
September 1, 1950 33-3995 4(e)
February 1, 1953 2-10543 4(b)
October 2, 1953 2-10543 4(q)
August 1, 1957 2-13496 2(b)
September 1, 1962 2-20667 2(b)
June 1, 1967 2-26478 2(b)
February 1, 1973 2-46530 2(b)
February 1, 1975 2-53860 2(aa)
July 1, 1975 2-54285 2(bb)
September 2, 1975 2-57510 2(bb)
March 10, 1976 2-57510 2(cc)
February 1, 1977 2-60276 2(ee)
January 1, 1978 0-849 2
March 1, 1979 0-849 2
March 1, 1980 0-849 2
May 31, 1986 33-3995 4(g)
July 1, 1991 0-849 4(h)
September 1, 1992 0-849 4(m)
10(a) Agreement dated December 15, 1971 between Central Iowa Power
Cooperative and IE. (Filed as Exhibit 5(a) to IE's Registration
Statement File No. 2-43131).
10(b) Duane Arnold Energy Center Ownership Participation Agreement dated
June 1, 1970 between Central Iowa Power Cooperative, Corn Belt
Power Cooperative and IE. (Filed as Exhibit 5(kk) to IE's
Registration Statement, File No. 2-38674).
10(c) Duane Arnold Energy Center Operating Agreement dated June 1, 1970
between Central Iowa Power Cooperative, Corn Belt Power
Cooperative and IE. (Filed as Exhibit 5(ll) to IE's Registration
Statement, File No. 2-38674).
10(d) Duane Arnold Energy Center Agreement for Transmission,
Transformation, Switching, and Related Facilities dated June 1,
1970 between Central Iowa Power Cooperative, Corn Belt Power
Cooperative and IE. (Filed as Exhibit 5(mm) to IE's Registration
Statement, File No. 2-38674).
10(e) Basic Generating Agreement dated April 16, 1975 between Iowa
Public Service Company, Iowa Power and Light Company, Iowa-
Illinois Gas and Electric Company and IS for the joint ownership
of Ottumwa Generating Station-Unit 1 (OGS-1). (Filed as Exhibit 1
to IE's Form 10-K for the year 1977).
10(f) Addendum Agreement to the Basic Generating Agreement for OGS-1
dated December 7, 1977 between Iowa Public Service Company,
Iowa-Illinois Gas and Electric Company, Iowa Power and Light
Company, IS and IE for the purchase of 15% ownership in OGS-1.
(Filed as Exhibit 3 to IE's Form 10-K for the year 1977).
10(g) Fuel Lease dated August 21, 1973, as amended by Amendment No. 1
dated August 29, 1973, and by Amendment dated September 17, 1987,
between Arnold Fuel, Inc. and IE for the procurement and financing
of nuclear fuel. (Filed as Exhibit 10(l) to IE's Form 10-K for
the year 1984).
10(h) Amendment dated as of September 17, 1987 to the Fuel Lease dated
as of August 21, 1973 between Arnold Fuel, Inc. and IE. (Filed as
Exhibit 10(i) to IE's Form 10-K for the year 1987).
10(i) Second Amended and Restated Credit Agreement dated as of September
17, 1987 between Arnold Fuel, Inc. and the First National Bank of
Chicago and the Amended and Restated Consent and Agreement dated
as of September 17, 1987 by IE. (Filed as Exhibit 10(j) to IE's
Form 10-K for the year 1987).
MANAGEMENT CONTRACTS AND/OR COMPENSATORY PLANS (EXHIBITS 10(j) THROUGH 10(u))
10(j) Service Contract between S. Levy, Incorporated and IE. (Filed as
Exhibit 10(m) to IE's Form 10-K for the year 1985).
10(k) Supplemental Retirement Plan. (Filed as Exhibit 10(l) to
Industries' Form 10-K for the year 1987).
10(l) Management Incentive Compensation Plan. (Filed as Exhibit 10(m)
to Industries' Form 10-K for the year 1987).
10(m) Key Employee Deferred Compensation Plan. (Filed as Exhibit 10(n)
to Industries' Form 10-K for the year 1987).
10(n) Long-Term Incentive Plan. (Filed as Exhibit 10(o) to Industries'
Form 10-K for the year 1987).
10(o) Executive Guaranty Plan. (Filed as Exhibit 10(p) to Industries'
Form 10-K for the year 1987).
10(p) Executive Change of Control Severance Agreement. (Filed as
Exhibit 10(s) to Industries' Form 10-K for the year 1989).
10(q) Amendments to Key Employee Deferred Compensation Agreement for
Directors. (Filed as Exhibit 10(u) to Industries' Form 10-Q for
the quarter ended March 31, 1990).
10(r) Amendments to Key Employee Deferred Compensation Agreement for
Key Employees. (Filed as Exhibit 10(v) to Industries' Form 10-Q
for the quarter ended March 31, 1990).
10(s) Amendments to Management Incentive Compensation Plan.
(Filed as Exhibit
10(y) to Industries' Form 10-Q for the quarter ended March 31,
1990).
10(t) Director Retirement Plan. (Filed as Exhibit 10(t) to Industries'
Form 10-K for the year 1993).
10(u) Copy of Supplemental Retirement Income Plan and Form of
Supplemental Retirement Income Agreement. (Filed as Exhibit
10-A-6 to File No. 33-3995).
10(v) Agreement for Purchase and Sale of Certain Assets and Real Estate
and Assignment of Easements, Leases and Licenses between Union
Electric Company (Seller) and IE (Buyer). Filed as exhibit 10(t)
to IE's Form 10-K for the year 1991.
10(w) Copy of Coal Supply Agreement, dated July 27, 1977, between IS and
Sunoco Energy Development Co., and letter memorandum thereto,
dated October 29, 1984, relating to the purchase of coal supplies
for the fuel requirements at the Ottumwa Generating Station.
(Filed as Exhibit 10-A-4 to File No. 33-3995).
10(x) Receivables Purchase and Sale Agreement. (Filed as Exhibit 10(a)
to IE's Form 10-Q for the quarter ended June 30, 1989).
10(y) Terra Comfort Capacity and Energy Agreement dated August 14, 1989
between IE and Terra Comfort Corporation. (Filed as Exhibit 10(n)
to IE's Form 10-K for the year 1989).
10(z) Capacity and Energy Agreement dated December 20, 1990 between
Terra Comfort Corporation and IE.
10(aa) Operating and Transmission Agreement between Central Iowa
Power Cooperative and IE.
10(ab) Capacity and Energy Agreement dated April 3, 1991 between Terra
Comfort Corporation and IE. (Filed as Exhibit 10(r) to IE's Form
10-Q for the quarter ended March 31, 1991).
*12 Ratio of Earnings to Fixed Charges.
*23 Consent of Independent Public Accountants.
*99 Director and Officer Information.
Note: Pursuant to (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company
has not filed as an exhibit to this Form 10-K certain instruments with
respect to long-term debt that has not been registered if the total
amount of securities authorized thereunder does not exceed 10% of total
assets of the Company but hereby agrees to furnish to the Commission on
request any such instruments.
EXHIBIT 3(b)
BYLAWS AS AMENDED
OF
IES UTILITIES INC.
(Amended Through February 1, 1994)
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. - The principal office shall be
established and maintained in the ie: Tower, 200 First Street, S.E., in the
City of Cedar Rapids, in the County of Linn, in the State of Iowa.
SECTION 1.2. OTHER OFFICES. - The Corporation may have other offices,
either within or without the State of Iowa, at such place or places as the
Board of Directors may from time to time appoint or the business of the
Corporation may require. The registered office of the Corporation required by
the Iowa Business Corporation Act to be maintained in the State of Iowa may
be, but need not be identical with the principal office in the State of Iowa,
and the address of the registered office may be changed from time to time by
the Board of Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders for
the election of directors and the transaction of other business shall be held,
in each year, on the third Tuesday in May at three o'clock in the afternoon
unless such day is a holiday, in which event the annual meeting will be held
at such time on the next succeeding business day.
SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting or
any special meeting of shareholders shall be held at the principal office of
the Corporation or any place, within the State of Iowa, as shall be designated
by the Board of Directors and stated in the notice of the meeting.
SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the shareholders
may be called by the Chairman of the Board, the President, the Board of
Directors, or the holders of not less than ten percent of all the shares
entitled to vote at the meeting.
SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed notice,
stating the place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the Board of
Directors, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail addressed to the shareholder at the address appearing on
the stock transfer books of the Corporation, with postage thereon prepaid.
SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. - For
the purpose of determining shareholders entitled to notice of, or to vote at,
any special meeting of shareholders, or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors of the Corporation may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, 60 days. If the
stock transfer books shall be closed for the purpose of determining share-
holders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least 10 days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than 60 days, and in case of a meeting of
shareholders not less than 10 days, prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken. If the
stock transfer books are not closed and no record date is fixed for the
determination of shareholders, or shareholders entitled to receive payment of
a dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination
of shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof.
SECTION 2.6. VOTING RECORD. - The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least 10
days prior to each meeting of shareholders, a complete record of the
shareholders entitled to vote at such meeting, or any adjournment thereof,
arranged in alphabetical order with the address of and the number of shares
held by each, which record shall be kept on file at the registered office of
the Corporation and shall be subject to inspection by any shareholder at any
time during usual business hours for a period of 10 days prior to such
meeting. Such record shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original stock transfer book shall
be prima facie evidence of the identity of the shareholders entitled to
examine such record or transfer books or to vote at any meeting of
shareholders.
SECTION 2.7. QUORUM. - A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally notified. The shareholders present at a duly
organized meeting may continue to transact business until adjournment only if
a quorum is represented throughout.
SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders shall
be presided over by one of the following officers in the order of seniority if
present and acting - the Chairman of the Board, the President, the Secretary,
or if none of the foregoing is in office and present and acting, by a
chairperson to be chosen by the shareholders. The Secretary of the
Corporation, or if absent, an Assistant Secretary, shall act as secretary of
the meeting, but if neither the Secretary nor an Assistant Secretary is
present, or if the Secretary is presiding over the meeting and the Assistant
Secretary is not present, the Chairman of the meeting shall appoint a
secretary of the meeting.
SECTION 2.9. PROXIES. - At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by a duly
authorized attorney-in-fact. Such proxy shall be filed with the Secretary of
the Corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at a
meeting of shareholders.
SECTION 2.11 VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in
the name of another corporation may be voted by such officer, agent or proxy
as the Bylaws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by such person, either in person or by proxy, without a transfer of
such shares into that person's name. Shares standing in the name of a trustee
may be voted by such trustee, either in person or by proxy, without a transfer
of such shares into the trustee's name. The Corporation may request evidence
of such fiduciary status with respect to the vote, consent, waiver, or proxy
appointment.
Shares standing in the name of a receiver or trustee in bankruptcy may
be voted by such receiver or trustee, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer of the shares
into such person's name if authority so to do be contained in an appropriate
order of the court by which such receiver was appointed.
A pledgee, beneficial owner, or attorney-in-fact of the shares held in
the name of a shareholder shall be entitled to vote such shares. The
Corporation may request evidence of such signatory's authority to sign for the
shareholder with respect to the vote, consent, waiver, or proxy appointment.
Neither treasury shares nor shares held by another corporation, if a
majority of the shares entitled to vote for the election of Directors of such
other corporation is held by the Corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares at any given
time.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. - The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND REMOVAL. - The number
of Directors of the Corporation shall be fifteen until May 17, 1994, the date
of the 1994 Annual Meeting of Shareholders, at which time the number of
Directors shall be eleven. Each Director shall hold office until the next
annual meeting of shareholders and until the Director's successor shall have
been elected and qualified, unless removed at a meeting called expressly for
that purpose by a vote of the holders of a majority of the shares then
entitled to vote at an election of Directors. A Director may only be removed
upon a showing of cause. Directors need not be residents of the State of Iowa
or shareholders of the Corporation. Not more than three Directors shall be
officers or employees of the Corporation or its subsidiaries. No person who
has reached the age of 70 years shall be eligible for election or re-election
to the Board of Directors.
SECTION 3.3. REGULAR MEETINGS. - An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of shareholders. Unless
otherwise provided by resolution of the Board of Directors, regular meetings
of the Board of Directors, additional to the annual meeting, shall be held on
the first Tuesday of February, May, and August, and on the first Wednesday of
November of each year, at the principal office or any place within or without
the State of Iowa as shall be designated by the Board of Directors without
notice other than such resolution.
SECTION 3.4. SPECIAL MEETINGS. - Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board,
President or any two Directors. The person or persons authorized to call
special meetings of the Board of Directors may fix any place either within or
without the State of Iowa, whether in person or by telecommunications, as the
place for holding any special meeting of the Board of Directors called by
them.
SECTION 3.5. NOTICE. - Notice of any special meeting shall be given at
least three days prior to the meeting by written notice delivered personally
or mailed to each Director at the Director's business address, by telegram, or
orally by telephone. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, so addressed, with postage prepaid.
If notice be given by telegram, such notice shall be deemed to be delivered
when the telegram is delivered to the telegraph company. Any director may
waive notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends
a meeting for the express purpose of objecting to the transaction of any busi-
ness because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 3.6. QUORUM. - A majority of the number of Directors fixed by
Section 3.2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
SECTION 3.7. MANNER OF ACTING. - The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. A Director shall be considered present at a
meeting of the Board of Directors or of a committee designated by the Board if
the Director participates in such meeting by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
SECTION 3.8. INFORMAL ACTION. Any action required or permitted to be
taken at any meeting of the Directors of the Corporation or of any committee
of the Board may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by all of the Directors or all of
the members of the committee of Directors, as the case may be. Such consent
shall have the same force and effect as a unanimous vote at a meeting and
shall be filed with the Secretary of the Corporation to be included in the
official records of the Corporation.
SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless (a) the Director objects at the beginning of the meeting or
promptly upon arrival to the holding of or transacting business at the
meeting, (b) the Director's dissent shall be entered in the minutes of the
meeting, or (c) the Director shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered or certified mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
SECTION 3.10. VACANCIES. - Any vacancy occurring in the board of
Directors and any directorship to be filled by reason of an increase in the
number of Directors may be filled by the affirmative vote of a majority of the
Directors then in office, even if less than a quorum of the Board of
Directors. Notwithstanding the foregoing, during the Five Year Period (as
such term is defined in the Agreement and Plan of Merger between IE Industries
Inc. and Iowa Southern Inc. dated February 27, 1991), if any of the Company
Directors (as such term is defined in the Agreement and Plan of Merger between
IE Industries Inc. and Iowa Southern Inc. dated February 27, 1991) are
removed, resign or cease to serve, unless a majority of the remaining Company
Directors elects not to fill such vacancy or vacancies, then the vacancy or
vacancies resulting therefrom will be filled by a person selected by the Board
of Directors; provided that such person is acceptable to at least three of the
remaining Company Directors as evidenced by such Company Directors' votes or
written consents therefor. A Director so elected shall be elected for the
unexpired term of the vacant directorship or the full term of such new
directorship. Failure to attend three consecutive regular meetings of the
Board of Directors shall disqualify a Director from further service as a
Director during the year in which the third delinquency occurs and shall make
such Director ineligible for re-election, unless such failure to attend be
determined by the affirmative vote of two-thirds of the remaining Directors
holding office to be due to circumstances beyond the control of such Director.
