UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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.)
IES Tower, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (319) 398-4411
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 31, 1995
Common Stock, $2.50 par value 13,370,788 shares
IES UTILITIES INC.
INDEX
Page No.
Part I. Financial Information.
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3 - 4
Consolidated Statements of Income -
Three, Nine and Twelve Months Ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Three, Nine and Twelve Months Ended
September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7 - 16
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition. 17 - 34
Part II. Other Information. 35 - 37
Signatures. 38
PART 1. - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30,
1995 December 31,
ASSETS (Unaudited) 1994
(in thousands)
Property, plant and equipment, at original cost:
Utility -
Plant in service -
Electric $ 1,871,496 $ 1,798,059
Gas 162,991 158,115
Other 99,241 86,005
2,133,728 2,042,179
Less - Accumulated depreciation 943,334 880,888
1,190,394 1,161,291
Leased nuclear fuel, net of amortization 41,737 49,731
Construction work in progress 68,188 73,339
1,300,319 1,284,361
Other, net of accumulated depreciation
and amortization of $1,140,000 and
$1,277,000, respectively 4,945 2,686
1,305,264 1,287,047
Current assets:
Cash and temporary cash investments 2,424 2,135
Accounts receivable -
Customer, less reserve 6,401 12,051
Other 6,543 9,763
Income tax refunds receivable 1,703 3,450
Production fuel, at average cost 16,203 13,988
Materials and supplies, at average cost 26,326 26,699
Adjustment clause balances 0 1,433
Regulatory assets 23,168 20,145
Prepayments and other 14,652 19,630
97,420 109,294
Investments:
Nuclear decommissioning trust funds 43,531 33,779
Cash surrender value of life insurance policies 3,318 2,915
Other 588 223
47,437 36,917
Other assets:
Regulatory assets 199,485 192,955
Deferred charges and other 17,032 19,155
216,517 212,110
$ 1,666,638 $ 1,645,368
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
1995 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1994
(in thousands)
Capitalization:
Common stock - par value $2.50 per share
- authorized 24,000,000 shares;
13,370,788 shares outstanding $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings 210,541 197,158
Total common equity 523,010 509,627
Cumulative preferred stock - par value
$50 per share - authorized 466,406 shares;
366,406 shares outstanding 18,320 18,320
Long-term debt 415,413 380,404
956,743 908,351
Current liabilities:
Notes payable to associated companies 9,804 18,495
Short-term borrowings 49,000 37,000
Capital lease obligations 17,518 14,385
Maturities and sinking funds 65,140 100,140
Accounts payable 47,034 70,354
Accrued interest 10,807 9,438
Accrued taxes 71,840 47,188
Accumulated refueling outage provision 5,242 15,196
Adjustment clause balances 470 0
Provision for rate refund liability 12,966 0
Environmental liabilities 5,394 5,428
Other 15,815 18,324
311,030 335,948
Long-term liabilities:
Capital lease obligations 24,219 35,346
Environmental liabilities 38,935 37,853
Other 44,304 46,724
107,458 119,923
Deferred credits:
Accumulated deferred income taxes 253,618 241,345
Accumulated deferred investment tax credits 37,789 39,801
291,407 281,146
Commitments and contingencies (Note 5)
$ 1,666,638 $ 1,645,368
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
For the Three For the Nine For the Twelve
Months Ended Months Ended Months Ended
September 30 September 30 September 30
1995 1994 1995 1994 1995 1994
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric $ 183,876 $ 165,621 $ 433,502 $ 412,610 $ 558,219 $ 543,974
Gas 14,214 12,209 89,241 100,507 127,767 150,256
Other 2,358 1,647 8,216 6,393 10,829 8,933
200,448 179,477 530,959 519,510 696,815 703,163
Operating expenses:
Fuel for production 31,945 29,419 71,691 68,067 89,576 92,394
Purchased power 19,954 17,305 53,399 48,132 74,061 69,892
Gas purchased for resale 7,940 5,388 59,527 69,386 85,481 104,958
Other operating expenses 35,798 34,563 102,854 96,515 138,620 131,358
Maintenance 11,912 11,577 34,202 35,772 47,972 46,307
Depreciation and amortization 19,315 18,960 60,632 57,280 78,667 73,487
Taxes other than income taxes 12,224 10,488 36,955 33,554 45,952 42,628
139,088 127,700 419,260 408,706 560,329 561,024
Operating income 61,360 51,777 111,699 110,804 136,486 142,139
Interest expense and other:
Interest expense 11,242 10,256 33,432 31,016 43,988 41,727
Allowance for funds used during
construction -762 -1,087 -2,662 -2,964 -3,608 -3,958
Miscellaneous, net -244 -128 348 -372 -528 -280
10,236 9,041 31,118 27,680 39,852 37,489
Income before income taxes 51,124 42,736 80,581 83,124 96,634 104,650
Income taxes:
Current 21,463 17,513 24,441 31,720 31,096 28,587
Deferred 486 152 11,083 3,456 9,863 14,048
Amortization of investment
tax credits -667 -662 -2,012 -1,984 -2,673 -4,758
21,282 17,003 33,512 33,192 38,286 37,877
Net income 29,842 25,733 47,069 49,932 58,348 66,773
Preferred dividend requirements 229 229 686 686 914 914
Net income available for
common stock $ 29,613 $ 25,504 $ 46,383 $ 49,246 $ 57,434 $ 65,859
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Three For the Nine For the Twelve
Months Ended Months Ended Months Ended
September 30 September 30 September 30
1995 1994 1995 1994 1995 1994
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 29,842 $ 25,733 $ 47,069 $ 49,932 $ 58,348 $ 66,773
Adjustments to reconcile net income to net cash
flows from operating activities -
Depreciation and amortization 19,315 18,960 60,632 57,280 78,667 73,487
Principal payments under capital lease obligations 4,934 4,079 10,801 12,584 14,463 16,304
Deferred taxes and investment tax credits -181 -510 9,071 1,472 7,190 9,290
Refueling outage provision 3,006 3,338 -9,954 9,389 -6,807 8,048
Amortization of deferred charges 1,837 277 3,987 821 4,301 1,092
Other 74 417 244 48 71 -167
Other changes in assets and liabilities -
Accounts receivable -6,675 2,431 -2,130 15,145 -6,879 10,934
Production fuel, materials and supplies 839 -1,323 -2,092 1,559 -3,247 -545
Accounts payable -343 3,644 -19,302 -4,942 6,082 -10,714
