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, 1994
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.)
IES 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, 1995 was $0.
Indicate the number of shares outstanding of each of the
registrant's classes of Common Stock, as of February 28, 1995.
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). The Company is
primarily 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 provides service to approximately
330,000 electric and 173,000 natural gas retail customers as
well as 32 resale customers in more than 550 Iowa communities.
The Company's only wholly-owned subsidiary as of December
31, 1994, was IES Ventures Inc. (Ventures), which is a holding
company for unregulated investments. Ventures' wholly-owned
subsidiary at December 31, 1994, was IES Midland Development
Inc. (Midland), which owns and operates a landfill in Ottumwa,
Iowa. Both Ventures and Midland were formed in December 1994
and neither had any operations in 1994. Ventures also has a
35% equity investment in Aqua Ventures L.C., which is an
aquaculture facility formed to raise fish for human
consumption.
The Company's sales of electricity (in Kwh), excluding
off-system sales, increased (decreased) 4.3%, 24.9% and
(1.5%), during the years 1994-1992, respectively. The 1994
Kwh sales were adversely affected by milder than normal
weather, particularly during the summer months. The 1993
increase is attributable to the acquisition of the Iowa retail
service territory from Union Electric Company (UE) (See Note 2
of the Notes to Consolidated Financial Statements) 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) (2.7%), 5.3% and (0.3%) during the years
1994-1992, 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 1994-1992 are
as follows:
1994 1993 1992
Revenues:
Electric 78% 77% 76%
Gas 20 22 23
Operating income before
income taxes and interest:
Electric 93% 90% 91%
Gas 6 10 8
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 or purchased gas billed to customers through
related adjustment clauses.
There are seasonal variations in the Company's electric
and gas businesses, which are principally related to the use
of energy for air conditioning and heating. In 1994, 40.2% of
the Company's electric revenues were reported in June through
September, reflecting the use of electricity for cooling, and
60.1% of the Company's gas revenues were reported in the
months of January, February, March and December, reflecting
the use of gas for heating.
For additional information concerning electric and gas
operations, see Item 1. "Other Information Relating to The
Company", 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 $3.1 million of sinking funds
that may be met by pledging additional utility property, for
the period 1995-1999 are estimated at $1.1 billion and are
summarized as follows:
Capital Requirements
1995 1996 1997 1998 1999
(in thousands)
Construction and
acquisition expenditures -
Electric:
Generation $ 52,687 $ 48,369 $ 47,992 $ 62,484 $ 72,965
Transmission 14,578 30,538 24,393 32,698 30,065
Distribution 37,504 42,910 40,250 40,820 42,525
Other 11,836 13,146 9,810 10,784 10,873
Gas and other 46,559 32,323 23,262 22,971 25,861
Total construction
and acquisition
expenditures 163,164 167,286 145,707 169,757 182,289
Energy efficiency
expenditures 12,986 13,406 14,474 15,379 14,605
Long-term debt
maturities and
sinking funds 100,920 15,770 8,690 690 50,690
Total capital
requirements $ 277,070 $ 196,462 $ 168,871 $ 185,826 $ 247,584
The Company intends to refinance the majority of the
debt maturities with long-term securities.
Approximately 34% of the Company's construction
expenditures are related to generation. Of this amount,
approximately 64% represents capacity expansions and other
improvements at fossil generating stations and 36%
represents modifications and improvements at the Company's
nuclear generating station, the Duane Arnold Energy Center
(DAEC).
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 Iowa Utilities Board (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, the IUB defines the boundaries of
mutually exclusive service territories for all electric
utilities. 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 6.9%, 9.0% and 10.1% of electric revenues for 1994-
1992, respectively. The 1994 decrease is primarily the result
of lower off-system sales to other utilities. The Company's
consolidated subsidiaries are not subject to regulation by the
IUB or the FERC.
EMPLOYEES. At December 31, 1994, the Company had a total
of 2,248 regular full-time employees, of which an aggregate of
1,124 employees were subject to six collective bargaining
arrangements.
ENVIRONMENTAL MATTERS. 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 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 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 11(a) and 11(g) of the Notes to Consolidated Financial
Statements for additional information regarding the Company's
expected capital expenditures.
In January 1995, the Company received an Administrative
Compliance Order (ACO) from the United States Environmental
Protection Agency (EPA) alleging noncompliance and requiring
the Company to satisfy certain monitoring, reporting, and
recordkeeping requirements of the Acid Rain Program at its
Phase II units. The Company has since notified EPA that it is
currently in compliance with the specified requirements. EPA
has indicated that it is considering issuing an Administrative
Penalty Order to address the alleged noncompliance.
Management believes that any penalties incurred by the Company
would not have a material adverse effect on its financial
position or results of operations.
At December 31, 1994, the Company had recorded
$43 million of environmental liabilities, which, pursuant to
generally accepted accounting principles, represents either
the best current estimate or the minimum amount of the
estimated range of such costs which the Company expects to
incur, depending on the information known for each site.
These estimates are subject to continuing review and could
ultimately exceed the recorded amounts.
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), the Minnesota Pollution Control Agency (MPCA) or the
EPA. The Company is working with the IDNR, MPCA and EPA to
investigate its sites and to determine the appropriate
remediation activities that may be needed to mitigate health
and environmental concerns.
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 at December 31, 1994. Considering the 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. Refer to Note 11(f) of the Notes to
Consolidated Financial Statements for more information.
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. The Company 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. The Company 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.
The Company is aggressively reviewing options for additional
spent nuclear fuel storage capability, including expanding on-
site storage, pursuing other off-site storage and supporting
legislation 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
December 31, 1994, the Company has prepaid costs of
approximately $1 million to the Compact for the building of
such a facility. Currently, the Company 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. 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.
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 Steering Committee is nearing settlement of
the issues with the EPA, the State of Kentucky and deminimis
parties. Proposed Consent Decrees are currently being
reviewed and, once executed, will be submitted to the court
for approval.
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 $43 million of environmental liabilities
the Company has recorded at December 31, 1994. The Company
has notified its nuclear insurance carriers of the
proceedings.
The possibility that exposure to electric and magnetic
fields emanating from power lines, household appliances and
other electric sources may result in adverse health effects
has been the subject of increased public, governmental 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.
Refer to Note 11 of the Notes to Consolidated Financial
Statements and Item 7. "Management's Discussion and Analysis
of the Results of Operations and Financial Condition" for
further discussion of environmental matters.
RATE MATTERS. Refer to Note 3 of the Notes to
Consolidated Financial Statements for a discussion of the
Company's rate matters.
ELECTRIC OPERATIONS. The Company's net peak load (60
minutes integrated) of 1,779,627 kilowatts occurred on June
17, 1994. At the time of the peak load, no interruptible
customers were interrupted, however, 7,210 residential air
conditioning cycling customers were interrupted. The total
kilowatts interrupted was 5,840 of a possible 318,102
kilowatts available for interruption. The Company's
additional reserve obligation at that time was 226,744
kilowatts. The net capability of the Company's generating
stations at the time of this peak load was 1,741,100
kilowatts, with an additional 280,000 kilowatts being
available under purchase contracts, thereby providing an
aggregate capability of 2,021,100 kilowatts.
The Company projects an electric sales growth rate of 2.0
to 2.5 percent per year over the next decade, which will be
met by a mix of its existing generation, capacity purchases
and new construction. The construction activities will be
undertaken in a fashion that best meets the needs of
individual customers and the system as a whole. See Note
11(b) of the Notes to Consolidated Financial Statements for a
discussion of the Company's firm contracts for the purchase of
capacity.
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.
(Midwest) and Iowa-Illinois Gas and Electric Company (Iowa-
Illinois) 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 partnership is
being dissolved on June 30, 1995, due to the pending merger of
Midwest and Iowa-Illinois. After that time, there would only
be two members in the partnership, thus the diversity and
savings available would no longer justify the existence of the
partnership.
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 non-cancellable 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" and Note 12 of the Notes to Consolidated
Financial Statements.
FUEL SUPPLY. The following table details the sources of
the electricity sold by the Company during 1994 and expected
sources for the following three years:
Actual /-------- Expected -------/
1994 1995 1996 1997
Fossil, primarily coal 50% 61% 60% 60%
Nuclear 26 23 22 26
Purchases 24 16 18 14
100% 100% 100% 100%
The above percentages assume nuclear refueling outages
will occur during both 1995 and 1996. There was no refueling
outage in 1994. The 1994 purchases include purchases by the
Company from Terra Comfort Corporation (an affiliate of the
Company). Effective December 31, 1994, the Company purchased
all of the assets of Terra Comfort. The increase in the
expected fossil percentages from the 1994 actual is a function
of lower projected fuel costs for 1995-1997 as well as the
timing of the nuclear refueling outages. In addition, the
Company anticipates the availability and efficiency of its
fossil generating stations to be greater in 1995-1997 due to
capacity improvements made at certain 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 1994-1992 is presented below:
1994 1993 1992
Average cost of fuel:
Nuclear, per million Btu's $ .67 $ .60 $ .55
Coal, per million Btu's .97 .97 1.08
Average for all fuels,
per million Btu's .89 .90 .93
The following table summarizes the Company's minimum coal
contract commitments:
Average
Annual Maximum estimated base price
Quantity Termination Sulfur per ton of coal delivered
(Tons) Date Content 1995 1996 1997
Cordero Mining Co.
(OGS) (1) 780,571 12/31/01 0.6% $ 17.24 $ 17.76 $ 18.29
Koch Carbon Inc.
(Sutherland) 100,000 12/31/99 6.2% $ 19.23 $ 19.51 $ 19.77
Caballo Coal Co.
(OGS) or
(BGS) (2) 1,200,000 12/31/97 0.4% $ 12.41 $ 12.80 $ 13.19
Thunder Basin
(Sutherland) 320,000 12/31/96 0.3% $ 13.63 $ 13.95 $ N/A
Caballo Rojo
(BGS) 200,000 12/31/96 0.3% $ 14.83 $ 15.18 $ N/A
Caballo Rojo (3) 640,000 12/31/96 0.3% $ 16.17 $ 16.56 $ N/A
Short-term
contracts
(BGS) 27,000 04/30/95 1.0% $ 22.50 $ 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) The contract covers 1,200,000 to 1,550,000
annual tons delivered to either OGS or Burlington
Generating Station (BGS). The prices listed in the
table are for OGS; the BGS delivered price would be
slightly higher.
(3) Coal may be delivered to either Prairie Creek
Station or Sixth Street Station. The prices listed
in the table are for Prairie Creek; the Sixth Street
delivered price would be slightly higher.
During 1994, the Company purchased a total of 3,761,000
tons of coal for its generating plants. At December 31, 1994,
the Company had coal inventory at its principal generating
stations ranging from 58 to 119 days' usage during high demand
periods or a weighted average of 70 days' usage.
The Company estimates that its existing coal fired
generating units will require approximately 13,292,000 tons of
coal to operate during the period 1995-1997. 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 1(j) of the Notes to Consolidated
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. 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. Bids are
currently being evaluated for purchase of additional uranium.
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. Under provisions of that contract, the Company
is exploring possibilities of obtaining lower cost enrichment
from non-USEC sources. Fabrication of the nuclear fuel is
being performed by General Electric Company for fuel through
the 2008 refueling of the DAEC. See Note 11(f) of the Notes
to Consolidated 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.
Refer to Item 1. "Environmental Matters" for a discussion
of nuclear waste disposal issues.
GAS OPERATIONS. With the advent of FERC Order 636 (Order
636), issued in 1992, the nature of the Company's gas supply
portfolio has changed. Traditionally, the Company's natural
gas was supplied by the following interstate pipelines -
Northern Natural Gas Company (Northern), Natural Gas Pipeline
Company of America (Natural) and ANR Pipeline Company (ANR).
These pipelines 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 and now requires
the Company to purchase virtually 100% of its 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
has enhanced access to competitively priced gas supply and
more flexible transportation services as a result of Order
636. However, under Order 636, the Company is required to pay
certain transition costs incurred and billed by its pipeline
suppliers.
The Company's three pipeline suppliers have made filings
with the FERC to begin collecting their respective transition
costs, and additional filings are expected. The Company began
paying the transition costs in 1993, and, at December 31,
1994, has recorded a liability of $8.0 million for those
transition costs that have been incurred by the pipelines to
date, including $3.0 million expected to be billed through
1995. The Company is currently recovering the transition costs
from its customers through its Purchased Gas Adjustment
Clauses as such costs are billed by the pipelines. Transition
costs, in addition to the recorded liability, that may
ultimately be charged to the Company could approximate $10
million. The ultimate level of costs to be billed to the
Company depends on the pipelines' filings with the FERC and
other future events, including the market price of natural
gas. However, the Company believes any transition costs that
the FERC would allow the pipelines to collect from the Company
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.