A resignation may be tendered by any Director at any meeting of the
shareholders or of the Board of Directors, who shall at such meeting accept
the same.
SECTION 3.11. COMPENSATION. - The Directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors or
may receive a stated salary as Director. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
SECTION 3.12. EXECUTIVE COMMITTEE. - The Board of Directors shall, at
each annual meeting thereof, appoint from its number an Executive Committee of
not less than three (3) nor more than five (5) members, including the Chairman
of the Board and the Chief Executive Officer of the Corporation, to serve,
subject to the pleasure of the Board, for the year next ensuing and until
their successors are appointed by the Board. The Board of Directors at such
time shall also fix the compensation to be paid to the members of the
Executive Committee. No member of the Executive Committee shall continue to
be a member after ceasing to be a Director of the Corporation. The Board of
Directors shall have the power at any time to increase or decrease the number
of members of the Executive Committee, to fill vacancies, to change any
member, and to change the functions or terminate the Committee's existence.
SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The Executive Committee
appointed by the Board of Directors as above provided shall possess all the
power and authority of the Board of Directors when said Board is not in
session, but the Executive Committee shall not have the power to: (1) declare
dividends or distributions, (2) approve or recommend directly to the
shareholders actions required by law to be approved by shareholders, (3) fill
vacancies on the Board of Directors or designate directors for purposes of
proxy solicitation, (4) amend the Articles, (5) adopt, amend, or repeal
Bylaws, (6) approve a plan of merger not requiring shareholders approval,
(7) authorize reacquisition of shares unless pursuant to a method specified by
the Board, or (8) authorize the sale or issuance of shares or designate the
terms of a series of a class of shares, except pursuant to a method specified
by the Board, to the extent permitted by law.
SECTION 3.14. PROCEDURE: MEETINGS: QUORUM. - Regular meetings of the
Executive Committee may be held at least once in each month on such day as the
Committee shall elect and special meetings may be held at such other times as
the Chairman of the Board, the President, or any two members of the Executive
Committee may designate. Notice of special meetings of the Executive
Committee shall be given by letter, telegram, or cable delivered for transmis-
sion not later than during the second day immediately preceding the day for
such meeting or by word of mouth or telephone not later than the day
immediately preceding the date for such meeting. No such notice need state
the business to be transacted at the meeting. No notice need be given of an
adjourned meeting. The Executive Committee may fix its own rules of
procedure. It shall keep a record of its proceedings and shall report these
proceedings to the Board of Directors at the regular meeting thereof held next
after the meeting of the Executive Committee. Attendance at any meeting of
the Executive Committee at a special meeting shall constitute a waiver of
notice of such special meeting.
At its last meeting preceding the annual meeting of the Board of
Directors, the Executive Committee shall make to the Board its recommendation
of officers of the Corporation to be elected by the Board for the ensuing
year.
The Chairman of the Board shall act as Chairman at all meetings of the
Executive Committee, and if the Chairman is absent, the President shall act as
such Chairman. The Secretary of the Corporation shall act as Secretary of the
meeting. In case of the absence from any meeting of the Executive Committee
of the Chairman of the Board and the President, or the Secretary of the
Corporation, the Executive Committee shall appoint a chairman or secretary, as
the case may be, of the meeting. The Executive Committee may hold its
meetings within or without the State of Iowa, as it may from time to time by
resolution determine. A majority of the Executive Committee shall be
necessary to constitute a quorum for the transaction of any business, and the
act of a majority of the members present at a meeting at which a quorum is
present shall be the act of the Executive Committee. The members of the
Executive Committee shall act only as a committee, and the individual members
shall have no power as such.
SECTION 3.15. OTHER COMMITTEES. - The Board of Directors may appoint by
resolution adopted by a majority of the full Board of Directors from among its
members, other committees, temporary or permanent, and, to the extent
permitted by law and these Bylaws, may designate the duties, powers, and
authorities of such committees subject to the same restriction of powers as
provided in Section 3.13.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. - The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, and a Treasurer, each of whom
shall be elected by the Board of Directors. Such other officers, including
president and group executive, vice-presidents, general counsel, and assistant
officers as may be deemed necessary may be elected or appointed by the Board
of Directors. Any two or more of the offices may be held by the same person
if so decided by the Board of Directors.
SECTION 4.2. ELECTION AND TERM OF OFFICE. - The officers of the
Corporation to be elected by the Board of Directors shall be elected annually
by the Board at its annual meeting held after each annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as may be convenient. A
vacancy in any office for any reason may be filled by the Board of Directors
for the unexpired portion of the term.
SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by the
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of an officer shall not of itself create contract rights.
SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board shall
preside at all meetings of the Board of Directors, shall be a member of the
Executive Committee, and shall have and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
SECTION 4.5. PRESIDENT. - The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision of and be
accountable for the control of the Corporation's business affairs, properties
and management and otherwise shall have the general powers and duties usually
vested with the office of President of a corporation, subject, however, to the
control of the Board of Directors and the Executive Committee. The President
shall see that all resolutions and orders of the Board of Directors or the
Executive Committee are carried into effect and shall exercise such other
powers and perform such other duties as may be designated by the Board of
Directors and the Executive Committee.
SECTION 4.6. PRESIDENT AND GROUP EXECUTIVE. - A President and Group
Executive (if one or more be elected) shall have such powers and perform such
duties as the Board of Directors may from time to time prescribe or as the
Chairman of the Board or the President may from time to time delegate.
SECTION 4.7. VICE-PRESIDENTS. - A Vice President (if one or more be
elected or appointed) shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe or as the Chairman of the
Board or the President may from time to time delegate.
SECTION 4.8 TREASURER. - The Treasurer shall have the custody of the
funds and securities of the Corporation. Whenever necessary or proper, the
Treasurer shall (1) endorse, on behalf of the Corporation, checks, notes or
other obligations and deposit the same to the credit of the Corporation in
such bank or banks or depositories as the Board of Directors may designate;
(2) sign receipts or vouchers for payments made to the Corporation which shall
also be signed by such other officer as may be designated by the Board of
Directors; (3) disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such disbursements; and (4) render to the
Board of Directors, the Executive Committee, the Chairman of the Board and the
President at the regular meetings of the Board or Executive Committee, or
whenever any of them may require it, an account of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond with one or more sureties satisfactory to the
board, for the faithful performance of the duties of this office, and for the
restoration to the Corporation, in case of death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind in possession or under control of the Treasurer.
SECTION 4.9. SECRETARY. - The Secretary shall record the votes and
proceedings of the Shareholders, the Board of Directors and the Executive
Committee in a book or books kept for that purpose, and shall serve notices of
and attend all meetings of the Directors, the Executive Committee and share-
holders. In the absence of the Secretary or an Assistant Secretary from any
meeting of the Board of Directors, the proceedings of such meeting shall be
recorded by such other person as may be appointed for that purpose.
The Secretary shall keep in safe custody the seal of the Corporation,
and duplicates, if any, and when requested by the Board of Directors, or when
any instrument shall have been first signed by the Chairman of the Board, the
President or a Vice President duly authorized to sign the same, or when
necessary to attest any proceedings of the shareholders or directors, shall
affix it to any instrument requiring the same, and shall attest the same. The
Secretary shall, with the Chairman of the Board or the President, sign
certificates of stock of the Corporation and affix a seal of the Corporation
or cause such seal to be imprinted or engraved thereon, subject, however, to
the provisions providing for the use of facsimile signatures on stock
certificates under certain conditions. The Secretary shall have charge of
such books and papers as properly belong to such office, or as may be commit-
ted to the Secretary's care by the Board of Directors or by the Executive
Committee, and shall perform such other duties as pertain to such office, or
as may be required by the Board of Directors, the Executive Committee or the
Chairman of the Board.