Accrued taxes 32,419 21,574 26,399 22,037 11,419 14,521
Provision for rate refunds 2,759 0 12,966 -8,670 12,966 -7,852
Adjustment clause balances -7 -3,575 1,903 -5,648 969 -291
Gas in storage -4,737 -5,994 4,587 2,963 3,543 907
Other -2,438 4,156 2,481 5,296 1,213 5,308
Net cash flows from operating activities 80,644 73,207 146,662 159,266 182,299 187,095
Cash flows from financing activities:
Dividends declared on common stock -10,000 -15,000 -33,000 -37,000 -48,000 -48,800
Dividends declared on preferred stock -229 -229 -686 -686 -914 -914
Dividends payable 0 0 0 -5,000 0 0
Proceeds from issuance of long-term debt 0 0 50,000 0 50,000 119,400
Reductions in long-term debt 0 0 -50,140 -224 -50,140 -19,624
Net change in short-term borrowings -33,977 -14,658 3,309 -21,392 56,196 -81,192
Principal payments under capital lease obligations -3,314 -4,078 -9,529 -12,225 -13,608 -13,102
Sale of utility accounts receivable 9,000 0 11,000 -200 12,000 -200
Net cash flows from financing activities -38,520 -33,965 -29,046 -76,727 5,534 -44,432
Cash flows from investing activities:
Construction and acquisition expenditures -
Utility -31,669 -33,369 -89,664 -81,704 -154,200 -119,933
Other -805 0 -2,782 0 -4,645 0
Nuclear decommissioning trust funds -1,832 -1,383 -4,598 -4,149 -5,981 -5,532
Deferred energy efficiency costs -4,987 -4,340 -12,965 -11,511 -17,611 -15,221
Other -1,888 -641 -7,318 -3,288 -3,172 -4,199
Net cash flows from investing activities -41,181 -39,733 -117,327 -100,652 -185,609 -144,885
Net increase (decrease) in cash and temporary
cash investments 943 -491 289 -18,113 2,224 -2,222
Cash and temporary cash investments at
beginning of period 1,481 691 2,135 18,313 200 2,422
Cash and temporary cash investments at
end of period $ 2,424 $ 200 $ 2,424 $ 200 $ 2,424 $ 200
Supplemental cash flow information:
Cash paid during the period for -
Interest $ 8,428 $ 7,878 $ 30,500 $ 28,664 $ 41,842 $ 37,215
Income taxes $ 1,498 $ 5,442 $ 12,881 $ 22,049 $ 25,312 $ 32,917
Noncash investing and financing activities -
Capital lease obligations incurred $ 149 $ 10,828 $ 2,807 $ 11,252 $ 5,851 $ 11,460
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
(1) GENERAL:
The interim Consolidated Financial Statements have been
prepared by IES Utilities Inc. (Utilities) and its
consolidated subsidiary (collectively the Company), without
audit, pursuant to the rules and regulations of the United
States Securities and Exchange Commission. Utilities is a
wholly-owned subsidiary of IES Industries Inc. (Industries).
Utilities' wholly-owned subsidiary is IES Ventures Inc.
(Ventures), which is a holding company for unregulated
investments. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of the Company, the Consolidated
Financial Statements include all adjustments, which are normal
and recurring in nature, necessary for the fair presentation
of the results of operations and financial position. Certain
prior period amounts have been reclassified on a basis
consistent with the 1995 presentation.
It is suggested that these Consolidated Financial
Statements be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1994. The
accounting and financial policies relative to the following
items have been described in those notes and have been omitted
herein because they have not changed materially through the
date of this report:
Summary of significant accounting policies
Acquisition of Iowa service territory of Union Electric Company (UE)
Leases
Utility accounts receivable (other than discussed in Note 3)
Income taxes
Benefit plans
Preferred and preference stock
Debt (other than discussed in Note 4)
Estimated fair value of financial instruments
Commitments and contingencies (other than discussed in Note 5)
Jointly-owned electric utility plant
Segments of business
(2) RATE MATTERS:
(a) 1995 Gas Rate Case -
On August 4, 1995, Utilities applied to the Iowa
Utilities Board (IUB) for an annual increase in gas rates of
$8.8 million, or 6.2%. An interim increase of $8.6 million
was requested. The IUB approved an interim increase of $7.1
million annually, effective October 11, 1995, subject to
refund. Utilities expects that the final rate level will be
determined no later than the second quarter of 1996.
(b) 1994 Electric Rate Case -
In 1994, Utilities applied to the IUB for an increase in
retail electric rates of approximately $26 million annually,
or 5.2%. In May 1995, the IUB issued an order requiring an
annual reduction in retail electric revenues of $15.8 million.
While minor movement toward pricing consistency between the
different pricing zones will result, the proposals to increase
recovery levels of nuclear depreciation expense and nuclear
decommissioning expense were rejected. The Board also ruled
against Utilities on issues of recovery for the full purchase
prices of Union Electric's Iowa service territory and smaller,
low-cost, used generating plants, even though customers are
currently benefiting from the acquisitions.
Utilities and several intervenors filed applications for
rehearing with the IUB requesting rehearing on various issues
in the order and Utilities was granted rehearing on two of the
smaller issues. The IUB denied rehearing on all other issues,
including the intervenors' issues. The IUB issued its Order
Granting Rehearing in Part and Denying Rehearing in Part on
June 30, 1995, which made minor adjustments to its original
decision resulting in a revised annual retail rate reduction
of approximately $14.4 million. No petitions were filed with
the Iowa district court by any of the parties to the case.
On August 16, 1995, Utilities received approval from the
IUB to implement final prices. Northern and Southeastern zone
price changes became effective on that date. Utilities has
recorded a pre-tax reserve for rate refund, including
interest, of $13.0 million at September 30, 1995. Utilities
expects to make the rate refund in the fourth quarter and
there will be no further effect on 1995 electric revenues and
net income when the refund is made.
There will not be any revenue requirement change in the
Southern zone as a result of the IUB order. A price design
change will be implemented in the Southern zone, effective
January 1, 1996, but there will be no refund obligation as the
result of this change.