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 supply 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 1994, the Company's maximum daily load
occurred on January 17, 1995, with total system flow of
approximately 289,000 dekatherms, including transported
volumes, and total contract availability of approximately
276,000 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 resulted 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 23,147 Dth, and minimum take
requirements of 5,851 Dth, under contracts with remaining
lengths of up to six 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 Quantity Daily Quantity
(Dth/day) (Dth/day)
Northern 55,410 29,983
Natural 21,575 18,812
ANR 25,000 18,500
These gas supply contracts have expiration dates ranging
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 1(j)
of the Notes to Consolidated 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 Company will be conducting an inspection during the
1995 refueling outage of the DAEC reactor core internals.
This is in response to cracking identified in similar
reactors. If cracking is identified, repairs will be
completed either at the time discovered or during the 1996
refueling outage depending upon the type of repair required.
It is estimated that such repairs, if necessary, would cost
approximately $3.0 million.
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. The first phase of this effort has been
completed and work is now under way on the second phase.
Through 1994, $4.3 million had been spent on the second phase.
It is expected that an additional $1.1 million will be
expended through 1996.
The NRC has expressed concern to licensees over use of
thermolag fire proofing material in nuclear power plants. The
Company has spent $0.7 million through 1994 and anticipates
spending an additional $1.0 million through 1997 to identify
and resolve deficiencies.
Under the Price-Anderson Amendments Act of 1988 (1988
Act), the Company currently has the benefit of $8.9 billion of
public liability coverage which would compensate the public in
the event of an accident at a commercial nuclear power plant.
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 80% 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 and 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 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 11(e) of the Notes to Consolidated
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, 1994.
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.
Refer to Item 1. "Environmental Matters" for a discussion
of nuclear waste disposal issues.
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 11(f) of the Notes to
Consolidated Financial Statements, the Energy Act addresses a
wide range of energy issues. Title VII of the Energy Act
creates exemptions from regulation under the Public Utility
Holding Company Act of 1935 (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 IUB has initiated a Notice of Inquiry (Docket No. NOI-
95-1) on the subject of "Emerging Competition in the Electric
Utility Industry." The purpose is to address all forms of
competition in the electric utility industry and to gather
information and perspectives on electric competition from all
persons and entities with an interest or stake in the issues.
Informal discussions among the parties will be held. Such
discussions are not expected to produce any specific actions
by the IUB at this time. The company is unable to predict the
ultimate impact the Energy Act or the IUB's Notice of Inquiry
will have on its operations.
See Item 7. "Management's Discussion and Analysis of the
Results of Operations and Financial Condition" for more
information.
<TABLE>
ELECTRIC OPERATING COMPARISON
FIVE-YEAR
<CAPTION> COMPOUND
RATE OF
1994 1993 1992 1991 1990 1989 GROWTH (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue (000's):
Residential and Rural $ 200,629 $ 206,561 $ 177,625 $ 189,194 $ 185,302 $ 175,899
Commercial 146,086 145,898 124,829 124,320 119,908 112,662
Industrial 143,944 137,595 103,886 100,733 97,788 94,222
Street lighting and public
authorities 6,504 6,098 5,410 6,332 6,478 6,282
Total from ultimate
consumers 497,163 496,152 411,750 420,579 409,476 389,065
Sales for resale 19,195 20,254 18,602 19,745 19,582 18,214
Off-system 18,077 29,400 28,304 36,596 31,144 28,281
Other 2,892 4,715 4,343 5,658 3,047 2,973
$ 537,327 $ 550,521 $ 462,999 $ 482,578 $ 463,249 $ 438,533
Energy sales (000's Kwh):
Residential and Rural 2,493,702 2,528,220 2,158,768 2,367,979 2,254,913 2,222,152 2.3%
Commercial 2,148,302 2,078,635 1,771,357 1,764,495 1,686,132 1,626,046 5.7%
Industrial 4,014,821 3,674,217 2,612,803 2,467,533 2,312,109 2,236,388 12.4%
Street lighting and public
authorities 67,029 63,174 60,991 87,022 88,305 86,635 -5.0%
Total to ultimate consumers 8,723,854 8,344,246 6,603,919 6,687,029 6,341,459 6,171,221 7.2%
Sales for resale 567,721 561,276 528,752 557,180 538,677 500,253 2.6%
Sales of electricity to
customers 9,291,575 8,905,522 7,132,671 7,244,209 6,880,136 6,671,474 6.8%
Off-system 1,137,219 2,068,015 2,275,616 2,738,159 2,282,204 1,959,828 -10.3%
10,428,794 10,973,537 9,408,287 9,982,368 9,162,340 8,631,302 3.9%
Sources of electric energy (000's Kwh):
Generation:
Fossil, primarily coal 5,522,966 5,356,930 4,317,154 4,758,720 4,354,697 4,063,974
Nuclear (2) 2,875,867 2,264,507 2,402,501 2,902,768 2,108,100 2,228,068
Hydro 8,205 7,201 7,579 6,547 4,195 1,902
8,407,038 7,628,638 6,727,234 7,668,035 6,466,992 6,293,944
Purchases 2,646,673 3,949,296 3,322,182 2,994,216 3,282,886 2,891,808
11,053,711 11,577,934 10,049,416 10,662,251 9,749,878 9,185,752
Net capability at time of peak load (Kw):
Generating capability 1,741,100 1,733,700 1,718,600 1,719,150 1,684,700 1,633,000
Purchase capability 280,000 248,000 207,000 227,000 179,000 170,000
Capacity credits (3) 0 0 0 0 18,960 20,650
2,021,100 1,981,700 1,925,600 1,946,150 1,882,660 1,823,650 2.1%
Net peak load (Kw) (4) 1,779,627 1,716,380 1,425,441 1,607,606 1,547,826 1,486,243 3.7%
Number of customers at year-end 330,405 327,265 325,172 305,663 304,265 302,632 1.8%
Revenue per Kwh (excluding
off-system) in cents 5.59 5.85 6.09 6.16 6.28 6.15 -1.9%
(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 Inc.
(3) Represents capacity credits from municipals served by IES Utilities Inc.
(4) 60 minutes integrated.
</TABLE>
<TABLE>
GAS OPERATING COMPARISON
<CAPTION>
Five year
compound
rate of
1994 1993 1992 1991 1990 1989 growth
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue (000's):
Residential $ 82,795 $ 90,462 $ 78,685 $ 74,114 $ 66,513 $ 68,751
Commercial 40,912 45,528 39,780 37,613 35,378 38,035
Industrial 12,515 15,593 18,649 17,383 21,500 25,172
136,222 151,583 137,114 129,110 123,391 131,958
Other 2,811 2,735 2,341 1,908 1,884 1,923
$ 139,033 $ 154,318 $ 139,455 $ 131,018 $ 125,275 $ 133,881
Energy sales (000's dekatherms):
Residential 15,766 16,971 15,098 15,571 14,315 15,878 -0.1%
Commercial 9,298 10,133 8,479 9,389 8,798 9,854 -1.2%
Industrial 4,010 4,618 6,175 5,980 6,640 7,409 -11.6%
29,074 31,722 29,752 30,940 29,753 33,141 -2.6%
Industrial - transported volumes 8,901 7,284 7,283 6,189 6,733 6,909 5.2%
Total volumes delivered 37,975 39,006 37,035 37,129 36,486 40,050 -1.1%
Operating statistics:
Cost per dekatherm of gas
purchased for resale $ 3.31 $ 3.49 $ 3.36 $ 3.10 $ 3.23 $ 2.95
Peak daily sendout in dekatherms 288,352 268,419 254,989 266,344 272,089 311,600 -1.5%
Number of customers at year-end 172,829 170,719 167,813 164,078 161,794 160,792 1.5%
Revenue per dekatherm sold
(excluding transported volumes) $ 4.69 $ 4.78 $ 4.61 $ 4.17 $ 4.15 $ 3.98 3.3%
</TABLE>
Item 2. Properties
The Company's principal electric generating stations at
December 31, 1994, are as follows:
Name and Location Major Fuel Net Kilowatts Accredited
of Station Type Generating Capability
Duane Arnold Energy Center,
Palo, Iowa Nuclear 360,500 (1)
Ottumwa Generating Station,
Ottumwa, Iowa Coal 343,440 (2)
Prairie Creek Station,
Cedar Rapids, Iowa Coal 234,000
Sutherland Station,
Marshalltown, Iowa Coal 143,000
Sixth Street Station,
Cedar Rapids, Iowa Coal 71,000
Burlington Generating Station,
Burlington, Iowa Coal 211,800
George Neal Unit 3,
Sioux City, Iowa Coal 144,200 (3)
Total Coal 1,147,440
Peaking Turbines,
Marshalltown, Iowa Oil 156,000
Centerville Combustion Turbines,
Centerville, Iowa Oil 49,000 (4)
Diesel Stations, all in Iowa Oil 12,200
Total Oil 217,200
Grinnell Station, Grinnell, Iowa Gas 47,200
Agency Street Combustion Turbines,
West Burlington, Iowa Gas 65,000 (4)
Burlington Combustion Turbines,
Burlington, Iowa Gas 16,600
Total Gas 128,800
Total generating capability 1,853,940
(1) Represents the Company's 70% ownership interest in
this 515,000 Kw generating station. The plant is
operated by the Company.
(2) Represents the Company's 48% ownership interest in
this 715,500 Kw generating station. The plant is
operated by the Company.
(3) Represents the Company's 28% ownership interest in
this 515,000 Kw generating station which is operated
by an unaffiliated utility.
(4) Effective December 31, 1994, all of the assets of
Terra Comfort were sold to the Company, including
the Centerville and Agency Street Combustion
Turbines.
At December 31, 1994, the transmission lines of the
Company, operating from 34,000 to 345,000 volts, approximated
4,390 circuit miles (all located in Iowa). The Company owned
108 transmission substations (all located in Iowa) with a
total installed capacity of 8,415.7 MVa and 466 distribution
substations (all located in Iowa) with a total installed
capacity of 2,545.8 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
Reference is made to Notes 3 and 11 of the Notes to
Consolidated Financial Statements for a discussion of the
Company's rate proceedings and environmental matters. Also
see Item 1. "Business - Environmental Matters" and Item 7.
"Management's Discussion and Analysis of the Results of
Operations and Financial Condition."
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 dividends declared for the last two years are as
follows:
Quarter
Dividends Declared
(000's)
1994
First Quarter $ 7,000
Second Quarter 15,000
Third Quarter 15,000
Fourth Quarter 15,000
$ 52,000
1993
First Quarter $ 10,000
Second Quarter 5,700
Third Quarter 3,800
Fourth Quarter 11,800
$ 31,300
Under terms of the Fifty-fifth and Fifty-sixth
Supplemental Indentures relating to the Company's Series W and
Series X First Mortgage Bonds, the Company 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 retirements, (A) the
principal amount of all outstanding defined Unsecured
Indebtedness of the Company 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 of the Company since
December 31, 1987, plus $50,000,000. Pursuant to these terms,
at December 31, 1994, $18,209,000 of the Company's retained
earnings was restricted as to the payment of cash dividends.
The Company may periodically pay cash dividends on any shares
of its preferred or preference stock at any time issued and
outstanding, provided that all such payments shall be included
in the above payments as determined since December 31, 1987.
The Series W and Series X First Mortgage Bonds both
mature in 1995. Once such maturities are completed, there
will no longer be any restrictions on the Company's retained
earnings.
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data, in
the opinion of the Company, includes adjustments, which are
normal and recurring in nature, necessary for the fair
presentation of the results of operations and financial
position. See Item 7. "Management's Discussion and Analysis
of the Results of Operations and Financial Condition" for a
discussion of transactions that affect the comparability of
the years 1994-1992.
The 1993 results were affected by the acquisition of the
Iowa service territory from Union Electric Company, as
discussed in Note 2 of the Notes to Consolidated Financial
Statements.
The Selected Consolidated Financial Data should be read
in conjunction with the Consolidated Financial Statements, the
Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of the Results of Operations and
Financial Condition contained elsewhere in this report.
<TABLE>
Year Ended December 31
1994 1993 1992 1991 1990
($ in thousands, except times interest earned)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating revenues $ 685,366 $ 713,750 $ 610,262 $ 621,993 $ 595,477
Operating income 135,591 143,329 100,361 101,600 96,225
Net income 61,210 67,970 45,291 47,563 45,969
Net income available for common stock 60,296 67,056 43,562 45,393 43,569
Cash dividends declared on common stock 52,000 31,300 24,721 45,321 49,516
Total assets 1,645,368 1,546,978 1,440,891 1,304,110 1,256,211
Long-term obligations 532,927 535,101 492,149 446,499 406,310
Times interest earned before income taxes 3.39 3.64 2.67 2.93 3.04
Capitalization Ratios:
Common equity 50% 50% 48% 49% 50%
Preferred and preference stock 2 2 2 4 4
Long-term debt 48 48 50 47 46
100% 100% 100% 100% 100%
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 from the
prior periods for IES Utilities Inc. (Utilities) and its
consolidated subsidiaries (the Company). Utilities'
consolidated subsidiaries, IES Ventures Inc. and IES Midland
Development Inc., were formed in December 1994 and had no
operations in 1994.