SECTION 4.10. ASSISTANT TREASURERS. - Each Assistant Treasurer (if one
or more Assistant Treasurers be elected or appointed) shall assist the
Treasurer and shall perform such other duties as the Board of Directors may
from time to time prescribe or the Chairman of the Board or the President may
from time to time delegate. At the request of the Treasurer, any Assistant
Treasurer may perform temporarily the duties of Treasurer in the case of the
Treasurer's absence or inability to act. In the case of the death of the
Treasurer, or in the case of absence or inability to act without having
designated an Assistant Treasurer to perform temporarily the duties of
Treasurer, an Assistant Treasurer shall be designated by the Chairman of the
Board or the President to perform the duties of the Treasurer. Each Assistant
Treasurer shall, if required by the Board of Directors, give the Corporation a
bond with such surety or sureties as may be ordered by the Board of Directors,
for the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property
of whatever kind belonging to the Corporation in the possession or under
control of such Assistant Treasurer.
SECTION 4.11. ASSISTANT SECRETARIES. - Each Assistant Secretary (if one
or more Assistant secretaries be elected or appointed) shall assist the
Secretary and shall perform such other duties as the Board of Directors may
from time to time prescribe or the Chairman of the Board or the President may
from time to time delegate. At the request of the Secretary, any Assistant
Secretary may perform temporarily the duties of Secretary in the case of the
Secretary's absence or inability to act. In the case of the death of the
Secretary, or in the case of absence or inability to act without having
designated an Assistant Secretary to perform temporarily the duties of
Secretary, the Assistant Secretary to perform the duties of the Secretary
shall be designated by the Chairman of the Board or the President.
SECTION 4.12. GENERAL COUNSEL. - The General Counsel shall be
responsible for the management of the Legal Department in its support of all
other operations of the Corporation including management guidance to assure
responsible decisions, information for all employees concerning the legal and
judicial environment and recommended changes of law as deemed advisable. In
addition, the General Counsel shall be responsible for the coordination of
outside counsel activities in all instances as well as the prosecution of
charges against the Corporation or other judicial or regulatory activities.
This shall include full information for the management and employees of
judicial, regulatory or other administrative body rulings and their impact on
the Corporation. The duties shall include approval of all legal and
contractual documents of the Corporation, prior to their authorization, and
full support to various departments to assist in the development of these
documents. The General Counsel shall perform such other duties as may be
assigned from time to time by the Board of Directors, the Executive Committee,
the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate representing
shares of the Corporation shall state upon the face (a) that the Corporation
is organized under the laws of the State of Iowa, (b) the name of the person
to whom issued, (c) the number and class of shares, and the designation of the
series, if any, which such certificate represents, and (d) the par value of
each share, if any, and each such certificate shall otherwise be in such form
as shall be determined by the Board of Directors. Such certificates shall be
signed by the Chairman of the Board or the President and by the Secretary or
an Assistant Secretary and shall be sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles. If a certificate is countersigned by a transfer agent, or
registered by a registrar, the signatures of the persons signing for such
transfer agent or registrar also may be facsimiles. In case any officer or
other authorized person who has signed or whose facsimile signature has been
placed upon such certificate for the Corporation shall have ceased to be such
officer or employee or agent before such certificate is issued, it may be
issued by the Corporation with the same effect as if such person were an
officer or employee or agent at the date of its issue. Each certificate for
shares shall be consecutively numbered or otherwise identified.
All certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board
of Directors may prescribe.
SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the
Corporation shall be made only on the stock transfer books of the Corporation
by the holder of record thereof or by such person's legal representative, who
shall furnish proper evidence of authority to transfer, or authorized
attorney, by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for
such shares.
Subject to the provisions of Section 2.11 of Article II of these Bylaws,
the person in whose name shares stand on the books of the Corporation shall be
treated by the Corporation as the owner thereof for all purposes, including
all rights deriving from such shares, and the Corporation shall not be bound
to recognize any equitable or other claim to, or interest in, such shares or
rights deriving from such shares, on the part of any other person, including
(without limitation) a purchaser, assignee or transferee of such shares, or
rights deriving from such shares, unless and until such purchaser, assignee,
transferee or other person becomes the record holder of such shares, whether
or not the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person. Except as
provided in said Section 2.11 hereof, no such purchaser, assignee, transferee
or other person shall be entitled to receive notice of the meetings of
shareholders, to vote at such meetings, to examine the complete record of the
shareholders entitled to vote at meetings, or to own, enjoy or exercise any
other property or rights deriving from such shares against the Corporation,
until such purchaser, assignee, transferee or other person has become the
record holder of such shares.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify its
directors, officers, employees and agents to the full extent permitted by the
Iowa Business Corporation Act, as amended from time to time. The Corporation
shall purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other enterprise
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this section.
SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation shall be
the calendar year.
SECTION 6.3. SEAL. - The corporate seal shall be circular in form and
shall have inscribed thereon the name of the Corporation and the words
"CORPORATE SEAL IOWA". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - All
contracts, checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the Corporation, shall
be signed by such officer or officers, agent or agents of the Corporation and
in such manner as shall from time to time be determined by resolution of the
Board of Directors. The Board may authorize by resolution any officer or
officers to enter into and execute any contract or instrument of indebtedness
in the name of the Corporation; and such authority may be general or confined
to specific instances. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks or other depositories as the Board of Directors may authorize.
SECTION 6.5. DIVIDENDS. - Subject to the provisions of the Articles of
Incorporation, the Board of Directors may, at any regular or special meeting,
declare dividends upon the capital stock of the Corporation payable out of
surplus (whether earned or paid-in) or profits as and when they deem
expedient. Before declaring any dividend there may be set apart out of
surplus or profits such sum or sums as the directors from time to time in
their discretion deem proper for working capital or as a reserve fund to meet
contingencies or for such other purposes as the directors shall deem conducive
to the interests of the Corporation.
SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required to be
given to any shareholder or Director of the Corporation under the provisions
of these Bylaws or under the provisions of the Articles of Incorporation or
under the provisions of the Iowa Business Corporation Act, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. - Subject
always to the specific directions of the Board of Directors, any share or
shares of stock issued by any other corporation and owned or controlled by the
Corporation may be voted at any shareholders' meeting of such other
corporation by the President of the Corporation if present, or if absent by
any other officer of the Corporation who may be present. Whenever, in the
judgment of the President, or if absent, of any officer, it is desirable for
the Corporation to execute a proxy or give a shareholders' consent in respect
to any share or shares of stock issued by any other corporation and owned by
the Corporation, such proxy or consent shall be executed in the name of the
Corporation by the President or one of the officers of the Corporation and
shall be attested by the Secretary or an Assistant Secretary of the
Corporation without necessity of any authorization by the Board of Directors.
Any person or persons designated in the manner above stated as the proxy or
proxies of the Corporation shall have full right, power and authority to vote
the share or shares of stock issued by such other corporation and owned by the
Corporation in the same manner as such share or shares might be voted by the
Corporation.
SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors at any
regular or special meeting of the Board of Directors.