(c) 1994 Energy Efficiency Cost Recovery Filing -
The IUB has adopted rules that mandate Utilities to spend
2% of electric and 1.5% of gas gross retail operating revenues
for energy efficiency programs. Under provisions of the IUB
rules, Utilities applied in August 1994 to the IUB for
recovery of approximately $23 million and $13 million for the
electric and gas programs, respectively, related to costs
incurred through 1993 for such programs. The $36 million
total for the electric and gas programs is comprised of
$21 million of direct expenditures and carrying costs
(recorded as a "Regulatory asset" in the Consolidated Balance
Sheets, including $5.4 million as current), $7 million for a
return on the expenditures over the recovery period and
$8 million for a reward based on a sharing of the benefits of
such programs.
In April 1995, the IUB issued its Final Decision and
Order concerning Utilities' energy efficiency expenditures,
which allows Utilities to recover its direct expenditures,
carrying costs, and a return on its expenditures, as well as a
reward of approximately $4 million for a total allowed
recovery of approximately $32 million. Recovery of energy
efficiency costs will be over a four-year period and began on
June 1, 1995.
In May 1995, the Office of Consumer Advocate (OCA) and an
intervenor filed applications for rehearing with the IUB
concerning the amount of the reward granted by the IUB. Since
the identical issue was pending before the court in another
utility's proceeding, the OCA, the intervenor and Utilities
agreed to be bound by the ultimate decision in the other
utility's court proceeding. That proceeding has been resolved
in favor of the other utility. Utilities does not, therefore,
have a refund obligation.
(3) UTILITY ACCOUNTS RECEIVABLE:
Utilities has entered into an agreement, which expires in
1999, with a financial institution to sell, with limited
recourse, an undivided fractional interest of up to
$65 million in its pool of utility accounts receivable. At
September 30, 1995, $65 million was sold under the agreement.
(4) DEBT:
(a) Long-Term Debt -
In October 1995, Utilities repaid at maturity $50 million
of Series X, 9.42% First Mortgage Bonds, by issuing additional
commercial paper. Utilities expects to replace the commercial
paper with other long-term securities during the fourth
quarter of 1995. Effective with the maturity of the Series X
bonds, retained earnings are no longer restricted as to the
payment of cash dividends.
In March 1995, Utilities repaid at maturity $50 million
of Series W, 9.75% First Mortgage Bonds and, in a separate
transaction, issued $50 million of Collateral Trust Bonds,
7.65%, due 2000.
(b) Short-Term Debt -
At September 30, 1995, the Company had bank lines of
credit aggregating $91.1 million, of which $49 million was
being used to support commercial paper (weighted average
interest rate of 5.80%) and $11.1 million to support certain
pollution control obligations. In October 1995, Utilities
increased its bank lines of credit by $30 million in order to
finance the redemption of the Series X bonds. 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, Utilities has an uncommitted credit facility with a
financial institution whereby it can borrow up to $40 million.
Rates are set at the time of borrowing and no fees are paid to
maintain this facility. At September 30, 1995, there were no
borrowings outstanding under this facility.
(5) CONTINGENCIES:
(a) Environmental Liabilities -
The Company has recorded environmental liabilities of
approximately $44.3 million, including $5.4 million as current
liabilities, in its Consolidated Balance Sheets at
September 30, 1995. The significant items are discussed below.
Former Manufactured Gas Plant (FMGP) Sites
Utilities has been named as a Potentially Responsible
Party (PRP) by various federal and state environmental
agencies for 28 FMGP sites, but believes it is not responsible
for two of these sites. There are also six other sites for
which it may be designated as a PRP in the future. Utilities
is working pursuant to the requirements of the various
agencies to investigate, mitigate, prevent and remediate,
where necessary, damage to property, including damage to
natural resources, at and around the sites in order to protect
public health and the environment. Utilities believes it has
completed the remediation of five sites although it is in the
process of obtaining final approval from the applicable
environmental agencies on this issue for each site. Utilities
is in various stages of the investigation and/or remediation
processes for 19 sites and expects to begin the investigation
process in 1995 or 1996 for the other sites.
Utilities has recorded environmental liabilities related
to the FMGP sites of approximately $32 million (including
$4.5 million as current liabilities) at September 30, 1995.
These amounts are based upon Utilities' best current estimate
of the amount to be incurred for investigation and remediation
costs for those sites where the investigation process has been
or is substantially completed, and the minimum of the
estimated cost range for those sites where the investigation
is in its earlier stages or has not started. It is possible
that future cost estimates will be greater than the current
estimates as the investigation process proceeds and as
additional facts become known. Utilities may be required to
monitor these sites for a number of years upon completion of
remediation, as is the case with several of the sites for
which remediation has been completed.
Utilities has begun pursuing coverage for investigation,
mitigation, prevention, remediation, and monitoring costs from
its insurance carriers and is investigating the potential for
third party cost sharing for FMGP investigation and clean-up
costs. The amount of shared costs, if any, cannot be
reasonably determined and, accordingly, no potential sharing
has been recorded at September 30, 1995. Regulatory assets of
approximately $32 million, which reflect the future recovery
that is being provided through Utilities' rates, have been
recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes
that the clean-up costs incurred by Utilities for these FMGP
sites will not have a material adverse effect on its financial
position or results of operations.
(b) 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 Utilities' units
beginning in 1995 and Phase II affecting all units beginning
in the year 2000. Utilities has completed the modifications
necessary to meet the Phase I requirements and has installed
continuous emission monitors on all affected units as required
by the Act.
Utilities expects to meet the requirements of Phase II by
switching to lower sulfur fuels and through capital
expenditures primarily related to fuel burning equipment and
boiler modifications. Utilities estimates capital expenditures
of approximately $22.5 million, including $4.4 million in
1995, in order to meet the requirements of the Act.
(c) Federal Energy Regulatory Commission (FERC) Order
No. 636 -
The FERC issued Order No. 636 (Order 636) in 1992, which
substantially changed how Utilities manages its gas supply.
As a result of Order 636, Utilities has enhanced access to
competitively priced gas supply and more flexible
transportation services, however, Utilities is required to pay
certain transition costs incurred and billed by its pipeline
suppliers.