RESULTS OF OPERATIONS
The Company's net income available for common stock
decreased $6.8 million during 1994 and increased $23.5 million
during 1993. The 1994 results were affected by milder than
normal weather, particularly during the summer months. The
1993 results reflect Utilities' acquisition of the Iowa
service territory of Union Electric Company (UE) (as discussed
in Note 2 of the Notes to Consolidated Financial Statements)
and a return to more normal weather conditions in Utilities'
service territory from that experienced in 1992. The 1992
results were adversely affected by extremely cool summer
weather and a mild winter in Utilities' service territory.
The Company's operating income decreased $7.7 million
during 1994 and increased $43.0 million during 1993. Reasons
for the changes in the results of operations are explained in
the following discussion.
ELECTRIC REVENUES
Electric revenues and Kwh sales for Utilities increased
or (decreased) as compared with the prior year as follows:
1994 1993
($ in millions)
Electric revenues $ (13.2) $ 87.5
Electric sales (excluding off-system sales):
Residential and Rural (1.4%) 17.1%
Commercial 3.4% 17.4%
Industrial 9.3% 40.6%
Total 4.3% 24.9%
The 1994 Kwh sales were adversely affected by milder than
normal weather, particularly during the summer months. The
largest effect of weather was on sales to residential and
rural customers. Under normal weather conditions, 1994 sales
would have been flat and total sales (excluding off-system
sales) would have increased 4.8%, compared to 1993 actual
sales. The growth in commercial and industrial sales
continues to reflect the underlying strength of the economy as
several major industrial expansions in Utilities' service
territory were announced in 1994.
The 1993 sales increases are attributable to the
acquisition of the UE territory and a return to more normal
weather conditions. After adjusting for these items,
underlying total electric sales (excluding off-system sales)
increased 6% in 1993, which reflects the economic growth in
the industrial and commercial customer base.
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. See Note 1(j) of the Notes to Consolidated
Financial Statements for discussion of the EAC.
The decrease in the 1994 electric revenues is
attributable to lower fuel costs collected through the EAC,
lower off-system sales to other utilities and the effect of
the mix of sales between lower margin industrial customers and
higher margin residential and rural customers. Increased
total sales (excluding off-system sales) partially offset the
effects of the above items. The increase in electric revenues
for 1993 is primarily because of the higher sales and
increased recovery of fuel costs through the EAC.
See Note 3(a) of the Notes to Consolidated Financial
Statements for a discussion of Utilities' 1994 electric rate
case.
GAS REVENUES
Utilities' gas revenues decreased $15.3 million during
1994 and increased $14.9 million during 1993. Gas sales in
therms (including transported volumes), which also reflect the
effects of weather, decreased 2.7% in 1994 and increased 5.3%
in 1993. Adjusting for the effects of weather, gas sales
decreased 1.8% and 1.5% in 1994 and 1993, respectively.
Utilities' gas tariffs include purchased gas adjustment
clauses (PGA) that are designed to currently recover the cost
of gas sold. See Note 1(j) of the Notes to Consolidated
Financial Statements for discussion of the PGA.
Utilities' gas revenues decreased in 1994 primarily
because of lower gas costs recovered through the PGA and, to a
lesser extent, the effect of the lower sales. Gas revenues
increased in 1993 substantially because of increased costs of
gas recovered through the PGA, the effect of gas rate
increases that became effective in September 1992 and the
sales increase.
OTHER REVENUES
Other revenues increased $0.1 million and $1.1 million
during 1994 and 1993, respectively, primarily due to increased
steam sales.
OPERATING EXPENSES
Despite an increase in the amount of Kwh generation from
a year ago, fuel for production decreased $1.8 million in 1994
largely because of lower average fuel prices and the effect of
lower fuel cost recoveries through the EAC, which are included
in fuel for production. Generation at Utilities' generating
stations increased because of the increase in electric Kwh
sales and because of increased availability of Utilities'
nuclear generating station, the Duane Arnold Energy Center
(DAEC), which was down for part of 1993 because of a scheduled
refueling outage. There were refueling outages in 1993 and
1992, but no such outage in 1994. Fuel for production
increased $14.3 million in 1993 because of increased
availability of Utilities' fossil-fueled generating stations,
which experienced extended maintenance outages in 1992, and
because of increased sales.
Purchased power decreased $24.7 million in 1994 because
of lower off-system sales to other utilities, increased
generation at Utilities' generating stations and the
expiration, in April 1993, of a purchase power agreement with
the City of Muscatine. 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 of the purchase power
agreement with the City of Muscatine. (See Note 11(b) of the
Notes to Consolidated Financial Statements).
Gas purchased for resale decreased $13.8 million in 1994
because of lower gas costs and lower gas sales at Utilities.
Gas purchased for resale increased $7.5 million during 1993
primarily because of increased per unit gas costs at Utilities
and the increased sales.
Other operating expenses increased $9.1 million and $3.6
million in 1994 and 1993, respectively. The 1994 increase is
primarily attributable to increases in labor and benefits
costs, nuclear operating costs, former manufactured gas plant
(FMGP) clean-up costs and information technology costs at
Utilities. The 1993 increase is primarily because of
increased labor and benefits costs and higher electric and gas
transmission and distribution costs, partially offset by lower
non-labor costs at the DAEC.
Maintenance expenses increased $3.3 million and $6.6
million during 1994 and 1993, respectively. The 1994 increase
is primarily because of increased labor costs and maintenance
at the DAEC, partially offset by lower maintenance at
Utilities' fossil-fueled generating stations. The 1993
increase is primarily because of increased maintenance at
Utilities' fossil-fueled generating stations and the DAEC.
Depreciation and amortization increased during both years
because of increases in utility plant in service and, in 1993,
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 all years include $5.5 million for
the DAEC decommissioning provision, which is collected through
rates.
The staff of the 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 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. (See Note 1(g) of the Notes to
Consolidated Financial Statements for a discussion of
Utilities' proposal for collection of decommissioning costs
included in its current rate filing).
Taxes other than income taxes increased $1.2 million and
$4.5 million during 1994 and 1993, respectively, largely
because of increased property taxes. The 1993 increase is
related, in part, to the acquisition of the UE service
territory.
INTEREST EXPENSE AND OTHER
Interest expense increased $1.4 million and $0.5 million
during 1994 and 1993, respectively, 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.
Federal and state income taxes were constant in 1994 and
increased $17.2 million in 1993. The 1993 increase results
from an increase in taxable income and an increase of 1% in
the Federal statutory income tax rate. Adjustments of $1.5
million, recorded in the second quarter of 1992, to previously
recorded tax reserves also affected the comparability of 1993
with the prior period.
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 and greater
encouragement of independent power production and
cogeneration. Although various states throughout the country
are currently exploring the possibility of expanded
competition in the retail electric energy market, there is no
significant activity underway in Iowa.
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, on-going cost
reductions and productivity enhancements. The Company
recently 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily
attributable to its construction programs, debt maturities and
sinking fund requirements. The Company's pre-tax ratio of
earnings to fixed charges was 3.39, 3.64 and 2.67 in 1994-
1992, respectively. In 1994, cash flows from operating
activities were $195 million. These funds were primarily used
for construction and acquisition expenditures, for energy
efficiency program costs mandated by the Iowa Utilities Board
(IUB) and to pay dividends.
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 3 and 11 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 A1 A
Short-term debt P1 A1
Utilities' 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 11 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 December 31, 1994, Utilities had
$35 million of such costs recorded as regulatory assets.
Under provisions of the IUB rules, Utilities made its initial
filing for recovery of the costs in August 1994. See Note
3(b) of the Notes to Consolidated Financial Statements for a
discussion of the filing.
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
anticipates expenditures of $13 million in connection with
mandated energy efficiency programs. Substantial commitments
have been made in connection with all such expenditures.
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
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 $174 million of long-term debt will
mature prior to December 31, 1999. The Company intends to
refinance the majority of the debt maturities with long-term
securities.
In order to provide an up-to-date instrument for the
issuance of bonds, notes or other evidence of indebtedness,
Utilities 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 Utilities'
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 the issuance of
Collateral Trust Bonds upon the basis of, among other things,
First Mortgage Bonds being issued by Utilities. 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 December 31, 1994, such restrictions would
have allowed Utilities to issue $320 million of additional
First Mortgage Bonds. Utilities has received authority from
the FERC to issue $250 million of long-term debt and is
currently authorized by the SEC to issue $50 million of
long-term debt under an existing registration statement.
Utilities expects to replace two series of First Mortgage
Bonds that mature in 1995 with other long-term securities.
The Articles of Incorporation of Utilities authorize and
limit the aggregate amount of additional shares of Cumulative
Preferred Stock and Cumulative Preference Stock which may be
issued. At December 31, 1994, 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 December 31, 1994
and 1993, were as follows:
Long-term debt 48%
Preferred stock 2
Common equity 50
100%
The 1994 ratios include $100 million of
Utilities' First Mortgage Bonds maturing in 1995
that are classified as a current liability in
the Consolidated Balance Sheets, but which are
expected to be refinanced 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 December 31, 1994, Utilities had outstanding short-term
borrowings of $55.5 million, including $18.5 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 December 31, 1994,
Utilities had sold $54 million under the agreement.
At December 31, 1994, the Company had bank lines of
credit aggregating $67.7 million, of which $37 million was
being used to support commercial paper (weighted average
interest rate of 6.13%) and $7.7 million was being used 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, 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
December 31, 1994, there were no borrowings under this
facility. Utilities also has a letter of credit in the amount
of $3.4 million supporting two of its variable rate pollution
control obligations.
ENVIRONMENTAL MATTERS
Utilities has been named as a Potentially Responsible
Party (PRP) by either the Iowa Department of Natural Resources
(IDNR), the Minnesota Pollution Control Agency (MPCA) or the
United States Environmental Protection Agency (EPA) for 28
FMGP sites. Utilities believes that it is not responsible for
two of the sites for which it has been designated a PRP.
Utilities has another FMGP site for which it has not yet been
formally designated as a PRP. Utilities is working pursuant
to the requirements of the IDNR, MPCA and EPA to investigate,
mitigate, prevent and remediate, where necessary, damage to
property, including damage to natural resources, at and around
the remaining 27 sites in order to protect public health and
the environment. In addition, Utilities has recently become
aware that two additional sites may exist, but it has not yet
been able to determine if any liability may exist.
Utilities has completed the remediation of three sites
and is in various stages of the investigation and/or
remediation processes for 22 sites. The investigation process
is scheduled to begin in 1995 or 1996 for the two other sites.
In 1994, Utilities received updated investigation reports on a
number of sites, which, at some sites, indicated a greater
volume of contaminated soil, surface and ground water needing
treatment, and a greater volume of substances requiring higher
cost incineration, than was anticipated in prior estimates.
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 has recorded environmental liabilities related
to the FMGP sites of $31 million (including $4.3 million as
current liabilities) at December 31, 1994. 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. For those sites where the
investigation is in its earlier stages or has not started, the
liability represents the minimum of the estimated cost range.
All investigations are expected to be completed by 1999 and
site-specific remediations, based on recommendations from the
IDNR, MPCA and EPA, are anticipated to be completed within
three years after the completion of the investigations of each
site. Utilities may be required to monitor these sites for a
number of years upon completion of remediation, as is the case
with the three 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, can not be
reasonably determined and, accordingly, no potential sharing
has been recorded at December 31, 1994. Regulatory assets of
$31.0 million have been recorded in the Consolidated Balance
Sheets, which reflect the future recovery that is being
provided through Utilities' rates. Considering the 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 Act 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 is in the process of completing
the modifications necessary to meet the Phase I requirements.
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 at approximately $22.5 million, including $4.4
million in 1995, in order to meet the requirements of the Act.
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,
$12.0 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, pursuing other off-site storage and supporting
legislation 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
December 31, 1994, 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. 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.
The possibility that exposure to electric and magnetic
fields emanating from power lines, household appliances and
other electric sources may result in adverse health effects
has been the subject of increased public, governmental 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.
EFFECTS OF INFLATION
Under the rate making principles prescribed by the
regulatory commissions to which Utilities is subject, only the
historical cost of plant is recoverable in revenues as
depreciation. As a result, Utilities 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. Utilities does not
expect the effects of inflation at current levels to have a
significant effect on its results of operations.
Selected Consolidated Quarterly Financial Data (unaudited)
The following unaudited consolidated 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. The quarterly amounts were affected by seasonal
weather conditions. In addition, increased operating expenses
in the fourth quarter of 1994 affected the comparability of
the fourth quarter amounts.