EXHIBIT 12
IES UTILITIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
Year Ended December 31,
1989 1990 1991 1992 1993
(in thousands, except ratio of earnings to fixed charges)
Net
income $ 53,454 $ 45,969 $ 47,563 $ 45,291 $ 67,970
Federal
and state
income taxes 22,574 22,364 23,494 20,760 37,963
Net income
before
income taxes 76,028 68,333 71,057 66,051 105,933
Interest
on long-
term debt 29,044 28,853 31,171 35,689 34,926
Other interest 3,130 4,704 5,595 3,939 5,243
Estimated
interest
component
of rents 9,494 7,936 6,594 4,567 3,729
Fixed charges
as defined 41,668 41,493 43,360 44,195 43,898
Earnings
as defined $117,696 $ 109,826 $ 114,417 $ 110,246 $ 149,831
Ratio of
earnings to
fixed charges
(unaudited) 2.82 2.65 2.64 2.49 3.41
For purposes of computation of these ratios (a) earnings have been
calculated by adding fixed charges and Federal and state income taxes to net
income; (b) fixed charges consist of interest (including amortization of
debt expense, premium and discount) on long-term and other debt and the
estimated interest component of rents.
EXHIBIT 23
ARTHUR ANDERSEN & CO.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K into IES Utilities Inc.'s previously
filed Form S-3 Registration Statement (File No. 33-68796).
/s/ Arthur Andersen & Co.
(Signature)
ARTHUR ANDERSEN & CO.
Chicago, Illinois,
March 29, 1994
EXHIBIT 99
IES Utilities Inc. (Utilities) is a wholly-owned subsidiary of IES Industries
Inc. (Industries). Substantially all of the information required for
Utilities with respect to Form 10-K Items 11, 12 and 13 is included in
Industries' definitive proxy statement prepared for the 1994 annual meeting
of the shareholders, which will be filed with the Commission on or about
April 4, 1994. Attached hereto are the applicable pages from Industries'
definitive proxy statement.
IES INDUSTRIES DEFINITIVE PROXY STATEMENT TO BE FILED ON OR ABOUT
APRIL 4, 1994.
NOMINATION AND ELECTION OF DIRECTORS
Eleven directors will be elected by the Shareholders at the Annual Meeting to
serve until the next annual meeting or until their respective successors have
been duly elected and qualified. All of the nominees have previously been
elected as directors by the Shareholders. Under the provisions of the Merger
Agreement (approved by Shareholders), effective July 1, 1991, between IE
Industries Inc. ("IE Industries") and Iowa Southern Inc. ("Iowa Southern")
forming IES Industries Inc., the Board was increased to sixteen members,
integrating directors from both companies. At this time, pursuant to agreement
with the former Iowa Southern directors, the Board of Directors will be reduced
to eleven members. The current members of the Board of Directors who are not
running for reelection are: Robert F. Brewer, Dr. Salomon Levy, Rene H. Males
and Larry D. Root. IES Industries' principal subsidiary is IES Utilities Inc.
("IES Utilities"), the surviving corporation following the merger of Iowa
Southern Utilities Company into Iowa Electric Light and Power Company ("Iowa
Electric") on December 31, 1993.
2
<PAGE>
In the event that any nominee should become unavailable for election, which
is not now contemplated, the Board of Directors reserves discretionary
authority to designate a substitute nominee. Proxies will be voted for the
election of such other nominee or nominees as may be so designated by the
Board of Directors.
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
NAME OF NOMINEE AND PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
(1) AGE SINCE
------------------------------------------------------ --- --------
<S> <C> <C>
C.R.S. Anderson, Retired Chairman of the Board of the 66 1978(2)
Company
J. Wayne Bevis, Vice Chairman & Chief Executive Officer, 59 1987
Pella Corporation (Window and Door Manufacturing),
Pella, Iowa
Dr. George Daly, Dean, Leonard Stern School of Business, 53 1988
New York University, New York, New York (3)
Blake O. Fisher, Jr., Executive Vice President & Chief 49 1991
Financial Officer of the Company (4)
G. Sharp Lannom, IV, President & Chief Executive Officer, 55 1987(2)
DeLong Sportswear, Inc. (Sportswear Manufacturing),
Grinnell, Iowa
Lee Liu, Chairman of the Board, President & Chief 60 1981
Executive Officer of the Company
Robert D. Ray, President & Chief Executive Officer, Blue 65 1987
Cross and Blue Shield of Iowa (Insurance), Des Moines,
Iowa
David Q. Reed, Attorney and Counselor at Law, Kansas 62 1967
City, Missouri
Henry Royer, Chairman of the Board & President, Firstar 62 1984
Bank of Cedar Rapids, N.A., Cedar Rapids, Iowa
Robert W. Schlutz, President, Schlutz Enterprises 58 1989(2)
(Diversified Farming and Retailing), Columbus Junction,
Iowa
Anthony R. Weiler, Chairman & Chief Executive Officer, 57 1979(2)
Chittenden & Eastman Company (Furniture Manufacturer &
Distributor), Burlington, Iowa
</TABLE>
- --------
(1) Except as otherwise noted, all nominees have served in their current
position for five years or more as of the date of this proxy. All other
information is as of January 1, 1994. All nominees are also the current
directors of IES Utilities.
(2) Under the Merger Agreement forming IES Industries, six members of the Iowa
Southern Board were designated by the Iowa Southern Board for appointment
and reelection to the IES Industries Board. These directors were elected on
the date specified to the Iowa Southern Board and have been serving on the
IES Industries Board since July 1, 1991.
(3) Dr. Daly became Dean of Leonard Stern School of Business, New York
University, New York, New York on August 1, 1993. Prior thereto he had
served as Dean, College of Business Administration, The University of Iowa,
Iowa City, Iowa since July 1, 1983.
(4) Mr. Fisher was elected Executive Vice President & Chief Financial Officer
effective January 1, 1991. Before that time, he was employed by Consumers
Power Company since 1967, serving as Vice President/Finance since 1986 and
Treasurer since 1990.
Certain directors of IES Industries are directors of other publicly held
corporations: Mr. Liu is a director of HON Industries Inc., an office equipment
manufacturer, in Muscatine, Iowa; a director of Principal Financial Group, an
insurance company, in Des Moines, Iowa; and a director of Eastman Chemical
Company, a diversified chemical company, in Kingsport, Tennessee. Mr. Ray is a
director of the Maytag Company, an appliance manufacturer, in Newton, Iowa; a
director of AEGON USA, Inc., an insurance company, in Cedar Rapids, Iowa and a
director of Norwest Bank of Iowa, in Des Moines, Iowa.
3
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS
The IES Industries Board does not know of any person who beneficially owns
5% or more of the outstanding Common Stock of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Common Stock of the Company as of February 28, 1994 by each current
director and nominee for director, certain executive officers and by all
directors and listed executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS
------------------------ ------------ -------
<S> <C> <C>
C.R.S. Anderson..................................... 19,000 .07%
J. Wayne Bevis...................................... 250 (2)
Robert F. Brewer.................................... 28,274 .10%
Dr. George Daly..................................... 1,500 (2)
Blake O. Fisher, Jr................................. 7,863 .03%
G. Sharp Lannom, IV................................. 800 (2)
Dr. Salomon Levy.................................... 1,320 (2)
Lee Liu............................................. 24,192 .09%
Rene H. Males....................................... 5,401 .02%
Robert D. Ray....................................... 1,000 (2)
David Q. Reed....................................... 14,252 .05%
Larry D. Root....................................... 10,490 .04%
Henry Royer......................................... 1,454 (2)
Robert W. Schlutz................................... 584 (2)
Anthony R. Weiler................................... 1,802 (2)
Robert J. Kucharski................................. 1,605 (2)
All listed executive officers and directors of the
Company as a group (16 persons).................... 119,787 .42%
</TABLE>
- --------
(1) Includes ownership of shares by family members even though beneficial
ownership of such shares may be disclaimed.
(2) Less than .01% of the Class (Common Stock).
OTHER TRANSACTIONS
S. Levy, Incorporated, an engineering and management consulting firm of which
Dr. Salomon Levy, a current director not running for reelection as a director
of IES Industries, is Chairman and Chief Executive Officer, performed
consulting services for Iowa Electric in 1993 for which it was paid $445,931.