Utilities' three pipeline suppliers have made filings
with the FERC to collect their respective known transition
costs, and additional filings are expected. At September 30,
1995, Utilities has recorded a liability of $4.9 million for
those transition costs that have been incurred by the
pipelines to date, including $1.9 million expected to be
billed through September 1996. Utilities is currently
recovering the transition costs from its customers through its
Purchased Gas Adjustment Clauses as such costs are billed by
the pipelines. The ultimate level of costs to be billed to
Utilities depends on the pipelines' filings with the FERC and
other future events, including the market price of natural
gas, and could approximate $8 million more than the amount
recorded. However, Utilities believes any transition costs
billed by its pipeline suppliers would be recovered from its
customers, based upon regulatory treatment of these costs
currently and similar past costs by the IUB. Accordingly,
regulatory assets, in amounts corresponding to the recorded
liabilities, have been recorded to reflect the anticipated
recovery.
(d) Nuclear Insurance Programs -
Public liability for nuclear accidents is governed by the
Price Anderson Act of 1988 which sets a statutory limit of
$8.9 billion for liability to the public for a single nuclear
power plant incident and requires nuclear power plant
operators to provide financial protection for this amount. As
required, Utilities provides this financial protection for a
nuclear incident at the Duane Arnold Energy Center (DAEC),
Utilities' nuclear generating facility, through a combination
of liability insurance ($200 million) and industry-wide
retrospective payment plans ($8.7 billion). Under the
industry-wide plan, each operating licensed nuclear reactor in
the United States is subject to an assessment in the event of
a nuclear incident at any nuclear plant in the United States.
Based on its ownership of the DAEC, Utilities could be
assessed a maximum of $79.3 million per nuclear incident, with
a maximum of $10 million per incident per year (of which
Utilities' 70% ownership portion would be approximately $55
million and $7 million, respectively) if losses relating to
the incident exceeded $200 million. These limits are subject
to adjustments for changes in the number of participants and
inflation in future years.
Utilities is a member of Nuclear Mutual Limited (NML) and
Nuclear Electric Insurance Limited (NEIL). These companies
provide $1.9 billion of insurance coverage on certain property
losses at DAEC for property damage, decontamination and
premature decommissioning. The proceeds from such insurance,
however, must first be used for reactor stabilization and site
decontamination before they can be used for plant repair and
premature decommissioning. NEIL also provides separate
coverage for the cost of replacement power during certain
outages. Owners of nuclear generating stations insured
through NML and NEIL are subject to retroactive premium
adjustments if losses exceed accumulated reserve funds. NML
and NEIL's accumulated reserve funds are currently sufficient
to more than cover its exposure in the event of a single
incident under the primary and excess property damage or
replacement power coverages. However, Utilities could be
assessed annually a maximum of $3.1 million under NML, $8.5
million for NEIL property and $0.7 million for NEIL
replacement power if losses exceed the accumulated reserves
funds. Utilities is not aware of any losses that it believes
are likely to result in an assessment.
In the unlikely event of a catastrophic loss at DAEC, the
amount of insurance available may not be adequate to cover
property damage, decontamination and premature
decommissioning. Uninsured losses, to the extent not
recovered through rates, would be borne by Utilities and could
have a material adverse effect on Utilities' financial
position and results of operations.
ITEM 2. 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 from the
prior periods for IES Utilities Inc. (Utilities) and its
consolidated subsidiary (collectively the Company).
Utilities' wholly-owned subsidiary is IES Ventures Inc., which
is a holding company for unregulated investments.
RESULTS OF OPERATIONS
The Company's net income available for common stock
increased or (decreased) $4.1 million, ($2.9) million and
($8.4) million during the three, nine and twelve month
periods, respectively, ended September 30, 1995. The warmer
than normal weather during the summer of 1995 significantly
impacted the 1995 results of operations. The 1995 earnings
were also significantly affected by the impact of the Iowa
Utilities Board's (IUB) price reduction order in Utilities'
recent electric rate case. The positive impact of the warmer
than normal weather was greater than the negative impact of
the price reduction for the quarter and partially offset the
impact of the price reduction for the nine and twelve month
periods. See Note 2(b) of the Notes to Consolidated Financial
Statements for a further discussion of the electric rate case.
The Company's operating income increased or (decreased)
$9.6 million, $0.9 million and ($5.7) million during the
three, nine and twelve month periods, respectively. Reasons
for the changes in the results of operations are explained
further in the following discussion.
ELECTRIC REVENUES
Electric revenues and Kwh sales (before off-system sales)
for Utilities increased for the periods ended September 30,
1995, as compared with the prior periods, as follows:
Three Nine Twelve
Months Months Months
($ in millions)
Electric revenues $ 18.3 $ 20.9 $ 14.2
Electric sales (excluding
off-system sales):
Residential and Rural 26.2% 9.1% 5.8%
Commercial 10.0 4.2 3.4
Industrial 2.5 5.8 5.4
Total 9.9% 5.2% 4.3%
Warmer than normal weather during the summer of 1995
significantly increased sales during the second and third
quarters. Utilities set new usage records several times,
culminated by a new energy peak usage record of 1,824
megawatts on July 12, 1995. Sales during the nine and twelve
month periods also benefited from the effects of Utilities'
annual true-up adjustment to unbilled sales which was recorded
during the second quarter of 1995. Excluding the effects of
weather and the unbilled sales adjustment, total sales
(excluding off-system sales) during the three, nine and twelve
month periods increased 2.5%, 2.3% and 2.5%, respectively.
The growth in industrial sales continues to reflect the
underlying strength of the economy as industrial expansions in
Utilities' service territory continue.
Utilities' 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.
Electric revenues include a pre-tax reserve for rate
refund ($8.0 million, $1.7 million and $2.4 million recorded
in the first, second and third quarters of 1995, respectively)
recorded by Utilities as a result of the IUB order.
Approximately $3.5 million of the reserve recorded in the
first quarter relates to revenues collected in the fourth
quarter of 1994. The new electric prices went into effect
August 16, 1995. See Note 2(b) of the Notes to Consolidated
Financial Statements for a further discussion of the electric
rate case.
The revenue increases during all three periods were
primarily due to the increased sales (excluding off-system
sales) and higher fuel costs collected through the EAC. The
unbilled revenue adjustment recorded during the second quarter
of 1995 also contributed to the nine and twelve month
increases. These items were partially offset by the effect of
the price reduction and lower off-system sales.