Quarter Ended
March June September December
31 30 30 31
(in thousands)
1994
Operating revenues $ 192,013 $ 148,019 $ 179,477 $ 165,857
Operating income 34,248 24,777 51,777 24,789
Net income 14,944 9,255 25,733 11,278
Net income available
for common stock 14,715 9,026 25,504 11,051
1993
Operating revenues $ 193,785 $ 148,919 $ 187,392 $ 183,654
Operating income 32,974 24,523 54,497 31,335
Net income 14,423 10,491 26,214 16,842
Net income available
for common stock 14,194 10,262 25,985 16,615
Prior period operating income figures have been restated
on a basis consistent with the current presentation as the
income statement format was revised as a result of the
formation in December 1994 of the Company's unregulated
subsidiaries, IES Ventures Inc. and IES Midland Development
Inc.
Item 8. Financial Statements and Supplementary Data
Information required by Item 8. begins on page 52.
REPORT OF MANAGEMENT
The Company's management has prepared and is responsible
for the presentation, integrity and objectivity of the
consolidated financial statements and related information
included in this report. The consolidated 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 consolidated 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 consolidated
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 LLP) 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. Management is not
aware of any material internal control weaknesses.
The Board of Directors, through its Audit Committee
comprised entirely of outside directors, meets periodically
with management, the internal auditor and Arthur Andersen LLP
to discuss financial reporting matters, internal control and
auditing. To ensure their independence, both the internal
auditor and Arthur Andersen LLP have full and free access to
the Audit Committee.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
IES Utilities Inc.:
We have audited the accompanying consolidated balance sheets
and statements of capitalization of IES UTILITIES INC. (an
Iowa corporation) AND SUBSIDIARY COMPANIES as of
December 31, 1994 and 1993, and the related consolidated
statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1994.
These financial statements and the financial statement
schedule 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
schedule 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. and Subsidiary Companies as of
December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in
the period ended December 31, 1994, 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 schedule listed in Item 14(a)2 is presented for purposes
of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule
has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly
states 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 7 to the consolidated financial
statements, effective January 1, 1993, IES Utilities Inc.
changed its method of accounting for postretirement benefits
other than pensions.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 3, 1995
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1994 1993 1992
(in thousands)
Operating revenues:
Electric $ 537,327 $ 550,521 $ 462,999
Gas 139,033 154,318 139,455
Other 9,006 8,911 7,808
685,366 713,750 610,262
Operating expenses:
Fuel for production 85,952 87,702 73,368
Purchased power 68,794 93,449 74,794
Gas purchased for resale 95,340 109,122 101,605
Other operating expenses 132,281 123,210 119,607
Maintenance 49,542 46,219 39,573
Depreciation and amortization 75,316 69,407 64,107
Taxes other than income taxes 42,550 41,312 36,847
549,775 570,421 509,901
Operating income 135,591 143,329 100,361
Interest expense and other:
Interest expense 41,572 40,169 39,628
Allowance for funds used during
construction -3,910 -1,972 -3,177
Miscellaneous, net -1,247 -801 -2,104
36,415 37,396 34,347
Income before income taxes 99,176 105,933 66,014
Federal and state income taxes 37,966 37,963 20,723
Net income 61,210 67,970 45,291
Preferred dividend requirements 914 914 1,729
Net income available for common stock $ 60,296 $ 67,056 $ 43,562
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Year Ended December 31
1994 1993 1992
(in thousands)
Balance at beginning of year $ 188,862 $ 153,106 $ 134,822
Add:
Net income 61,210 67,970 45,291
Deduct:
Cash dividends declared -
Common stock 52,000 31,300 24,721
Preferred stock, at stated rates 914 914 1,729
Other 0 0 557
Balance at end of year
($18,209,000 restricted as to
payment of cash dividends) $ 197,158 $ 188,862 $ 153,106
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 1994 1993
(in thousands)
Property, plant and equipment, at original cost:
Utility -
Plant in service -
Electric $ 1,798,059 $ 1,708,757
Gas 158,115 147,956
Other 86,005 75,845
2,042,179 1,932,558
Less - Accumulated depreciation 880,888 813,312
1,161,291 1,119,246
Leased nuclear fuel, net of amortization 49,731 51,681
Construction work in progress 73,339 45,566
1,284,361 1,216,493
Other 1,824 0
1,286,185 1,216,493
Current assets:
Cash and temporary cash investments 2,135 18,313
Accounts receivable -
Customer, less reserve 12,051 22,679
Other 9,763 10,330
Income tax refunds receivable 3,450 3,082
Production fuel, at average cost 13,988 14,338
Materials and supplies, at average cost 26,699 26,861
Adjustment clause balances 1,433 0
Regulatory assets 20,145 14,225
Prepayments and other 29,546 30,985
119,210 140,813
Investments:
Nuclear decommissioning trust funds 33,779 28,059
Cash surrender value of life insurance policies 2,915 2,380
Other 1,085 1,258
37,779 31,697
Other assets:
Regulatory assets 192,955 148,592
Deferred charges and other 9,239 9,383
202,194 157,975
1,645,368 1,546,978
December 31
CAPITALIZATION AND LIABILITIES 1994 1993
(in thousands)
Capitalization (See Consolidated Statements of
Capitalization):
Common stock $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings 197,158 188,862
Total common equity 509,627 501,331
Cumulative preferred stock 18,320 18,320
Long-term debt 380,404 480,074
908,351 999,725
Current liabilities:
Notes payable to associated companies 18,495 0
Short-term borrowings 37,000 24,000
Capital lease obligations 14,385 15,345
Maturities and sinking funds 100,140 224
Accounts payable 70,354 47,179
Accrued interest 9,438 9,438
Accrued taxes 47,188 39,763
Accumulated refueling outage provision 15,196 2,660
Dividends payable 229 5,229
Adjustment clause balances 0 5,149
Provision for rate refund liability 0 8,670
Environmental liabilities 5,428 4,721
Other 18,095 17,648
335,948 180,026
Long-term liabilities:
Capital lease obligations 35,346 36,336
Environmental liabilities 37,853 21,114
Other 46,724 29,866
119,923 87,316
Deferred credits:
Accumulated deferred income taxes 241,345 237,464
Accumulated deferred investment tax credits 39,801 42,447
281,146 279,911
Commitments and contingencies (Note 11)
$ 1,645,368 $ 1,546,978
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31
1994 1993
(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 279,042 279,042
Retained earnings 197,158 188,862
509,627 501,331
Cumulative preferred stock 18,320 18,320
Long-term debt of IES Utilities Inc.:
Collateral Trust Bonds -
6% series, due 2008 50,000 50,000
7% series, due 2023 50,000 50,000
5.5% series, due 2023 19,400 19,400
119,400 119,400
First Mortgage Bonds -
Series J, 6-1/4%, due 1996 15,000 15,000
Series L, 7-7/8%, due 2000 15,000 15,000
Series M, 7-5/8%, due 2002 30,000 30,000
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
339,000 339,000
Pollution control obligations -
5.75%, due serially 1995 to 2003 3,696 3,920
5.95%, due 2007, secured by
First Mortgage Bonds 10,000 10,000
Variable rate (5.45% - 5.60% at
December 31, 1994), due 2000 to 2010 11,100 11,100
24,796 25,020
Unamortized debt premium and (discount), net -2,652 -3,122
480,544 480,298
Less - Amount due within one year 100,140 224
380,404 480,074
908,351 999,725
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 61,210 $ 67,970 $ 45,291
Adjustments to reconcile net income to net cash
flows from operating activities -
Depreciation and amortization 75,316 69,407 64,107
Principal payments under capital lease obligations 16,246 11,429 11,725
Deferred taxes and investment tax credits -410 10,531 -2,406
Refueling outage provision 12,536 -4,889 -5,503
Allowance for equity funds used during construction -2,299 -824 -1,831
Other 3,240 1,613 1,134
Other changes in assets and liabilities -
Accounts receivable 10,395 -8,553 -571
Production fuel, materials and supplies 404 5,909 1,579
Accounts payable 20,444 5,620 345
Accrued taxes 7,057 -10,991 6,118
Provision for rate refunds -8,670 -350 7,528
Adjustment clause balances -6,582 6,366 -4,122
Gas in storage 1,919 -2,309 -7,867
Other 4,082 183 2,441
Net cash flows from operating activities 194,888 151,112 117,968
Cash flows from financing activities:
Dividends declared on common stock -52,000 -31,300 -24,721
Dividends declared on preferred stock -914 -914 -1,729
Equity infusion from parent company 0 50,000 0
Proceeds from issuance of long-term debt 0 119,400 83,400
Reductions in long-term debt and preferred stock -224 -79,624 -39,429
Net change in short-term borrowings 31,495 -68,560 51,660
Principal payments under capital lease obligations -16,304 -11,276 -12,337
Sale of utility accounts receivable 800 10,490 7,710
Other -5,000 5,010 231
Net cash flows from financing activities -42,147 -6,774 64,785
Cash flows from investing activities:
Construction and acquisition expenditures -148,062 -113,212 -171,013
Nuclear decommissioning trust funds -5,532 -5,532 -5,532
Deferred energy efficiency costs -16,157 -9,747 -6,877
Other 832 723 -3,009
Net cash flows from investing activities -168,919 -127,768 -186,431
Net increase (decrease) in cash and temporary cash investments -16,178 16,570 -3,678
Cash and temporary cash investments at beginning of year 18,313 1,743 5,421
Cash and temporary cash investments at end of year $ 2,135 $ 18,313 $ 1,743
Supplemental cash flow information:
Cash paid during the year for -
Interest $ 42,678 $ 39,291 $ 35,770
Income taxes $ 34,479 $ 40,130 $ 23,640
Noncash investing and financing activities -
Capital lease obligations incurred $ 14,297 $ 14,605 $ 1,973
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of Consolidation -
IES Utilities Inc. (Utilities) is a wholly-owned
subsidiary of IES Industries Inc. (Industries). The
Consolidated Financial Statements include the accounts of
Utilities and its consolidated subsidiaries (collectively the
Company). All subsidiaries for which Utilities owns directly
or indirectly more than 50% of the voting stock, which are IES
Ventures Inc. and IES Midland Development Inc., are included
as consolidated subsidiaries. Both of these subsidiaries were
formed in December 1994 and had no operations in 1994. All
significant intercompany balances and transactions have been
eliminated from the Consolidated Financial Statements.
Investments for which the Company has at least a 20%
interest are accounted for under the equity method of
accounting. These investments are stated at acquisition cost,
increased or decreased for the Company's equity in
undistributed net income or loss, which is included in
"Interest expense and other - Miscellaneous, net" in the
Consolidated Statements of Income.
Certain prior period amounts have been reclassified on a
basis consistent with the 1994 presentation.
(b) Regulation -
Utilities is subject to regulation by the Iowa Utilities
Board (IUB) and the Federal Energy Regulatory Commission
(FERC). Utilities' consolidated subsidiaries are not subject
to regulation by the IUB or the FERC.
(c) Regulatory Assets -
Utilities 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 to
Utilities associated with certain incurred costs as these
costs are recovered through the rate making process. At
December 31, regulatory assets as reflected in the
Consolidated Balance Sheets were comprised of the following
items:
1994 1993
(in millions)
Deferred income taxes (Note 1(d)) $ 90.1 $ 88.6
Environmental liabilities (Note 11(f)) 43.8 25.4
Energy efficiency programs (Note 3(b)) 34.7 18.5
Employee pension and benefit costs (Note 7) 25.0 14.1
FERC Order No. 636 transition costs (Note 11(h)) 8.0 5.0
Unamortized loss on reacquired debt 6.1 6.4
Cancelled plant costs 2.4 3.3
Other 3.0 1.5
213.1 162.8
Classified as "Current assets - regulatory assets" 20.1 14.2
Classified as "Other assets - regulatory assets" $ 193.0 $ 148.6
assets"
Refer to the individual footnotes referenced above for a
further discussion of certain items reflected in regulatory
assets.
(d) 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 for Utilities have been
deferred and are subsequently credited to income over the
average lives of the related property.
Consistent with rate making practices for Utilities,
deferred tax expense is not recorded for certain temporary
differences (primarily related to utility property, plant and
equipment). Accordingly, Utilities has recorded deferred tax
liabilities and regulatory assets, as identified in Note 1(c).
(e) Temporary Cash Investments -
Temporary cash investments are stated at cost, which
approximates market value, and are considered cash equivalents
for the Consolidated 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.