IES Utilities has a service contract with S. Levy, Incorporated pursuant to
which it supplied these services and under which it will provide services in
1994.
The Company has a contract with Blue Cross and Blue Shield of Iowa for
administration of its employee health insurance plan, as it has had for many
prior years. In 1993, the Company paid $391,751 to Blue Cross and Blue Shield
of Iowa. As previously stated, Mr. Ray is President & Chief Executive Officer
of the insurance company.
4
<PAGE>
FUNCTIONING OF THE BOARD OF DIRECTORS AND COMMITTEES
IES Industries' Board has an Executive Committee, an Audit Committee, a
Nominating Committee and a Compensation Committee.
Current members of the Executive Committee are Lee Liu, Chairman, C.R.S.
Anderson, David Q. Reed and Henry Royer. The Committee met six times during
1993. It is empowered with all of the authority vested in the IES Industries
Board, subject to certain limitations, and may act when the IES Industries
Board is not in session.
Current members of the Audit Committee are C.R.S. Anderson, Chairman, J.
Wayne Bevis, Robert D. Ray and Robert W. Schlutz. The Committee met twice
during 1993. The principal functions of the Committee are to review IES
Industries' internal audit activities, including reviews of the internal
control procedures; to oversee the compliance process; to recommend to the IES
Industries Board an independent public accounting firm to be IES Industries'
auditors; and to approve the audit arrangements and audit results. Both the
internal and independent auditors have direct and independent access to the
Audit Committee.
Current members of the Nominating Committee are David Q. Reed, Chairman, Lee
Liu, Robert D. Ray and Anthony R. Weiler. The Committee met once during 1993.
Its principal function is to review and recommend to the IES Industries Board
nominees to serve on the Board and its committees. While there are no formal
procedures, the Committee considers nominees brought to its attention by other
members of the IES Industries Board, members of management and Shareholders.
Current members of the Compensation Committee are Henry Royer, Chairman, Dr.
George Daly, G. Sharp Lannom, IV and Dr. Salomon Levy. The Committee met five
times during 1993. The principal functions of the committee are to review and
make recommendations to the IES Industries Board on the salaries and other
compensation and benefits of the elected officers of IES Industries and its
subsidiaries, and to review and administer incentive compensation or similar
plans for officers and other key employees of IES Industries and its
subsidiaries. The report of the Compensation Committee is included later in
this Proxy Statement.
IES Industries Board met six times in 1993. The various committees of the
Board met an aggregate of fourteen times. All of the directors attended 80% or
more of these meetings.
COMPENSATION OF DIRECTORS
Non-employee directors of IES Industries receive fees of $10,000 per year
plus $600 per meeting attended. Non-employee directors serving on the Executive
or Compensation Committees receive $750 per committee meeting attended, and
those serving on the Audit or Nominating Committee receive $600 for each
committee meeting attended. In addition, non-employee directors serving as
chairman of a committee receive an annual fee of $1,500 for serving in such
capacity. Directors who are officers received a one-time fee of $10,000 and
meeting fees for two board meetings for 1993 and will not receive any fees in
future years. Directors who are officers do not receive any fees for attendance
at meetings of committees of which they are members.
Under the Director Retirement Plan, the Company provides a retirement or
death benefit to directors in an amount equal to 80% of the annual directors
fee. Such amount is payable annually, based upon length of service, to
directors who have served at least four years, for a maximum period of eight
years.
The Company makes available to members of the Board of Directors a business
travel accident insurance policy at an annual cost to the Company of $10 per
director. No director received any payments under such policy in 1993.
5
<PAGE>
The following table shows, for the fiscal years ending December 31, 1991-
1993, the cash compensation paid by the Company and its subsidiaries as well
as certain other compensation paid or accrued for those years, to the Chief
Executive Officer and to each of the four most highly compensated executive
officers of the Company and its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL STOCK ALL OTHER
POSITION(1) YEAR SALARY BONUS(3) COMPENSATION(4) AWARDS(5) COMPENSATION(6)
------------------ ---- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Lee Liu--Chairman of the 1993 $307,450(2) $157,500 $1,625 * $10,571
Board, President & 1992 298,600(2) 71,250 798 $186,750 9,518
Chief Executive Officer 1991 295,450(2) 85,000 N/A(7) 259,375 N/A(7)
- ------------------------------------------------------------------------------------------------
Blake O. Fisher, Jr.-- 1993 212,475(2) 81,974 720 * 4,392
Executive Vice
President 1992 204,959(2) 50,000 386 32,868 3,070
& Chief Financial
Officer 1991 199,200(2) 116,439 N/A(7) 25,538 N/A(7)
- ------------------------------------------------------------------------------------------------
Larry D. Root--President
and 1993 200,694(2) 77,176 2,168 * 5,948
Group Executive, Energy 1992 194,069(2) 37,724 1,051 28,355 6,748
Delivery and Nuclear
Group 1991 182,075(2) 38,808 N/A(7) 42,563 N/A(7)
- ------------------------------------------------------------------------------------------------
Rene H. Males--President 1993 179,024(2) 65,100 404 -- 25,817
and Group Executive, 1992 179,218(2) 22,800 94 -- 901
Generation and
Engineering Group 1991 161,863(2) -- N/A(7) -- N/A(7)
- ------------------------------------------------------------------------------------------------
Robert J. Kucharski--
Vice 1993 121,872 35,000 2,781 * 4,650
President,
Administration 1992 118,684 16,195 1,372 7,968 5,262
& Secretary 1991 113,176 18,085 N/A(7) 14,188 N/A(7)
</TABLE>
- --------
*The grants of restricted stock pursuant to the long-term incentive plan for
the 1993 plan year have not been determined as of the date of this Proxy
Statement. See footnote (5) below for a discussion of restricted stock
grants.
(1) Messrs. Root and Males were officers of the registrant until February 1,
1994. They are no longer officers of the registrant, but are officers of
IES Utilities Inc., a wholly-owned subsidiary of the registrant.
(2) The amounts reported as salary include, for each director, fees and
payments in lieu of directors fees for Messrs. Liu, Fisher and Root of
$11,200 in 1993, $13,600 in 1992, and $14,200 in 1991. Director's fees and
payments in lieu of director's fees for Mr. Males were $11,200 in 1993,
$13,600 in 1992, and $11,800 in 1991.
8
<PAGE>
(3) The Company does not pay bonuses. The amounts listed represents awards
under the Management Incentive Compensation Plan, the Company's annual
incentive plan, for the plan year, with cash payment made in the subsequent
calendar year.
(4) The 1993 amounts shown as Other Annual Compensation represent the earnings
for the Key Employee Deferred Compensation Plan in excess of 120% of the
applicable federal long-term rate provided under Section 1274 (d) of the
Internal Revenue Code in the following amounts: Mr. Liu--$1,625, Mr.
Fisher--$720, Mr. Root--$2,168, Mr. Males--$404, and Mr. Kucharski--$2,781.
(5) The grants of restricted stock have been made on June 1st since 1988, with
one-third of the grant being restricted for one year, one-third being
restricted for two years and one-third being restricted for three years. In
addition, in both December 1992 and June 1993, Mr. Liu received grants of
4,000 shares, which will vest at retirement. Restricted stock is considered
outstanding upon grant date and dividends are paid to the eligible officers
on these shares while restricted. The amounts shown in the table above
represent the value of the grants based upon closing price of IES
Industries Common Stock on the grant date. The grant date is in the
calendar year following the plan year. At December 31, 1993, the listed
officers had restricted stock for which restrictions had not lapsed (based
upon the December 31, 1993 closing price of IES Industries Common Stock) as
follows:
<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
Lee Liu................................................... 17,333 $541,656
Blake O. Fisher, Jr....................................... 2,767 86,469
Larry D. Root............................................. 2,411 75,344
Rene H. Males............................................. -- --
Robert J. Kucharski....................................... 1,023 31,969
</TABLE>
No stock options nor stock appreciation rights have been awarded to any
executive officers.