GAS REVENUES
Utilities' gas revenues increased or (decreased) $2.0
million, ($11.3) million and ($22.5) million during the three,
nine and twelve month periods, respectively. Utilities' gas
sales in therms increased or (decreased) for the periods ended
September 30, 1995, as compared with the prior periods, as
follows:
Three Nine Twelve
Months Months Months
Residential 13.9% (4.4%) (8.7%)
Commercial 7.7 (4.2) (8.3)
Industrial (25.1) (27.2) (18.3)
Sales to consumers 1.1 (7.2) (9.9)
Transported volumes 22.3 28.9 29.9
Total 11.4% 1.4% (1.4%)
Under normal weather conditions, sales to consumers would
have decreased (0.5%), (3.6%) and (4.5%) during the three,
nine and twelve month periods, respectively.
Utilities' gas tariffs include purchased gas adjustment
clauses (PGA) that are designed to currently recover the cost
of gas sold. The change in Utilities' gas revenues each
period is primarily due to the level of gas costs recovered
through the PGA. The decreased gas cost recoveries during the
nine and twelve month periods are due to lower gas prices as
well as a shift in the sales mix between industrial sales and
transported volumes; Utilities does not purchase the gas for
the transported volumes.
On August 4, 1995, Utilities applied to the IUB for an
annual increase in gas rates of $8.8 million, or 6.2%. An
annual interim increase of approximately $7.1 million went
into effect on October 11, 1995. See Note 2(a) of the Notes
to Consolidated Financial Statements for a further discussion.
OPERATING EXPENSES
Fuel for production increased or (decreased)
$2.5 million, $3.6 million and ($2.8) million during the
three, nine and twelve month periods, respectively. The three
and nine month increases are due to higher fuel cost
recoveries through the EAC, which are included in fuel for
production, and a higher average fuel cost. The nine month
increase was partially offset by a decrease in the amount of
Kwh generation. The Duane Arnold Energy Center (DAEC),
Utilities' nuclear generating facility, was down from late
February 1995 through late April 1995 for a scheduled
refueling outage. There was no such refueling outage in 1994.
The twelve month decrease is primarily due to lower fuel cost
recoveries through the EAC and a decrease in the amount of Kwh
generation, partially offset by a higher average fuel cost.
Purchased power increased $2.6 million, $5.3 million and
$4.2 million during the three, nine and twelve month periods,
respectively. The increase for all three periods is due to
increased energy purchases, resulting from the increased sales
and the decrease in generation, which were partially offset by
lower capacity costs.
Gas purchased for resale increased or (decreased)
$2.6 million, ($9.9) million and ($19.5) million during the
three, nine and twelve month periods, respectively. The three
month increase is primarily due to higher PGA collections.
The nine and twelve month decreases were primarily due to
lower sales to consumers and lower natural gas prices.
Other operating expenses increased $1.2 million, $6.3
million and $7.3 million during the three, nine and twelve
month periods, respectively. Increases in labor and benefits
costs and costs relating to a project to review and redesign
Utilities' business processes contributed to the increases for
all three periods. Higher former manufactured gas plant
(FMGP) clean-up costs and information technology costs also
contributed to the increases for the nine and twelve month
periods. The increases for all three periods were partially
offset by lower insurance costs.
Maintenance expenses increased or (decreased)
$0.3 million, ($1.6) million and $1.7 million during the
three, nine and twelve month periods, respectively. The nine
month decrease is due to lower non-labor costs at the DAEC,
partially offset by higher labor costs. The twelve month
increase is primarily due to increased labor costs, partially
offset by lower non-labor costs at Utilities' generating
stations.
Depreciation and amortization increased $0.4 million,
$3.4 million and $5.2 million during the three, nine and
twelve month periods primarily because of increases in utility
plant in service. Such increases were partially offset by
lower depreciation rates implemented during the third quarter
of 1995 as a result of the IUB price reduction order.
Depreciation and amortization expenses for all periods include
a provision for decommissioning the DAEC, which is collected
through rates. The annual recovery level was increased to
$6.0 million as a result of Utilities' recent electric rate
case. Previously, the annual amount allowed to be collected
through rates was $5.5 million.
The staff of the United States Securities and Exchange
Commission (SEC) has questioned certain of the current
accounting practices of the electric utility industry
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in the
financial statements of electric utilities. In response to
these questions, the Financial Accounting Standards Board
(FASB) has agreed to review the accounting for removal costs,
including decommissioning. If current electric utility
industry accounting practices for such decommissioning are
changed: (1) annual provisions for decommissioning could
increase, (2) the estimated cost for decommissioning could be
recorded as a liability rather than as accumulated
depreciation, and (3) trust fund income from the external
decommissioning trusts could be reported as investment income
rather than as a reduction to decommissioning expense. If
such changes are required, Utilities believes that there would
not be an adverse effect on its financial position or results
of operations based on current rate making practices; the
Company cannot predict future rate making practices.
Taxes other than income taxes increased $1.7 million,
$3.4 million and $3.3 million during the three, nine and
twelve month periods, respectively. Increases during all
periods are primarily the result of higher property taxes due
to increases in assessed property values.
INTEREST EXPENSE AND OTHER
Interest expense increased $1.0 million, $2.4 million and
$2.3 million during the three, nine and twelve month periods,
respectively. The increases for all three periods are
primarily due to an increase in the average amount of short-
term debt outstanding and interest related to Utilities' rate
reserve.
Income taxes increased $4.3 million, $0.3 million and
$0.4 million during the three, nine and twelve month periods,
respectively. For each period, income tax expense increased
because of a higher effective tax rate resulting from:
1) effect of property related temporary differences for which
deferred income taxes have not been provided under current
rate making principles, which are now becoming payable and are
being recovered from ratepayers, and 2) effect of prior period
audit adjustments recorded during the current period. A
decrease in pre-tax income partially offset these effects
during the nine and twelve month periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily
attributable to Utilities' construction programs, debt
maturities and sinking fund requirements. The Company's pre-
tax ratio of earnings to fixed charges was 3.20 and 3.51 for
the twelve months ended September 30, 1995 and September 30,
1994, respectively. Cash flows from operating activities for
the twelve months ending September 30, 1995, were
$182 million.