(f) Depreciation of Utility Property, Plant and
Equipment -
The average rates of depreciation for electric and gas
properties of Utilities, including Utilities' nuclear
generating station, the Duane Arnold Energy Center (DAEC),
which is being depreciated over a 36-year life using a
remaining life method, consistent with current rate making
practices, were as follows:
1994 1993 1992
Electric 3.6% 3.5% 3.5%
Gas 3.8% 3.5% 3.0%
(g) Decommissioning of the DAEC -
Included in Utilities' proposed electric rate increase
discussed in Note 3(a) is a proposal to increase the annual
recovery of anticipated costs to decommission the DAEC to
approximately $9 million annually from the current level of
$5.5 million. Decommissioning expense is included in
"Depreciation and amortization" in the Consolidated Statements
of Income and the cumulative amount is included in
"Accumulated depreciation" in the Consolidated Balance Sheets
to the extent recovered through rates. The proposal is based
on the following assumptions: 1) cost to decommission the DAEC
of $252.7 million in 1993 dollars, based on the Nuclear
Regulatory Commission (NRC) minimum formula (which exceeds the
amount in the current site-specific study completed in 1994);
2) inflation of 4.91% annually to the year 2014, when
decommissioning is expected to begin; 3) the prompt
dismantling and removal method of decommissioning; 4) monthly
funding of all future collections into external trust funds
and funded on a tax-qualified basis to the extent possible; 5)
an average after-tax return of 6.82% for all external
investments; and 6) collection of the costs on a straight-line
basis, in real terms, through 2014. Current
levels of rate recovery: 1) do not recognize estimated future
inflation for the entire period prior to commencement of the
decommissioning process; 2) assume that decommissioning begins
in 2010; and 3) provide recovery on a straight-line basis
without considering the effects of inflation. At December 31,
1994, Utilities had $33.8 million invested in external
decommissioning trust funds as indicated in the Consolidated
Balance Sheets, and also had an internal decommissioning
reserve of $21.7 million recorded as accumulated depreciation.
Earnings on the external trust funds, which were $1.0 million
in 1994, are recorded as interest income and a corresponding
interest expense payable to the funds is recorded. The
earnings accumulate in the external trust fund balances and in
accumulated depreciation on utility plant.
See "Management's Discussion and Analysis of the Results
of Operations and Financial Condition" for a discussion of
industry issues raised by the staff of the SEC and a Financial
Accounting Standards Board review regarding the electric
utility industry method of accounting for decommissioning
costs.
(h) 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 by
Utilities 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 by
Utilities for 1994-1992 were 9.3%, 5.7% and 9.2%,
respectively.
(i) Operating Revenues -
The Company accrues revenues for services rendered but
unbilled at month-end in order to more properly match revenues
with expenses.
(j) Adjustment Clauses -
Utilities' 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 Consolidated Statements of
Income. The cumulative effects are reflected in the
Consolidated Balance Sheets as a current asset or current
liability, pending automatic reflection in future billings to
customers.
(k) Accumulated Refueling Outage Provision -
The IUB allows Utilities 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.
(2) ACQUISITION OF IOWA SERVICE TERRITORY OF UNION
ELECTRIC COMPANY:
Effective December 31, 1992, Utilities purchased the Iowa
distribution system and a portion of the Iowa transmission
facilities of Union Electric Company (UE) for approximately
$65 million in cash. The net book value of the acquired
assets was approximately $35 million and the amount of the
purchase price in excess of the book value (approximately $30
million) has been recorded as an acquisition adjustment. The
acquisition adjustment is being amortized over the life of the
property and the amortization is included in "Interest expense
and other - Miscellaneous, net" in the Consolidated Statements
of Income. Recovery of the acquisition adjustment through
rates has been requested in Utilities' current electric rate
filing, which is discussed in Note 3(a). See Note 11(b) for a
discussion of the purchase power contracts between Utilities
and UE associated with this acquisition.
(3) RATE MATTERS:
(a) 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%. Utilities' proposal includes approximately
$12 million in annual revenue requirement related to increased
recovery levels of depreciation expense and nuclear
decommissioning expense. To the extent these proposals are
approved by the IUB, corresponding increases in expense would
be recorded and there would be no effect on net income. No
interim increase was requested.
The Office of Consumer Advocate (OCA) filed a petition in
connection with this proceeding to reduce the rates for retail
electric service by approximately $27 million or 5.5%. The
primary differences between the amount of the increase
requested by Utilities and the decrease proposed by the OCA
are: 1) a 13.9% return on common equity requested by Utilities
compared to 11.1% proposed by the OCA; 2) OCA's rejection of
Utilities' proposal to increase collections for
decommissioning the DAEC; 3) OCA's rejection of Utilities'
proposal to increase depreciation rates; 4) OCA's proposal to
reject most of Utilities' request to recover an acquisition
adjustment associated with its acquisition of the Iowa service
territory of UE; and 5) an adjustment to test year sales
levels proposed by the OCA. If a rate reduction is ultimately
ordered by the IUB, the reduction would be effective from
October 22, 1994, and revenues collected beyond that date
would be subject to refund to the extent of the reduction
approved by the IUB, if any. As of December 31, 1994,
Utilities' revenues collected subject to refund were
approximately $5 million.
Intervenors in the proceeding also submitted filings in
October 1994. These parties, which primarily represent
individual or groups of customers, generally object to
particular elements of the price increase and Utilities' price
design proposals. Those intervenors that quantified their
positions have generally argued for a price decrease, but none
as large as that proposed by the OCA.
Utilities expects to receive an order from the IUB in May
1995.
(b) 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, in August 1994, Utilities applied 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 $3.6 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 October 1994, the OCA and an intervenor in the
proceeding filed their direct testimony. The principal
difference between Utilities and the other parties is
approximately $7 million in the reward calculation. Hearings
in the proceeding were held in January 1995. Any increase
approved by the IUB is not expected to be effective before
April 1995, and recovery will be over a four-year period with
a return allowed on the unrecovered portion over the recovery
period.
(4) LEASES:
Utilities 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 Utilities
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. Utilities 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 Consolidated Statements of Income) for 1994-1992 were
$17.8 million, $12.4 million and $12.9 million, respectively.
The Company's operating lease rental expenses for
1994-1992 were $9.8 million, $8.4 million and $6.8 million,
respectively.
The Company's future minimum lease payments by year are
as follows:
Capital Operating
Year Lease Leases
(in thousands)
1995 $ 15,634 $ 7,023
1996 15,653 6,987
1997 12,942 4,591
1998 6,394 3,317
1999 4,176 2,544
2000 - 2002 1,267 -
56,066 $ 24,462
Less: Amount representing interest 6,335
Present value of net minimum
capital lease payments $ 49,731
(5) UTILITY ACCOUNTS RECEIVABLE:
Customer accounts receivable, including unbilled
revenues, arise primarily from the sale of electricity and
natural gas. At December 31, 1994, Utilities was serving a
diversified base of residential, commercial and industrial
customers consisting of approximately 330,000 electric and
173,000 gas customers.
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
December 31, 1994, $54 million was sold under the agreement.
(6) INCOME TAXES:
The components of Federal and state income taxes for the
years ended December 31, were as follows:
1994 1993 1992
(in millions)
Current tax expense $ 38.4 $ 27.5 $ 23.2
Deferred tax expense 2.2 15.4 0.3
Amortization and adjustment
of investment tax credits (2.6) (4.9) (2.8)
$ 38.0 $ 38.0 $ 20.7
The overall effective income tax rates shown below for
the years ended December 31, were computed by dividing total
income tax expense by income before income taxes.
1994 1993 1992
Statutory Federal income tax rate 35.0% 35.0% 34.0%
Add (deduct):
State income taxes, net of Federal benefits 6.1 5.8 5.6
Effect of property related temporary
differences for which deferred taxes
are not provided under rate making
principles 3.2 1.5 0.5
Amortization of investment tax credits (2.7) (2.5) (4.2)
Reversal through tariffs of deferred
taxes provided at rates in excess of
the current statutory Federal income
tax rate (1.5) (1.7) (2.7)
Adjustment of prior period taxes (1.9) (2.0) (2.0)
Other items, net 0.1 (0.3) 0.2
Overall effective income tax rate 38.3% 35.8% 31.4%
The accumulated deferred income taxes as set forth below
in the Consolidated Balance Sheets at December 31, arise from
the following temporary differences:
1994 1993
(in millions)
Property related $ 276 $ 272
Investment tax credit related (28) (30)
Decommissioning related (13) (12)
Other 6 7
$ 241 $ 237
(7) BENEFIT PLANS:
(a) Pension Plans -
The Company has one contributory and two non-contributory
retirement plans that, 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 1994 totaled
$9.7 million.
The Company's policy is to fund the pension cost at an
amount that is at least equal to the minimum funding require
ments mandated by the Employee Retirement Income Security Act
(ERISA) and that does not exceed the maximum tax deductible
amount for the year.
Pursuant to the provisions of SFAS 71, certain
adjustments to Utilities' pension provision are necessary to
reflect the accounting for pension costs allowed in its most
recent rate cases.
The components of the pension provision for the years
ended December 31, were as follows:
1994 1993 1992
(in thousands)
Service cost $ 5,786 $ 4,275 $ 4,439
Interest cost on projected
benefit obligation 11,265 11,131 9,999
Assumed return on plans' assets (12,426) (12,177) (11,640)
Amortization of unrecognized gain (180) (763) (135)
Amortization of prior service cost 1,335 1,195 938
Amortization of unrecognized plans'
assets as of January 1, 1987 (329) (384) (382)
Pension cost 5,451 3,277 3,219
Adjustment to funding level (5,340) (2,867) 301
Total pension costs paid to the Trustees $ 111 $ 410 $ 3,520
Actual return on plans' assets $ (101) $ 12,718 $ 8,861
A reconciliation of the funded status of the plans to the
amounts recognized in the Consolidated Balance Sheets at
December 31, is presented below:
1994 1993
(in thousands)
Fair market value of plans' assets $ 165,267 $ 174,133
Actuarial present value of benefits rendered to date -
Accumulated benefits based on compensation to
date, including vested benefits of $96,968,000
and $100,905,000, respectively 107,017 110,676
Additional benefits based on estimated
future salary levels 39,565 42,938
Projected benefit obligation 146,582 153,614
Plans' assets in excess of projected benefit obligation 18,685 20,519
Remaining unrecognized net asset existing at
January 1, 1987, being amortized over 20 years (3,792) (4,109)
Unrecognized prior service cost 17,991 16,708
Unrecognized net gain (33,942) (28,830)
Prepaid (accrued) pension cost recognized in the
Consolidated Balance Sheets $ (1,058) $ 4,288
Assumed rate of return, all plans 8.00% 8.00%
Weighted average discount rate of projected benefit
obligation, all plans 8.25% 7.50%
Range of assumed rates of increase in future
compensation levels for the plans 4.00-5.75% 4.00-5.75%
(b) Other Postemployment Benefit Plans -
The Company provides certain benefits to retirees
(primarily health care benefits). Through 1992, the Company
expensed such costs as benefits were paid ($2.2 million for
1992), which was consistent with rate making practices at that
time.
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 Utilities' rates pursuant to the provisions of
SFAS 106. The rules permit Utilities 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
Utilities' gas rates, and is funded in external trust funds.
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, Utilities
had deferred $5.6 million of such costs at December 31, 1994.
Utilities has requested recovery of these costs in the
electric rate case discussed in Note 3(a).
The components of postretirement benefit costs for the
years ended December 31, were as follows:
1994 1993
(in thousands)
Service cost $ 1,785 $ 1,685
Interest cost on accumulated postretirement
benefit obligation 3,175 3,247
Actual return on plan assets (47) -
Amortization of transition obligation
existing at January 1, 1993 2,024 2,024
Amortization of unrecognized asset loss (13) -
Amortization of unrecognized gain (4) -
Amortization of prior service cost 19 -
Postretirement benefit costs 6,939 6,956
Less: Deferred postretirement benefit costs 2,732 2,858
Net postretirement benefit costs $ 4,207 $ 4,098
A reconciliation of the funded status of the plans to the
amounts recognized in the Consolidated Balance Sheets at
December 31, is presented below:
1994 1993
(in thousands)
Fair market value of plans' assets $ 1,127 $ 1,171
Accumulated postretirement benefit obligation -
Active employees not yet eligible 18,216 18,325
Active employees eligible 5,119 4,130
Retirees 18,161 20,140
Total accumulated postretirement benefit
obligation 41,496 42,595
Accumulated postretirement benefit obligation
in excess of plans' assets (40,369) (41,424)
Unrecognized transition obligation 36,439 38,463
Unrecognized net gain (5,358) (1,167)
Unrecognized prior service cost 170 -
Accrued postretirement benefit cost in the
Consolidated Balance Sheets $ (9,118) $ (4,128)
Assumed rate of return 8.00% 8.00%
Weighted average discount rate of
accumulated postretirement benefit
obligation 8.25% 7.50%
Medical trend on paid charges:
Initial trend rate 11.00% 12.00%
Ultimate trend rate 6.50% 6.50%
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 1994 service cost
by $1.0 million (20%) and the accumulated postretirement
benefit obligation at December 31, 1994, by $6.6 million
(16%).
On January 1, 1994, the Company adopted the provisions of
SFAS 112, "Employers' Accounting for Postemployment Benefits,"
and its adoption did not have a material effect on the
Company's financial position or results of operations.