(6) Amounts shown for 1993 represent: (a) contributions by the Company to the
applicable employee savings plans in the following amounts: Mr. Liu--
$3,504, Mr. Fisher--$3,161, Mr. Root--$2,978, Mr. Males--$1,691, and Mr.
Kucharski--$1,931; (b) amount included in W-2 earnings for life insurance
coverage in excess of $50,000 in the following amounts: Mr. Liu--$7,067,
Mr. Fisher--$1,231, Mr. Root--$2,970, Mr. Males--$2,387, and Mr.
Kucharski--$2,719; and (c) amounts paid to Mr. Males of $11,409 as a
relocation allowance and $10,330 for reimbursement of moving expenses.
(7) Pursuant to the transition rules promulgated by the Securities and Exchange
Commission, only information for 1993 and 1992 has been provided.
9
<PAGE>
IES INDUSTRIES PLANS
IES Industries Pension Plans: IES Industries, IES Utilities and the Cedar
Rapids and Iowa City Railway Company have non-contributory retirement plans
covering employees who have at least one year of accredited service. Directors
who are not officers do not participate in the plans. Maximum annual benefits
payable at age 65 to participants who retire at age 65, calculated on the basis
of straight life annuity, are illustrated in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE OF HIGHEST ANNUAL ESTIMATED MAXIMUM ANNUAL RETIREMENT BENEFITS
SALARY (RENUMERATION) BASED ON SERVICE YEARS
FOR 3 CONSECUTIVE -----------------------------------------------------
YEARS OF THE LAST 10 15 20 25 30 35
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 26,400 $ 35,200 $ 44,000 $ 52,800 $ 61,600
150,000 32,000 42,700 53,300 64,000 74,700
175,000 37,650 50,200 62,750 75,300 87,850
200,000 43,300 57,700 72,125 86,550 100,975
225,000 48,900 65,200 81,500 97,800 114,100
250,000 54,525 72,700 90,875 109,050 115,641
300,000 65,775 87,700 109,625 115,641 115,641
400,000 88,350 115,641 115,641 115,641 115,641
450,000 99,600 115,641 115,641 115,641 115,641
500,000 110,850 115,641 115,641 115,641 115,641
</TABLE>
- --------
For 1993, $115,641 is the maximum benefits allowable under the retirement
plans prescribed by Section 415 of the Internal Revenue Code. The 1994
maximum is $118,800.
With respect to the officers named in the Summary Compensation Table, the
remuneration for retirement plan purposes would be substantially the same as
that shown as "Salary" excluding amount paid as director fees. As of December
31, 1993, the officers had accredited years of service for the retirement plan
as follows: Lee Liu, 36 years; Blake O. Fisher, Jr., 3 years; Larry D. Root, 23
years; and Robert J. Kucharski, 19 years.
IES Industries has a non-qualified Supplemental Retirement Plan for eligible
officers of IES Industries and IES Utilities. The plan provides for payment of
supplemental retirement benefits equal to 69 percent of the officer's base
salary in effect at the date of retirement, reduced by benefits receivable
under the qualified retirement plan, for a period not to exceed 18 years
following the date of retirement. In the event of the death of the officer
following retirement, similar payments reduced by the joint and survivor
annuity of the qualified retirement plan will be made to his designated
beneficiary (surviving spouse or dependent children), if any, for a period not
to exceed 12 years from the date of the officer's retirement. Thus, if an
officer died 12 years after retirement, no payment to the beneficiary would be
made. Death benefits are provided on the same basis to a designated beneficiary
for a period not to exceed 12 years from the date of death should the officer
die prior to retirement. The Supplemental Retirement Plan further provides that
if, at the time of the death of an officer, the officer is entitled to receive,
is receiving, or has received supplemental retirement benefits by virtue of
having taken retirement, a death benefit shall be paid to the officer's
designated beneficiary or to the officer's estate in an amount equal to 100% of
the officer's annual salary in effect at the date of retirement. Under certain
circumstances, an officer who takes early retirement will be entitled to
reduced benefits under the Supplemental Retirement Plan. The Supplemental
Retirement Plan also provides for benefits in the event an officer becomes
disabled under the terms of the qualified retirement plan. IES Industries has
purchased life insurance on the participants sufficient in amount to finance
actuarially all of its future liabilities under the Supplemental Retirement
Plan and IES Industries is the owner and beneficiary of all such life
insurance. The Supplemental Retirement Plan has been designed so that if the
assumptions made as to mortality, experience, policy dividends, tax credits and
other factors are realized, IES Industries will fully recover all of its
premium payments over the life of the Supplemental Retirement Plan.
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Messrs. Liu, Root and Kucharski have elected to continue under supplemental
retirement agreements previously provided to them by the Company with
provisions for payment of benefits equal to 75 percent of the officer's base
salary, for a period not to exceed 15 years following the date of retirement,
and payment to the surviving spouse or dependent children for a period not to
exceed 10 years following the date of retirement. Mr. Males has elected to
continue under a supplemental retirement agreement previously provided to him
by IS Utilities with provisions for payment of benefits equal to 65 percent of
base salary for life, subject to consumer price index adjustment, and payments
to survivors after death of the officer for a period not to exceed 15 years
following the date of retirement.
Executive Guaranty Plan: IES Industries Board has approved an Executive
Guaranty Plan (the "Guaranty Plan") for eligible officers of IES Industries and
its principal subsidiary, IES Utilities. The purpose of the Guaranty Plan is to
promote flexibility in financial planning of participating officers and to
provide an inducement to new officers in order to retain and attract the best
possible executive management team. Under the Guaranty Plan, IES Industries
guarantees loans within defined limits, based on salary level and years of
service made to participating officers for various specified purposes,
including real estate acquisitions and purchases of IES Industries Common
Stock. As of December 31, 1993, guarantees of $89,996, $57,967, $50,000, and
$58,000 were outstanding for Messrs. Liu, Root, Fisher and Kucharski,
respectively.
Executive Change of Control Agreements: In 1991, IE Industries entered into
certain agreements with eleven of its executive officers, including Messrs.
Liu, Root, Fisher, who were also directors of IE Industries, and Mr. Kucharski.
IE Industries' merger with Iowa Southern constituted a change of control of IE
Industries for purposes of these agreements. Accordingly, if an executive
officer is terminated within a three-year period following the consummation of
the merger, July 1, 1991, the surviving corporation (IES Industries) will be
required to continue the executive officer's salary and provide certain other
benefits as described below. These agreements provide for salary continuation
and certain other benefits in the event the executive is terminated within a
three-year period following a "change of control" of IES Industries. Change of
Control for these agreements is as described in IES Industries Restated
Articles of Incorporation and, in addition, will be deemed to have occurred, if
following a merger, consolidation or reorganization, the owners of the capital
stock entitled to vote in the election of directors of IES Industries prior to
the transactions own less than 75% of the resulting entity's voting stock or
during any period of two consecutive years, individuals who, at the beginning
of such period constitute the Board of Directors of the parent company, cease
for any reason to constitute at least a majority of the Board of Directors of
any successor organization. IES Industries, following termination of any
officer except for just cause, death, retirement, disability or voluntary
resignation (other than resignation under certain circumstances), agrees to
continue the executive's salary at a level equal to his salary just prior to
termination for a period up to but not to exceed thirty-six months.