The Company anticipates that 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 for
Utilities. (See Notes 2 and 5 of the Notes to Consolidated
Financial Statements).
Access to the long-term and short-term capital and credit
markets is necessary for obtaining funds externally.
Utilities' debt ratings are as follows:
Moody's Standard & Poor's
Long-term debt A2 A
Short-term debt P1 A1
The Company's liquidity and capital resources will be
affected by environmental and legislative issues, including
the ultimate disposition of remediation issues surrounding the
Company's environmental liabilities, the Clean Air Act as
amended and FERC Order 636, as discussed in Note 5 of the
Notes to Consolidated 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 Utilities 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 by Utilities. At September 30, 1995, Utilities had
$46 million of such costs recorded as regulatory assets. On
June 1, 1995, Utilities began its recovery of those costs
incurred through 1993. See Note 2(c) of the Notes to
Consolidated Financial Statements for a further discussion.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program
anticipates expenditures of approximately $163 million for
1995, of which approximately 32% represents expenditures for
electric transmission and distribution facilities, 23%
represents fossil-fueled generation expenditures, 15%
represents expenditures for steam distribution plant and 9%
represents nuclear generation expenditures. The remaining 21%
represents miscellaneous electric, gas and general
expenditures. In addition to the $163 million, Utilities
anticipated expenditures of $13 million in connection with
mandated energy efficiency programs. Substantial commitments
have been made in connection with all such expenditures. The
Company had construction and acquisition expenditures of
approximately $92 million for the nine months ended September
30, 1995. Utilities has revised its construction and
acquisition program, decreasing its anticipated 1995
expenditures of $163 million by approximately $20 million.
The Company's levels of construction and acquisition
expenditures are projected to be $167 million in 1996,
$146 million in 1997, $170 million in 1998 and $182 million in
1999. It is estimated that approximately 80% of construction
and acquisition expenditures will be provided by cash from
operating activities (after payment of dividends) for the five-
year period 1995-1999.
Capital expenditure and investment and financing plans
are subject to continual review and change. The capital
expenditure and investment programs 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 Utilities' periodic sinking fund requirements,
which Utilities intends to meet by pledging additional
property, approximately $74 million of long-term debt will
mature prior to December 31, 1999 (excluding the Series X
which was repaid at maturity in October 1995). The Company
intends to refinance the majority of the debt maturities with
long-term securities.
In October 1995, Utilities repaid at maturity $50 million
of Series X, 9.42% First Mortgage Bonds, by issuing additional
commercial paper. Utilities expects to replace the commercial
paper with other long-term securities during the fourth
quarter of 1995. Effective with the maturity of the Series X
bonds, retained earnings are no longer restricted as to the
payment of cash dividends.
In March 1995, Utilities repaid at maturity $50 million
of Series W, 9.75% First Mortgage Bonds and, in a separate
transaction, issued $50 million of Collateral Trust Bonds,
7.65%, due 2000.
Utilities has entered into an Indenture of Mortgage and
Deed of Trust dated September 1, 1993 (New Mortgage). The New
Mortgage provides for, among other things, the issuance of
Collateral Trust Bonds upon the basis of First Mortgage Bonds
being issued by Utilities. The lien of the New Mortgage is
subordinate to the lien of Utilities' first mortgages until
such time as all bonds issued under the first mortgages have
been retired and such mortgages satisfied. Accordingly, to the
extent that Utilities 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
Utilities' first mortgages. Under the terms of the New
Mortgage, Utilities 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.
The Indentures pursuant to which Utilities 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 September 30, 1995, such restrictions would
have allowed Utilities to issue at least $258 million of
additional First Mortgage Bonds. Utilities has received
authority from the FERC to issue $250 million of long-term
debt, of which $50 million was used in March 1995 to issue
Collateral Trust Bonds. Utilities has filed a registration
statement with the SEC with respect to $250 million of long-
term debt; the registration statement has not yet become
effective.
The Articles of Incorporation of Utilities authorize and
limit the aggregate amount of additional shares of Cumulative
Preference Stock and Cumulative Preferred Stock that may be
issued. At September 30, 1995, Utilities 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 September 30, were
as follows:
1995 1994
Long-term debt 47% 47%
Preferred stock 2 2
Common equity 51 51
100% 100%
The 1995 and 1994 ratios include
$65 million and $50 million, respectively, of
long-term debt due in less than one year because
it was the Company's intention to refinance the
debt with long-term securities.
SHORT-TERM FINANCING
For interim financing, Utilities is authorized by the
FERC to issue, through 1996, up to $200 million of short-term
notes. In addition to providing for ongoing working capital
needs, this availability of short-term financing provides
Utilities flexibility in the issuance of long-term securities.
At September 30, 1995, Utilities had outstanding short-term
borrowings of $58.8 million, including $9.8 million of notes
payable to associated companies.
Utilities has an agreement, which expires in 1999, with a
financial institution to sell, with limited recourse, an
undivided fractional interest of up to $65 million in its pool
of utility accounts receivable. At September 30, 1995,
Utilities had sold $65 million under the agreement.
At September 30, 1995, the Company had bank lines of
credit aggregating $91.1 million, of which $49 million was
being used to support commercial paper (weighted average
interest rate of 5.80%) and $11.1 million to support certain
pollution control obligations. In October 1995, Utilities
increased its bank lines of credit by $30 million in order to
finance the redemption of the Series X bonds. 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, Utilities has an uncommitted credit facility with a
financial institution whereby it can borrow up to $40 million.
Rates are set at the time of borrowing and no fees are paid to
maintain this facility. At September 30, 1995, there were no
borrowings outstanding under this facility.
ENVIRONMENTAL MATTERS
Utilities has been named as a Potentially Responsible
Party (PRP) by various federal and state environmental
agencies for 28 FMGP sites, but believes it is not responsible
for two of these sites. There are also six other sites for
which it may be designated as a PRP in the future. Utilities
is working pursuant to the requirements of the various
agencies to investigate, mitigate, prevent and remediate,
where necessary, damage to property, including damage to
natural resources, at and around the sites in order to protect
public health and the environment. Utilities believes it has
completed the remediation of five sites although it is in the
process of obtaining final approval from the applicable
environmental agencies on this issue for each site. Utilities
is in various stages of the investigation and/or remediation
processes for 19 sites and expects to begin the investigation
process in 1995 or 1996 for the other sites.