(8) PREFERRED AND PREFERENCE STOCK:
Utilities has 466,406 shares of Cumulative Preferred
Stock, $50 par value, authorized for issuance at
December 31, 1994, 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, 1994 and 1993. These shares
are redeemable at the option of Utilities upon 30 days notice
at $51.00, $50.25 and $51.00 per share, respectively, plus
accrued dividends. In addition, there are 700,000 shares of
Utilities Cumulative Preference Stock ($100 par value)
authorized for issuance, of which none were outstanding at
December 31, 1994.
(9) DEBT:
(a) Long-Term Debt -
Utilities' Indentures and Deeds of Trust securing its
First Mortgage Bonds constitute direct first mortgage liens
upon substantially all tangible public utility property.
Utilities' 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 Utilities intends
to meet by pledging additional property under the terms of
Utilities' Indentures and Deeds of Trust, and debt maturities
for 1995-1999 are as follows:
Debt Maturities
(in thousands)
Debt Issue 1995 1996 1997 1998 1999
Sinking fund $ 780 $ 630 $ 550 $ 550 $ 550
requirements
Pollution control 140 140 140 140 140
Series W 50,000 - - - -
Series X 50,000 - - - -
Series J - 15,000 - - -
6-1/8% Series - - 8,000 - -
Series Z - - - - 50,000
Total $ 100,920 $ 15,770 $ 8,690 $ 690 $ 50,690
The Company intends to refinance the majority of the debt
maturities with long-term securities.
(b) Short-Term Debt -
At December 31, 1994, the Company had bank lines of
credit aggregating $67.7 million, of which $37 million was
being used to support commercial paper (weighted average
interest rate of 6.13%) and $7.7 million was being used 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, 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
December 31, 1994, there were no borrowings under this
facility. Utilities also has a letter of credit in the amount
of $3.4 million supporting two of its variable rate pollution
control obligations.
(10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of financial instruments at
December 31, 1994, and the basis upon which they were
estimated are as follows:
(a) Current Assets and Current Liabilities -
The carrying amount approximates fair value because of
the short maturity of such financial instruments.
(b) Nuclear Decommissioning Trust Funds -
The carrying amount represents the fair value of these
trust funds, as reported by the trustee. On January 1, 1994,
the Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." This standard,
which applies to Utilities' nuclear decommissioning trust
funds, requires that unrealized gains and losses on such
investments be included in the reported balance of such
investments. At December 31, 1994, the balance of the "Nuclear
decommissioning trust funds" as shown in the Consolidated
Balance Sheets included $0.8 million of unrealized losses on
the investments held in the trust funds. The accumulated
reserve for decommissioning costs was adjusted by a
corresponding amount and there was no effect on net income
from adopting this standard.
(c) Cumulative Preferred Stock of Utilities -
The estimated fair value of this stock of $10.2 million
is based upon the market yield of similar securities.
(d) Long-Term Debt -
The carrying amount of long-term debt was $483 million
compared to estimated fair value of $459 million. The
estimated fair value of long-term debt is based upon quoted
market prices.
Since Utilities 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.
(11) COMMITMENTS AND CONTINGENCIES:
(a) Construction Program -
The Company's construction and acquisition program
anticipates expenditures of approximately $163 million for
1995, and additional expenditures of approximately $13 million
for mandated energy efficiency programs. The energy efficiency
expenditures will be deferred pursuant to IUB rules as
discussed in Note 3(b). Substantial commitments have been made
in connection with all such expenditures.
(b) Purchase Power Contracts -
In connection with the acquisition of the UE properties
discussed in Note 2, Utilities is purchasing power from UE
under a firm capacity contract with a 1995 requirement of
100 Mw of delivered capacity declining to 60 Mw in 1997.
Utilities will also purchase an additional annual maximum
interruptible capacity of up to 54 Mw of 25 Hz power, which
extends 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 Consolidated Statements of Income.
Utilities has a contract to purchase capacity of 50 Mw
from the City of Muscatine for the period May 1, 1995, through
October 31, 1995. Utilities has also entered into an
agreement with Basin Electric Power Cooperative to purchase
capacity of 50 Mw, 75 Mw, 100 Mw and 100 Mw during the annual
six-month summer season for the years 1996 through 1999,
respectively.
Total capacity charges under all existing contracts will
approximate $16.3 million, $14.3 million, $12.3 million,
$4.7 million and $3.4 million for the years 1995-1999,
respectively.
(c) Coal Contract Commitments -
Utilities has entered into coal supply contracts which
expire between 1996 and 2001 for its fossil-fueled generating
stations. At December 31, 1994, the contracts cover
approximately $199 million of coal over the life of the
contracts, which includes $50 million expected to be incurred
in 1995. Utilities expects to supplement these coal contracts
with spot market purchases to fulfill its future fossil fuel
needs.
(d) Information Technology Services -
The Company entered into an agreement, expiring in 2004,
with Electronic Data Systems Corporation (EDS) for information
technology services. The contract is subject to declining
termination fees. The Company's anticipated expenditures
under the agreement for 1995 are estimated to be approximately
$9.1 million. Future costs under the agreement are variable
and are dependent upon the Company's level of usage of
technological services from EDS.
(e) Nuclear Insurance Programs -
The Price-Anderson Amendments Act of 1988 (1988 Act)
provides Utilities with the benefit of $8.9 billion of public
liability coverage consisting of $200 million of insurance and
$8.7 billion of potential retroactive assessments from the
owners of nuclear power plants. Based upon its ownership of
the DAEC, under the 1988 Act, Utilities could be assessed a
maximum of $79.3 million per nuclear incident, with a maximum
of $10 million per year (of which Utilities' 70% ownership
portion would be approximately $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.
Utilities is a member of Nuclear Electric Insurance
Limited (NEIL), which provides insurance coverage for the cost
of certain property losses at nuclear generating stations and
for the cost of replacement power during certain outages.
Companies insured through NEIL are subject to retroactive
premium adjustments if losses exceed accumulated reserve
funds. NEIL's accumulated reserve funds are currently
sufficient to more than cover its exposure in the event of a
single incident under the property damage or replacement power
coverages. However, Utilities could be assessed annually a
maximum of $8.5 million for certain property losses and
$0.7 million for replacement power if NEIL's losses relating
to accidents exceeded its accumulated reserve funds.
Utilities is not aware of any losses that it believes are
likely to result in an assessment.
(f) Environmental Liabilities -
The Company has recorded environmental liabilities of
approximately $43 million, including $5.4 million as current
liabilities, in its Consolidated Balance Sheets at December
31, 1994. The significant items are discussed below.
Former Manufactured Gas Plant (FMGP) Sites
Utilities has been named as a Potentially Responsible
Party (PRP) by either the Iowa Department of Natural Resources
(IDNR), the Minnesota Pollution Control Agency (MPCA) or the
United States Environmental Protection Agency (EPA) for 28
FMGP sites. Utilities believes that it is not responsible for
two of the sites for which it has been designated a PRP.
Utilities has another FMGP site for which it has not yet been
formally designated as a PRP. Utilities is working pursuant
to the requirements of the IDNR, MPCA and EPA to investigate,
mitigate, prevent and remediate, where necessary, damage to
property, including damage to natural resources, at and around
the remaining 27 sites in order to protect public health and
the environment. In addition, Utilities has recently become
aware that two additional sites may exist, but it has not yet
been able to determine if any liability may exist.
Utilities has completed the remediation of three sites
and is in various stages of the investigation and/or
remediation processes for 22 sites. The investigation process
is scheduled to begin in 1995 or 1996 for the two other sites.
In 1994, Utilities received updated investigation reports on a
number of sites, which, at some sites, indicated a greater
volume of contaminated soil, surface and ground water needing
treatment, and a greater volume of substances requiring higher
cost incineration, than was anticipated in prior estimates.
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 has recorded environmental liabilities related
to the FMGP sites of $31 million (including $4.3 million as
current liabilities) at December 31, 1994. 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. For those sites where the
investigation is in its earlier stages or has not started, the
liability represents the minimum of the estimated cost range.
All investigations are expected to be completed by 1999 and
site-specific remediations, based on recommendations from the
IDNR, MPCA and EPA, are anticipated to be completed within
three years after the completion of the investigations of each
site. Utilities may be required to monitor these sites for a
number of years upon completion of remediation, as is the case
with the three 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 December 31, 1994. Regulatory assets of
$31.0 million have been recorded in the Consolidated Balance
Sheets, which reflect the future recovery that is being
provided through Utilities' rates. Considering the 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.
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 $1.4 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,
$12.0 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.
(g) Clean Air Act -
The Clean Air Act Amendments Act 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 is in the process of completing
the modifications necessary to meet the Phase I requirements.
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 at approximately $22.5 million, including
$4.4 million in 1995, in order to meet the requirements of the
Act.
(h) FERC Order No. 636 -
The FERC issued Order No. 636 (Order 636) in 1992. Order
636, as modified on rehearing: 1) requires Utilities' 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 Utilities) 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. Utilities
has enhanced access to competitively priced gas supply and
more flexible transportation services as a result of
Order 636. However, under Order 636, 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 begin collecting their respective transition
costs, and additional filings are expected. Utilities began
paying the transition costs in 1993, and, at December 31,
1994, has recorded a liability of $8.0 million for those
transition costs that have been incurred by the pipelines to
date, including $3.0 million expected to be billed through
1995. Utilities is currently recovering the transition costs
from its customers through its Purchased Gas Adjustment
Clauses as such costs are billed by the pipelines. Transition
costs, in addition to the recorded liability, that may
ultimately be charged to Utilities could approximate
$10 million. The ultimate level of costs to be billed to
Utilities depends on the pipelines' filings with the FERC and
other future events, including the market price of natural
gas. However, Utilities believes any transition costs that
the FERC would allow the pipelines to collect from Utilities
would be recovered from its customers, based upon regulatory
treatment of these costs currently and similar past costs by
the IUB. Accordingly, regulatory assets, in amounts
corresponding to the recorded liabilities, have been recorded
to reflect the anticipated recovery.
(12) JOINTLY-OWNED ELECTRIC UTILITY PLANT:
Under joint ownership agreements with other Iowa
utilities, Utilities has undivided ownership interests in
jointly-owned electric generating stations and related
transmission facilities. Each of the respective owners is
responsible for the financing of its portion of the
construction costs. Kilowatt-hour generation and operating
expenses are divided on the same basis as ownership with each
owner reflecting its respective costs in its Statements of
Income. Information relative to Utilities' ownership interest
in these facilities at December 31, 1994 is as follows:
Ottumwa Neal
DAEC Unit 1 Unit 3
($ in millions)
Utility plant in service $ 490.8 $ 187.9 $ 55.5
Accumulated depreciation $ 242.4 $ 80.6 $ 25.7
Construction work in progress $ 5.3 $ - $ 1.3
Plant capacity - Mw 515 716 515
Percent ownership 70% 48% 28%
In-service date 1974 1981 1975
(13) 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
by Utilities. Certain financial information relating to the
Company's significant segments of business is presented below:
Year Ended December 31
1994 1993 1992
(in thousands)
Operating results:
Revenues -
Electric $ 537,327 $ 550,521 $ 462,999
Gas 139,033 154,318 139,455
Operating income -
Electric 125,487 128,994 90,891
Gas 8,135 13,750 8,367
Other information:
Depreciation and amortization -
Electric 68,640 63,832 59,707
Gas 6,214 5,186 4,024
Construction and acquisition
expenditures -
Electric 99,543 84,720 154,902
Gas 12,719 12,582 17,308
Assets -
Identifiable assets -
Electric 1,347,024 1,288,505 1,226,614
Gas 186,911 164,773 141,801
1,533,935 1,453,278 1,368,415
Other corporate assets 111,433 93,700 72,476
Total consolidated assets $ 1,645,368 $ 1,546,978 $ 1,440,891
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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
1995 annual meeting of stockholders, which was filed on
March 20, 1995. The executive officers of the registrant are
as follows:
Executive Officers of the Registrant (Effective February 7, 1995)
Lee Liu, 61, Chairman of the Board & Chief Executive
Officer. First elected officer in 1975.
Blake O. Fisher, Jr., 50, President, Chief Operating
Officer & Chief Financial Officer and Director. First
elected officer in 1991. (i)
Rene H. Males, 62, Executive Vice President. First
elected officer in 1991. (ii)
Dr. Robert J. Latham, 52, Senior Vice President, Finance.
First elected officer in 1985.
Stephen W. Southwick, 48, Vice President, General Counsel
& Secretary. First elected officer in 1982.
John F. Franz, Jr., 55, Vice President, Nuclear. First
elected officer in 1992. (iii)
Philip D. Ward, 54, Vice President, Engineering &
Generation. First elected officer in 1990.
Harold W. Rehrauer, 57, Vice President, Field Operations.
First elected officer in 1987.
Richard A. Gabbianelli, 38, Controller & Chief Accounting
Officer. First elected officer in 1994.