Additionally, certain benefits, including life insurance and health and medical
insurance, as well as incentive awards, equal to that awarded executives of the
same or comparable designation will be payable for a like period. In the event
the executive dies during the period of these payments, salary and benefits as
described above shall be payable during the remainder of the term to the
executive's surviving spouse or his estate. The executive will also become
immediately vested and entitled to receive awards of Restricted Stock or other
rights granted to the executive under the IES Industries Long Term Incentive
Plan. With respect to those executives who were 56 or older at the time of the
change of control and with respect to Mr. Root, the Supplemental Retirement
Plan of IES Industries is specifically amended to provide that the executive is
immediately vested and entitled to receive, at normal retirement age, benefits
provided under the Supplemental Retirement Plan, including benefits payable to
the spouse or dependent child in the event of his death during the period to
which he was otherwise entitled to such benefits.
IES Industries believes that these agreements enable IES Industries to employ
key executives who can approach major business decisions objectively and
without concern for their personal situations. Each agreement is effective for
three years following execution and shall be deemed thereafter to be extended
automatically for one-year periods unless the IES Industries Board terminates
such agreement.
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IS UTILITIES PLANS
IS Utilities Pension Plan: IS Utilities provided a contributory pension plan
which covered substantially all non-collective bargaining employees who have
completed the minimum eligibility requirements of 1,000 hours in a year. The
plan was amended effective January 1, 1991 to be non-contributory. As of
December 31, 1993, Mr. Males has two years of accredited service under the
Pension Plan. Participants contributed one percent of annual compensation to
the Pension Plan through 1990.
The following table shows the estimated aggregate annual benefits payable
under the IS Utilities Pension Plan. Maximum annual benefits payable at age 65
to participants who retire at age 65, calculated on the basis of straight life
annuity, are illustrated in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE OF HIGHEST ANNUAL ESTIMATED MAXIMUM ANNUAL RETIREMENT BENEFITS
SALARY (RENUMERATION) BASED ON SERVICE YEARS
FOR 3 CONSECUTIVE --------------------------------------------
YEARS OF THE LAST 10 15 20 25 30 35
- ------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 23,440 $ 31,250 $ 39,060 $ 46,880 $ 54,690
150,000 28,125 37,500 46,875 56,250 65,625
175,000 32,810 43,750 54,680 65,625 76,560
200,000 37,500 50,000 62,500 75,000 87,500
225,000 42,190 56,250 70,310 84,375 98,440
250,000 46,875 62,500 78,125 93,750 109,375
300,000 56,250 75,000 93,750 112,500 115,641
400,000 75,000 100,000 115,641 115,641 115,641
450,000 84,375 112,500 115,641 115,641 115,641
500,000 93,750 115,641 115,641 115,641 115,641
</TABLE>
- --------
For 1993, $115,641 is the maximum benefits allowable under the retirement
plans prescribed by Section 415 of the Internal Revenue Code. The 1994
maximum is $118,800.
IS Utilities Senior Executive Severance Agreements: Individual agreements
providing for severance pay were entered into by IS Utilities and four senior
executives, including Mr. Males. The benefits to be provided are generally as
follows: a lump sum payment equal to the executive's salary for a payment
period equal to the greater of 24 months, or one month multiplied by years of
service with a limit of 30 months. Mr. Males's agreement provides for the
greater of 24 months or the period between the date his employment terminates
and January 28, 1996. In addition, each covered senior executive will be
entitled to continuation of life and health insurance coverage during the
payment period and reimbursement of certain other expenses.
For the other three senior executives, the severance payments will be made
only to those senior executives employed by IS Utilities on July 1, 1991 and
whose employment is involuntarily terminated (except for cause) by IS Utilities
within the 36-consecutive month period following such change in control
(including as a result of the merger). With respect to each senior executive,
benefits are based upon the annual rate of the senior executive's base
compensation immediately prior to his date of termination. Each of the
individual agreements provides that in no event shall the benefits determined
thereunder be based on a period that extends beyond the senior executive's
normal retirement date (as such term is defined under the IS Utilities Pension
Plan).
An individual will be deemed to be involuntarily terminated for reasons other
than cause if he resigns after (A) a significant change in the nature or scope
of the individual's authorities or duties from those commensurate with his
position and authority immediately prior to the change in control; (B) a
material adverse change in the individual's compensation or any of his
benefits, in the aggregate, compared to his compensation and benefits, in the
aggregate, immediately prior to the change in control; (C) the relocation of
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his office to a location more than 50 miles from the location of his office
immediately prior to the change in control; or (D) the failure by IS Utilities
to obtain a satisfactory agreement from any successor to assume and agree to
perform the severance benefit agreement. In addition, an individual will be
deemed to be involuntarily terminated for reasons other than cause if he
resigns after a reasonable determination by him that, as a result of a change
in control and in circumstances thereafter, he is unable to exercise the
authorities, powers, functions or duties associated with his position and
contemplated by the agreement.
EMPLOYMENT AGREEMENTS
IES Industries and IES Utilities Inc. entered into an employment agreement
(the "Liu Agreement") with Lee Liu, which became effective July 1, 1991. The
Liu Agreement provides that Mr. Liu shall be employed as President, Chief
Executive Officer and Chairman of the Executive Committee of IES Industries and
as Chief Executive Officer and Chairman of IES Utilities from July 1, 1991
until April 1995, which period shall be automatically extended unless at least
six months prior to any expiration thereof either IES Industries or IES
Utilities or Mr. Liu shall give notice that they do not wish to extend such
time (the "Period of Employment"). The Liu Agreement also provides that he
shall become Chairman of the Board at such time as C.R.S. Anderson ceases to
serve in such position. This occurred on July 1, 1993. The Liu Agreement
provides that Mr. Liu shall provide consulting services to the Company for
three years ( the "Period of Consulting") after the conclusion of the Period of
Employment.
During the Period of Employment, Mr. Liu will be paid a base annual salary of
at least $275,000, and will be entitled to participate in all incentive
compensation plans applicable to the positions he holds and all retirement and
employee welfare benefit plans. During the Period of Employment, Mr. Liu's
incentive compensation shall be at least equal to that paid to the Chairman of
the Board of IES Industries.
If Mr. Liu's employment is terminated without his consent by IES Industries
or IES Utilities during the Period of Employment for other than an unremedied
material breach or just cause or by his resignation if such resignation occurs
after IES Industries fails to cause him to be employed in or elected to the
positions specified in the Liu Agreement or after a material diminution in his
duties, responsibilities or status, then Mr. Liu shall be entitled to an amount
equal to the sum of his base annual salary as of the date of termination plus
his average incentive compensation during the three years immediately preceding
the date of termination multiplied by the number of years (and fractions
thereof) then remaining in the Period of Employment. Mr. Liu also would be
entitled to continued insurance coverages and an amount equal to the then
present value of the actuarially determined difference between the aggregate
retirement benefits actually to be received by him as of the date of
termination and those that would have been received by him had he continued to
be employed at the base salary in effect at termination through the expiration
of the Period of Employment. All his shares of IES Restricted Stock would also
vest at that time.
During the Period of Consulting, Mr. Liu will make himself available for up
to 30 days per year, report to the Chief Executive Officer of IES Industries
and will earn an annual consulting fee equal to 13.33% of his highest annual
base salary during his Period of Employment. If Mr. Liu's consulting services
are terminated for reasons other than material breach or just cause, he will be
entitled to a lump sum payment equal to the amount of the consulting fee he
would otherwise have earned during the Period of Consulting.
CERTAIN SEC FILINGS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of the registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
officers, directors and Shareholders are required by SEC regulations to furnish
the Company with copies of all such reports that they file.
Based solely on a review of copies of reports filed with the SEC with respect
to 1993 and of written representations by certain officers and directors, all
persons subject to the reporting requirements of Section 16(a) filed the
required reports on a timely basis, except for inadvertent late filings by Rene
H. Males (one report covering one transaction) and David Q. Reed (one report
covering one transaction).
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