Utilities has recorded environmental liabilities related
to the FMGP sites of approximately $32 million (including
$4.5 million as current liabilities) at September 30, 1995.
These amounts are based upon Utilities' best current estimate
of the amount to be incurred for investigation and remediation
costs for those sites where the investigation process has been
or is substantially completed, and the minimum of the
estimated cost range for those sites where the investigation
is in its earlier stages or has not started. It is possible
that future cost estimates will be greater than the current
estimates as the investigation process proceeds and as
additional facts become known. Utilities may be required to
monitor these sites for a number of years upon completion of
remediation, as is the case with several of the sites for
which remediation has been completed.
Utilities has begun pursuing coverage for investigation,
mitigation, prevention, remediation and monitoring costs from
its insurance carriers and is investigating the potential for
third party cost sharing for FMGP investigation and clean-up
costs. The amount of shared costs, if any, cannot be
reasonably determined and, accordingly, no potential sharing
has been recorded at September 30, 1995. Regulatory assets of
approximately $32 million, which reflect the future recovery
that is being provided through Utilities' rates, have been
recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes
that the clean-up costs incurred by Utilities for these FMGP
sites will not have a material adverse effect on its financial
position or results of operations.
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 Utilities' units
beginning in 1995 and Phase II affecting all units beginning
in the year 2000. Utilities has completed the modifications
necessary to meet the Phase I requirements and has installed
continuous emission monitors on all affected units as required
by the Act.
Utilities expects to meet the requirements of Phase II by
switching to lower sulfur fuels and through capital
expenditures primarily related to fuel burning equipment and
boiler modifications. Utilities estimates capital expenditures
of approximately $22.5 million, including $4.4 million in
1995, in order to meet the requirements of the Act.
In January 1995, Utilities received an Administrative
Compliance Order (ACO) from the United States Environmental
Protection Agency (EPA) alleging noncompliance with, and
requiring Utilities to satisfy, certain monitoring, reporting,
and recordkeeping requirements of the Acid Rain Program at its
Phase II units. Utilities and the EPA resolved the
allegations in a Consent Agreement and Consent Order, dated
August 23, 1995, which required Utilities to pay a penalty of
$25,630 and to perform a Supplemental Environmental Project,
surrendering 589 sulfur dioxide allowances, valued at $76,570.
(This Supplemental Environmental Project was undertaken in
connection with the settlement of an enforcement action taken
by the EPA for violations of Section 412 of the CAA, 42 U.S.C.
7651k.)
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 $1.4 million annually through 2007, of
which Utilities' 70% share is $1.0 million. Utilities is
recovering the costs associated with this assessment through
its electric fuel adjustment clauses over the period the costs
are assessed. Utilities' 70% share of the future assessment,
$11.7 million payable through 2007, has been recorded as a
liability in the Consolidated Balance Sheets, including
$0.8 million included in "Current liabilities - Environmental
liabilities," with a related regulatory asset for the
unrecovered amount.
The Nuclear Waste Policy Act of 1982 assigned
responsibility to the U.S. Department of Energy (DOE) to
establish a facility for the ultimate disposition of high
level waste and spent nuclear fuel and authorized the DOE to
enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into
such a contract and has made the agreed payments to DOE. The
DOE, however, has experienced significant delays in its
efforts and material acceptance is now expected to occur no
earlier than 2010. Utilities has been storing spent nuclear
fuel on-site since plant operations began in 1974 and has
current on-site capability to store spent fuel until 2002.
Utilities is aggressively reviewing options for additional
spent nuclear fuel storage capability, including expanding on-
site storage and pursuing other off-site storage. Utilities
is also supporting legislation currently before the U.S.
Congress to resolve the lack of progress by the DOE.
The Low-Level Radioactive Waste Policy Amendments Act of
1985 mandated that each state must take responsibility for the
storage of low-level radioactive waste produced within its
borders. The State of Iowa has joined the Midwest Interstate
Low-Level Radioactive Waste Compact Commission (Compact),
which is planning a storage facility to be located in Ohio to
store waste generated by the Compact's six member states. At
September 30, 1995, Utilities has prepaid costs of
approximately $1 million to the Compact for the building of
such a facility. Currently, Utilities is storing its low-
level radioactive waste generated at the DAEC on-site until
new disposal arrangements are finalized among the Compact
members. A Compact disposal facility is anticipated to be in
operation in approximately ten years after approval of new
enabling legislation by the member states. Such legislation
is expected to be considered by the member states in 1996. On-
site storage capability currently exists for low-level
radioactive waste expected to be generated until the Compact
facility is able to accept waste materials. In addition, the
Barnwell, South Carolina disposal facility has temporarily
reopened and Utilities intends to ship to Barnwell the
majority of the low-level radioactive waste it has accumulated
on-site, as well as waste it produces in the future as long as
the Barnwell site remains open, thereby minimizing the amount
of waste stored on-site.
The possibility that exposure to electric and magnetic
fields (EMF) emanating from power lines, household appliances
and other electric sources may result in adverse health
effects has been the subject of increased public,
governmental, industry and media attention. A considerable
amount of scientific research has been conducted on this topic
without definitive results. Research is continuing in order
to resolve scientific uncertainties.
OTHER MATTERS
The National Energy Policy Act of 1992 addresses several
matters designed to promote competition in the electric
wholesale power generation market, including mandated open
access to the electric transmission system. On March 29,
1995, the FERC issued a Notice of Proposed Rulemaking pursuant
to which FERC proposes to promote competition in the electric
utility industry by requiring that each transmission owning
utility must 1) implement non-discriminatory tariffs allowing
open access to that utility's transmission facilities by
wholesale buyers and sellers of electricity and 2) charge
itself the same price for transmission and ancillary services
as it charges third parties under the tariffs. Utilities
filed conforming pro-forma open access transmission tariffs
with the FERC on July 24, 1995. The tariffs were accepted by
the FERC and became effective October 1, 1995. The geographic
position of Utilities' transmission system could provide
revenue opportunities in the open access environment. FERC
would allow for recovery of certain stranded costs (i.e.
assets the costs of which could be rendered otherwise
unrecoverable as the result of open access) in connection with
wholesale transmission. The Company cannot predict the final
regulations that may be adopted.