Dennis B. Vass, 45, Treasurer. First elected officer in
1995. (iv)
Officers are elected annually by the Board of Directors
and each of the officers named above, except Blake O. Fisher,
Jr., Rene H. Males, John F. Franz, Jr. and Dennis B. Vass,
have been employed by the Company 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 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.
(ii) Prior to the appointment of Rene H. Males as an
officer in 1991, 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.
(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.
(iv) Prior to the appointment of Dennis B. Vass as
Treasurer of the Company in February, 1995, he was
employed by Consumers Power Company as Financial
Projects Director and by the Company in April, 1991,
as Manager of Finance.
Item 11. Executive Compensation
Information regarding executive compensation and
transactions 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.
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 -
Report of Management. 49 - 50
Report of Independent Public Accountants. 51
Consolidated Statements of Income for the
years ended December 31, 1994, 1993 and 1992. 52
Consolidated Statements of Retained Earnings
for the years ended December 31, 1994, 1993 and 1992. 53
Consolidated Balance Sheets at December 31, 1994 and
1993. 54 - 55
Consolidated Statements of Capitalization at
December 31, 1994 and 1993. 56
Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992. 57
Notes to Consolidated Financial Statements. 58 - 84
(a) 2. Financial Statement Schedules -
Included in Part IV of this report -
Schedule II - Valuation and Qualifying Accounts and
Reserves for the years ended December 31,
1994, 1993 and 1992. 90
Other schedules are omitted as not required
under Rules of Regulation S-X.
(a) 3. Exhibits -
See Exhibit Index beginning on page 93.
(b) Reports on Form 8-K -
Items Reported Financial Statements Date of Report
7 Note 1 March 15, 1995
Note 1: The Form 8-K provided the audited
financial statements of the Company.
IES UTILITIES INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Column A Column B Column E
Balance Balance
Description January 1 December 31
(in thousands)
1994:
Accumulated provision for
uncollectible accounts $ 409 $ 650
Accumulated provision for rate refunds $ 8,670 $ -
1993:
Accumulated provision for
uncollectible accounts $ 567 $ 409
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
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 1995.
IES UTILITIES INC.
(Registrant)
By /s/ Blake O. Fisher, Jr.
Blake O. Fisher, Jr.
President, Chief Operating Officer &
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 on behalf of the registrant and in the
capacities indicated on March 29, 1995:
/s/ Lee Liu Chairman of the Board &
Lee Liu Chief Executive Officer
(Principal Executive Officer)
/s/ Blake O. Fisher, Jr. President, Chief Operating Officer &
Blake O. Fisher, Jr. Chief 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/ Dr. George Daly Director
Dr. George Daly
/s/ G. Sharp Lannom, IV Director
G. Sharp Lannom, IV
/s/ Jack R. Newman Director
Jack R. Newman
/s/ Robert D. Ray Director
Robert D. Ray
/s/ David Q. Reed Director
David Q. Reed
/s/ Henry Royer Director
Henry Royer
/s/ Robert W. Schlutz Director
Robert W. Schlutz
/s/ Anthony R. Weiler Director
Anthony R. Weiler
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
3(a) Articles of Incorporation of the
Registrant, Amended and Restated as of January 6, 1994
(Filed as Exhibit 4(b) to Company's Current Report on
Form 8-K, dated January 7, 1994).
3(b) Bylaws of Registrant, as amended
February 7, 1995 (Filed as Exhibit 3 to Company's
Current Report on Form 8-K, dated March 15, 1995).
4(a) Indenture of Mortgage and Deed of Trust,
dated as of September 1, 1993, between the Company
(formerly Iowa Electric Light and Power Company (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:
Number Dated as of IE File 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, 8/13/91 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, 12/12/93 4(b)
4(e) Indenture or Deed of Trust dated as of
February 1, 1923, between the Company (successor to
Iowa Southern Utilities Company (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:
Dated as of File 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)
* December 1, 1994 Form 10-K, 1994 4(f)
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) 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) Receivables Purchase and Sale Agreement dated as
of June 30, 1989, as Amended and Restated as of April
15, 1994, among IES Utilities Inc. (as Seller) and
CIESCO L.P. (as the Investor) and Citicorp North
America, Inc. (as Agent). (Filed as Exhibit 10(a) to
the Company's Form 10-Q for the quarter ended March 31,
1994).
10(x) Guaranty (IES Utilities Trust No. 1994-A) from IES
Utilities Inc., dated as of June 29, 1994. (Filed as
Exhibit 10(b) to the Company's Form 10-Q for the
quarter ended June 30, 1994 (File No. 0-4117-1)).
10(y) 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)).
10(z) 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)).
10(aa) 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)).
10(ab) 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)).
10(ac) Operating and Transmission Agreement between
Central Iowa Power Cooperative and IE (Filed as Exhibit
10(q) to IE's Form 10-K for the year 1990).
10(ad) 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).
* 12 Ratio of Earnings to Fixed Charges.
* 23 Consent of Independent Public Accountants.
* 27 Financial Data Schedule.
* 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 4(f)
_________________________________________________________________
_________________________________________________________________
IES UTILITIES INC.
TO
THE FIRST NATIONAL BANK OF CHICAGO
AND
RICHARD D. MANELLA
As Trustees
__________________
SUPPLEMENTAL INDENTURE
Dated as of December 1, 1994
__________________
Providing for the merger of Iowa Southern Utilities Company,
an Iowa Corporation, into Iowa Electric Light and Power Company,
an Iowa Corporation, with Iowa Electric Light and Power Company
being the surviving corporation of such merger under a new
corporate name, IES Utilities Inc.
___________________________________________________________________
TABLE OF CONTENTS
______________
Page
PARTIES 1
RECITALS 1
ARTICLE I.
ASSUMPTION BY IESU
Section 1. Assumption by IESU, an Iowa corporation,
of payment on all bonds outstanding under
the Indenture and performance of covenants
and conditions of the Indenture 4
ARTICLE II.
DESCRIPTION OF ADDITIONAL PROPERTY SUBJECT TO LIEN
Section 1. Conveyance of properties and description
thereof 4
ARTICLE III.
TRUSTEE
Section 1. Trustees accept terms and conditions of
the Indenture 7
Section 2. Trustees entitled to exemption and
immunities of the Indenture 7
ARTICLE IV.
MISCELLANEOUS
Section 1. Supplemental Indenture to be read and
construed in connection with and as a
part of the Indenture 7
Section 2. Recitals of facts to be taken as
statements of IESU and the Trustee 7
Section 3. Recitals deemed to be part of
Supplemental Indenture 7
Section 4. Supplemental Indenture to be binding
upon successors and assigns of the
respective parties 7
Section 5. Execution in several counterparts 7
ATTESTATION CLAUSE 8
ACKNOWLEDGMENTS 9
P A R T I E S:
This Supplemental Indenture dated as of the 1st day of
December, 1994 between IES Utilities Inc., a corporation
organized and existing under the laws of the State of Iowa
(hereinafter sometimes called "IESU" and formerly known as Iowa
Electric Light and Power Company ("IE"), which was the surviving
corporation of a merger pursuant to an Agreement and Plan of
Merger, dated as of June 4, 1993, as amended (the "1993 Merger
Agreement"), between IE and Iowa Southern Utilities Company, a
corporation organized under the laws of the State of Iowa
("ISU")), party of the first part, and The First National Bank of
Chicago, a national banking association, and Richard D. Manella,
as Trustees (both of whom are hereinafter referred to as the
"Trustees" and the first mentioned of whom is hereinafter
referred to as the "Corporate Trustee" and last mentioned of whom
is hereinafter referred to as the "Individual Trustee"), parties
of the second part,
W I T N E S S E T H:
WHEREAS, a certain Indenture or Deed of Trust dated as
of the 1st day of February, 1923 (hereinafter sometimes termed
the "Original Indenture"), was made between Old ISU (as
hereinafter defined), as party of the first part, and The
Northern Trust Company and Harold H. Rockwell, as trustees, as
parties of the second part, whereby Old ISU mortgaged and pledged
to said trustees and their successors in the trust and assigns,
all and singular its properties, real, personal and mixed, then
owned, or which might thereafter be acquired (except certain
property expressly excepted and reserved from the lien thereof),
for the purpose of securing the payment of the principal and
interest of all bonds at any time issued and outstanding under
the Original Indenture and to secure the performance and
observance of all the covenants and conditions upon which said
bonds might be issued, received and held, in trust, and subject
to the agreements, covenants and conditions expressed in the
Original Indenture, which Original Indenture or indentures
supplemental thereto were duly recorded in the following
counties, in the State of Iowa, to-wit: Adair, Adams, Appanoose,
Boone, Calhoun, Clarke, Dallas, Davis, Decatur, Des Moines,
Henry, Ida, Jasper, Jefferson, Keokuk, Lee, Louisa, Lucas,
Madison, Mahaska, Marion, Marshall, Monroe, Muscatine, Polk,
Poweshiek, Ringgold, Sac, Tama, Taylor, Union, Wapello, Warren,
Washington, Wayne, Webster, and Woodbury; and
WHEREAS, heretofore and at various times Old ISU duly
executed and delivered to The Northern Trust Company and Harold
R. Rockwell or Sheldon A. Weaver or Thomas H. Jolls or Charles H.
Cory II, as Trustees under the Original Indenture, various
supplemental indentures to the Original Indenture, including in
particular the Supplemental Indenture dated October 2, 1945 (the
"1945 Supplemental Indenture") assented to by the holders of all
the bonds at the time outstanding under the Original Indenture
(other than bonds called for redemption with funds deposited with
the Corporate Trustee), wherein and whereby the Original
Indenture was modified and amended, certain property was released
from the lien of the Original Indenture, and all articles,
covenants and provisions thereof subsequent to the granting
clauses thereof were rewritten as Articles I to XXII, inclusive
(the Original Indenture as so modified, amended and supplemented
by the 1945 Supplemental Indenture and as subsequently amended
and supplemented from time to time by all supplemental indentures
thereto, including this Supplemental Indenture, is herein
referred to as the "Indenture"); and
WHEREAS, pursuant to the provisions of Section 17.15,
17.16 and 17.17 of Article XVII of the 1945 Supplemental
Indenture, by an instrument in writing dated January 24, 1986
duly executed by the Company and by an instrument in writing
dated March 1, 1985 duly executed by The First National Bank of
Chicago, said The First National Bank of Chicago was appointed
successor in trust to the Corporate Trustee under the Indenture,
and whereas said The First National Bank of Chicago accepted such
appointment effective March 3, 1985, and Richard D. Manella, an
officer of said The First National Bank of Chicago, was appointed
successor in trust to the Individual Trustee under the Indenture,
and whereas said Richard D. Manella accepted such appointment
effective March 3, 1985; and
WHEREAS, pursuant to an Agreement and Plan of
Reincorporation Merger, dated as of February 28, 1986 (the
"Agreement and Plan of Reincorporation Merger"), between Iowa
Southern Utilities Company, a corporation organized and existing
under the laws of the state of Delaware ("Old ISU") and ISU, Old
ISU was merged with and into ISU, with ISU being the surviving
corporation, and by Supplemental Indenture dated as of May 31,
1986, ISU expressly assumed the due and punctual payment of the
principal of and the interest and premium (if any) on all bonds
then outstanding under the Indenture according to their tenor,
and the due and punctual performance and observance of all of the
terms, covenants and conditions of the Indenture to be kept or
performed by Old ISU; and
WHEREAS, all mortgages or trust indentures prior in
lien to the lien of the Original Indenture or the Indenture have
been satisfied and discharged of record and the Original
Indenture and Indenture are now a first mortgage lien upon the
properties subject thereto; and
WHEREAS, all bonds heretofore issued under the Original
Indenture or the Indenture have, as of December 1, 1994, been
retired except the following described outstanding First Mortgage
Bonds:
Dated Series Principal Amount Due Date
June 1, 1967 6 1/8% $8,000,000 June 1, 1997
February 1, 1973 7 3/8% $10,000,000 February 1, 2003
February 1, 1977 5.95% $10,000,000 February 1, 2007
July 1, 1991 9 1/8% $21,000,000 July 1, 2001
September 1, 1992 7 1/4% $30,000,000 September 1, 2007
; and
WHEREAS, pursuant to the 1993 Merger Agreement, ISU was
merged with and into IE, with IE being the surviving corporation
under a new corporate name, IES Utilities Inc.; and
WHEREAS, pursuant to Section 16.01 of the Indenture,
ISU covenanted that any merger of it into any other corporation
shall be upon and subject to the following provisions and
conditions:
(1) the Successor Corporation (as defined in
the Indenture) formed by any such merger shall be
a corporation having authority to carry on
business of the nature transacted by ISU;
(2) any such merger shall be upon such terms
as shall in no respect impair the lien of the
Indenture or any of the rights or powers of the
Trustees or the bondholders thereunder; and
(3) the due and punctual payment of the
principal of and interest and premium (if any) on
all bonds outstanding under the Indenture
according to their tenor and the due and punctual
performance and observance of all the terms,
covenants and conditions of the Indenture to be
kept or performed by the Company, shall, by a
supplemental indenture, be assumed by the
Successor Corporation.