The IUB initiated a Notice of Inquiry (Docket No. NOI-95-
1) in early 1995 on the subject of "Emerging Competition in
the Electric Utility Industry." A one-day roundtable
discussion was held to address all forms of competition in the
electric utility industry and to assist the IUB in gathering
information and perspectives on electric competition from all
persons or entities with an interest or stake in the issues.
Such discussions are not expected to produce any specific
action by the IUB in the near future. The IUB has scheduled
additional discussions for December 1995.
The Company cannot predict the long-term consequences of
these competitive issues on its results of operations or
financial condition. The Company's strategy for dealing with
these emerging issues includes seeking growth opportunities,
continuing to offer quality customer service, ongoing cost
reductions and productivity enhancements. The Company has
initiated a major project to review and redesign its business
processes with the primary goals being reduced operating
costs, increased efficiency and enhanced customer service.
In March 1995, the FASB issued SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of. This statement, among other things,
defines the criteria for valuing regulatory assets. The
Company does not expect the amount of regulatory assets
recorded in the Consolidated Balance Sheets to be affected.
The Company expects to adopt this standard on January 1, 1996,
and does not expect that adoption will have any current impact
on the financial position or results of operations of the
Company.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Notes 2 and 5 of the Notes to
Consolidated Financial Statements for a discussion of rate
matters and environmental matters, respectively, and Item 2.
Management's Discussion and Analysis of the Results of
Operations and Financial Condition - Environmental Matters.
Item 2. Changes in the Rights of the Company's Security Holders.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Results of Votes of Security Holders.
None.
Item 5. Other Information.
(a) The Company has calculated the ratio of earnings to fixed
charges pursuant to Item 503 of Regulation S-K of the
Securitites and Exchange Commission as follows:
For the twelve months ended:
September 30, 1995 3.00
December 31, 1994 3.18
December 31, 1993 3.41
December 31, 1992 2.49
December 31, 1991 2.64
December 31, 1990 2.65
(b) The Company has eliminated the officer position of Senior
Vice President, Finance. Therefore, Dr. Robert J. Latham
is no longer with the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
4(a) Sixty-first Supplemental Indenture, dated as of
March 1, 1995, supplementing Utilities' Indenture of
Mortgage and Deed of Trust, dated August 1, 1940.
(Filed as Exhibit 4(a) to the Company's Form 10-Q
for the quarter ended March 31, 1995).
4(b) Third Supplemental Indenture, dated as of March 1,
1995, supplementing Utilities' Indenture of Mortgage
and Deed of Trust, dated September 1, 1993. (Filed
as Exhibit 4(b) to the Company's Form 10-Q for the
quarter ended March 31, 1995).
*12 Ratio of Earnings to Fixed Charges.
*27 Financial Data Schedule.
* Exhibits designated by an asterisk are filed herewith.
(b) Reports on Form 8-K -
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
IES UTILITIES INC.
(Registrant)
Date November 9, 1995 By /s/ Blake O. Fisher, Jr.
(Signature)
Blake O. Fisher, Jr.
President, Chief Operating Officer &
Chief Financial Officer
By /s/ Richard A. Gabbianelli
(Signature)
Richard A. Gabbianelli
Controller & Chief Accounting Officer
<PAGE>
<TABLE>
EXHIBIT 12
IES UTILITIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Twelve Months
Year Ended December 31, Ended
1990 1991 1992 1993 1994 September 30, 1995
(in thousands, except ratio of earnings to fixed charges)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 45,969 $ 47,563 $ 45,291 $ 67,970 $ 61,210 $ 58,348
Federal and state
income taxes 22,364 23,494 20,723 37,963 37,966 38,286
Net income before
income taxes 68,333 71,057 66,014 105,933 99,176 96,634
Interest on long-term debt 28,853 31,171 35,689 34,926 37,942 37,302
Other interest 4,704 5,595 3,939 5,243 3,630 6,686
Estimated interest
component of rents 7,936 6,594 4,567 3,729 3,970 4,321
Fixed charges as defined 41,493 43,360 44,195 43,898 45,542 48,309
Earnings as defined $ 109,826 $ 114,417 $ 110,209 $ 149,831 $ 144,718 $ 144,943
Ratio of earnings to
fixed charges (unaudited) 2.65 2.64 2.49 3.41 3.18 3.00
For the 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1995 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,300,319
<OTHER-PROPERTY-AND-INVEST> 52,382
<TOTAL-CURRENT-ASSETS> 97,420
<TOTAL-DEFERRED-CHARGES> 17,032
<OTHER-ASSETS> 199,485
<TOTAL-ASSETS> 1,666,638
<COMMON> 33,427
<CAPITAL-SURPLUS-PAID-IN> 279,042
<RETAINED-EARNINGS> 210,541
<TOTAL-COMMON-STOCKHOLDERS-EQ> 523,010
0
18,320
<LONG-TERM-DEBT-NET> 415,413
<SHORT-TERM-NOTES> 9,804
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 49,000
<LONG-TERM-DEBT-CURRENT-PORT> 65,140
0
<CAPITAL-LEASE-OBLIGATIONS> 24,219
<LEASES-CURRENT> 17,518
<OTHER-ITEMS-CAPITAL-AND-LIAB> 544,214
<TOT-CAPITALIZATION-AND-LIAB> 1,666,638
<GROSS-OPERATING-REVENUE> 530,959
<INCOME-TAX-EXPENSE> 33,512<F1>
<OTHER-OPERATING-EXPENSES> 419,260
<TOTAL-OPERATING-EXPENSES> 419,260<F1>
<OPERATING-INCOME-LOSS> 111,699
<OTHER-INCOME-NET> 2,314
<INCOME-BEFORE-INTEREST-EXPEN> 114,013
<TOTAL-INTEREST-EXPENSE> 33,432
<NET-INCOME> 47,069
686
<EARNINGS-AVAILABLE-FOR-COMM> 46,383
<COMMON-STOCK-DIVIDENDS> 33,000
<TOTAL-INTEREST-ON-BONDS> 36,101
<CASH-FLOW-OPERATIONS> 146,662
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Income tax expense is not included in Operating Expense in the Consolidated
Statements of Income for IES Utilities Inc.
</FN>
</TABLE>