WHEREAS, IESU has the authority to carry on business of
the nature transacted by ISU; and
WHEREAS, the terms of the 1993 Merger Agreement in no
respect impair the lien of the Indenture, or any of the rights or
powers of the Trustees or of the bondholders thereunder; and
WHEREAS, the Board of Directors of IESU has, by
resolution, authorized the execution and delivery of this
Supplemental Indenture;
NOW, THEREFORE, in consideration of the premises and
mutual covenants herein and in the 1993 Merger Agreement
contained, and of the sum of One Dollar ($1.00) duly paid by the
Trustees to IESU at the execution of these presents, the receipt
whereof is hereby acknowledged, it is hereby covenanted and
agreed between IESU and the Trustees, for the equal and
proportionate benefit of the respective holders from time to time
of the outstanding bonds under the Indenture as follows:
ARTICLE I.
ASSUMPTION BY IESU
Section 1. IESU hereby expressly assumes the due and
punctual payment of the principal of and the interest and premium
(if any) on all bonds outstanding under the Indenture according
to their tenor, and the due and punctual performance and
observance of all of the terms, covenants and conditions of the
Indenture to be kept or performed by ISU.
ARTICLE II.
DESCRIPTION OF ADDITIONAL PROPERTY SUBJECT TO LIEN
Section 1. For the purpose of confirming the lien of
the Original Indenture and the Indenture on the properties
hereinafter described, IESU has granted, bargained, sold,
warranted, conveyed, transferred, mortgaged, pledged and assigned
and does hereby grant, bargain, sell, warrant, convey, transfer,
mortgage, pledge and assign unto the Trustees and to their
respective successors in the trust, upon the terms of the
Indenture, the following described parcels of real property and
other properties owned by IESU in the following Counties of the
State of Iowa, respectively:
Clarke County
Henry County
Monroe County
Taylor County
Wayne County
ARTICLE III.
TRUSTEES
Section 1. The Trustees hereby accept this Supplemental
Indenture and agree to perform the same upon the terms and
conditions set forth in the Indenture.
Section 2. The Trustees shall be entitled in
connection with this Supplemental Indenture to all of the
exemptions and immunities granted to them by the terms of the
Indenture.
ARTICLE IV.
MISCELLANEOUS
Section 1. This Supplemental Indenture shall be read
and construed in connection with, and as part of, the Amended
Indenture and as if the Amended Indenture and this Supplemental
Indenture were parts of one and the same instrument.
Section 2. The recitals contained in this Supplemental
Indenture shall be taken as the statements of IESU, and the
Trustees assume no responsibility for the correctness of the
same, with the exception of the third recital.
Section 3. The recitals contained herein are deemed to
be part of this Supplemental Indenture.
Section 4. This Supplemental Indenture shall be
binding upon, and inure to the benefit of, the Company and its
successors and assigns and the Trustees and their respective
successors.
Section 5. This Supplemental Indenture may be simultaneously
executed in several counterparts, and all said counterparts
executed and delivered each as an original shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, IES UTILITIES INC. has caused this
Supplemental Indenture to be signed in its corporate name by its
Executive Vice President and Chief Financial Officer, and to be
sealed with its corporate seal, attested by its Secretary or an
Assistant Secretary, and THE FIRST NATIONAL BANK OF CHICAGO, in
its capacity as Trustee, to evidence its acceptance of the trusts
hereby created, has caused these presents to be signed in its
corporate name by its President or a Vice President or an
Assistant Vice President, and to be sealed with its corporate
seal, attested by its Secretary or an Assistant Secretary, and
said Richard D. Manella, in his capacity as Trustee, to evidence
his acceptance of said trusts, has hereunto set his hand and
seal, all as of the day and year first above written.
IES UTILITIES INC.
ATTEST: By /s/
Blake O. Fisher, Jr.
Executive Vice President
and Chief Financial Officer
/s/
Stephen W. Southwick
Secretary
[seal]
THE FIRST NATIONAL BANK OF CHICAGO
By /s/
Name Georgia E. Tsirbas
Assistant Vice President
ATTEST: By /s/
Richard D. Manella,
As Trustee
/s/
Name B.L. McCleod
Trust Officer
[seal]
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
On the 30th day of December, 1994, before me, a Notary
Public in and for said County and State, personally appeared
Georgia E. Tsirbas, [Assistant Vice President] of The First
National Bank of Chicago, one of the corporations described in
and which executed the foregoing instrument, to me personally
known, who being by me duly sworn, did say that [s]he is an
[Assistant Vice President] of said corporation; that the seal
affixed to the said instrument is the corporate seal of said
corporation; and that said instrument was signed and sealed on
behalf of said corporation by authority of its Board of Directors
and said Trust Officer acknowledged the execution of said
instrument to be the voluntary act and deed of said corporation
by it voluntarily executed.
/s/
Name Grady K. Clark, Notary Public
My Commission Expires: 9/1/97
[NOTARIAL SEAL]
STATE OF ILLINOIS )
) SS:
COUNTY OF COOK )
On the 30th day of December, 1994, before me, a Notary
Public in and for said County and State, personally appeared
Richard D. Manella, one of the Trustees mentioned in the
foregoing instrument, personally known to me to be the person
named in and who executed the foregoing instrument, and
acknowledged to me that he, as such Trustee, executed and
delivered the said instrument as his free and voluntary act and
deed, for the uses and purposes therein set forth.
Name Grady K. Clark, Notary Public
My Commission Expires: 9/1/97
[NOTARIAL SEAL]
STATE OF IOWA )
) SS
COUNTY OF LINN )
On the 28th day of December, 1994, before me, a Notary
Public in and for said County and State, personally appeared
Blake O. Fisher, Jr., Executive Vice President and Chief
Financial Officer of IES Utilities Inc., one of the corporations
described in and which executed the foregoing instrument, to me
personally known, who, being by me duly sworn, did say that he is
Executive Vice President and Chief Financial Officer of said
corporation; that the seal affixed to the said instrument is the
corporate seal of said corporation; and that said instrument was
signed and sealed on behalf of said corporation by authority of
its Board of Directors and the said Blake O. Fisher, Jr.
acknowledged the execution of said instrument to be the voluntary
act and deed of said corporation by it voluntarily executed.
/s/___________________________
Marcia K. Young, Notary Public
My Commission Expires: 2/27/95
[NOTARIAL SEAL]
EXHIBIT 12
IES UTILITIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
1990 1991 1992 1993 1994
(in thousands, except ratio of earnings to fixed charges)
Net income $ 45,969 $ 47,563 $ 45,291 $ 67,970 $ 61,210
Federal and state
income taxes 22,364 23,494 20,723 37,963 37,966
Net income before
income taxes 68,333 71,057 66,014 105,933 99,176
Interest on long-term
debt 28,853 31,171 35,689 34,926 37,942
Other interest 4,704 5,595 3,939 5,243 3,630
Estimated interest
component of rents 7,936 6,594 4,567 3,729 3,970
Fixed charges as defined 41,493 43,360 44,195 43,898 45,542
Earnings as defined 109,826 114,417 110,209 149,831 144,718
Ratio of earnings to
fixed charges (unaudited) 2.65 2.64 2.49 3.41 3.18
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.
EXHIBIT 23
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) and Form S-3 Registration
Statement (File No. 33-44154).
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1994 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the twelve months
ended December 31, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,284,361
<OTHER-PROPERTY-AND-INVEST> 39,603
<TOTAL-CURRENT-ASSETS> 119,210
<TOTAL-DEFERRED-CHARGES> 9,239
<OTHER-ASSETS> 192,955
<TOTAL-ASSETS> 1,645,368
<COMMON> 33,427
<CAPITAL-SURPLUS-PAID-IN> 279,042
<RETAINED-EARNINGS> 197,158
<TOTAL-COMMON-STOCKHOLDERS-EQ> 509,627
0
18,320
<LONG-TERM-DEBT-NET> 380,404
<SHORT-TERM-NOTES> 18,495
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 37,000
<LONG-TERM-DEBT-CURRENT-PORT> 100,140
0
<CAPITAL-LEASE-OBLIGATIONS> 35,346
<LEASES-CURRENT> 14,385
<OTHER-ITEMS-CAPITAL-AND-LIAB> 531,651
<TOT-CAPITALIZATION-AND-LIAB> 1,645,368
<GROSS-OPERATING-REVENUE> 685,366
<INCOME-TAX-EXPENSE> 37,966<F1>
<OTHER-OPERATING-EXPENSES> 549,775
<TOTAL-OPERATING-EXPENSES> 549,775<F1>
<OPERATING-INCOME-LOSS> 135,591
<OTHER-INCOME-NET> 5,157
<INCOME-BEFORE-INTEREST-EXPEN> 140,748
<TOTAL-INTEREST-EXPENSE> 41,572
<NET-INCOME> 61,210
914
<EARNINGS-AVAILABLE-FOR-COMM> 60,296
<COMMON-STOCK-DIVIDENDS> 52,000
<TOTAL-INTEREST-ON-BONDS> 37,276
<CASH-FLOW-OPERATIONS> 194,888
<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>
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 1995 annual meeting of shareholders, which was filed with
the Commission on March 20, 1995. Attached hereto are the applicable
pages from Industries' definitive proxy statement.
<PAGE>
PROPOSAL NUMBER 1--NOMINATION AND ELECTION OF DIRECTORS
Twelve 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. Eleven of the nominees have previously been
elected as directors by the Shareholders. Jack R. Newman was appointed to the
Board of Directors on August 2, 1994.
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.
2
<PAGE>
NOMINEES FOR ELECTION AS DIRECTORS
NAME AND AGE YEAR FIRST
ELECTED A
DIRECTOR
C.R.S. ANDERSON, 67 1978
Mr. Anderson is the retired Chairman of the Board of IES
Industries after serving in that position following the merger
of IE Industries Inc. and Iowa Southern Inc. Prior to the
merger, Mr. Anderson was Chairman and President of Iowa
[PHOTO Southern Inc., and had served in various positions at Iowa
APPEARS Southern Utilities Company since 1956. He is a past chairman
HERE] of the Missouri Valley Electric Association and the Iowa
Association of Business and Industry; and a former director of
IMG Bond Accumulation Fund, IMG Stock Accumulation Fund,
Midwest Gas Association and the Iowa Business Development
Credit Corporation. Mr. Anderson has been a director of IES
Industries since 1991 and was first elected to the Iowa
Southern Utilities Company board in 1978. Mr. Anderson serves
on the Executive Committee and chairs the Audit Committee.
J. WAYNE BEVIS, 60 1987
Mr. Bevis is Vice Chairman and Chief Executive Officer of
Pella Corporation, a window and door manufacturing company in
Pella, Iowa. He has served in various positions at Pella
[PHOTO Corporation since 1973. Mr. Bevis is Chairman of several Pella
APPEARS Corporation subsidiaries and a member of the Policy Advisory
HERE] Board of the Joint Center of Housing Studies of Harvard
University and the University of Iowa College of Business
Board of Visitors. He is a member and past chairman of the
Iowa Business Council. Mr. Bevis has been a director of IES
Industries since 1991 and was first elected to the IE
Industries Inc. board in 1987. Mr. Bevis serves on the Audit
Committee.
GEORGE DALY, 54 1988
Dr. Daly is Dean of the Leonard Stern School of Business, New
York University, New York, New York. Dr. Daly was Dean of the
[PHOTO College of Business Administration at the University of Iowa,
APPEARS Iowa City, Iowa from July 1983 to July 1993. He has published
HERE] a variety of academic journals and authored several books. Dr.
Daly has been active in government policymaking and formerly
held posts with federal governmental agencies. He has been a
director of the Company since 1991 and was first elected to
the IE Industries Inc. board in 1988. Dr. Daly serves on the
Compensation Committee.
BLAKE O. FISHER, JR., 50 1991
Mr. Fisher has served as Executive Vice President & Chief
Financial Officer of the Company since January 1991. He was
appointed President, Chief Operating Officer & Chief Financial
Officer of IES Utilities Inc. in February 1995. Mr. Fisher
[PHOTO previously held various management positions at Consumers
APPEARS Power Company, an electric and gas utility company in Jackson,
HERE] Michigan, beginning in 1967, including Vice President of
Finance and Treasurer. He is a director of McLeod, Inc., a
telecommunications company in Cedar Rapids, Iowa and a
director of Personal Safety Corporation. Mr. Fisher is also a
member of the board of trustees of Coe College, Theatre Cedar
Rapids and Brucemore, all located in Cedar Rapids, Iowa. He
has been a director of the Company since 1991 and was first
elected to the IE Industries Inc. board in 1991.
G. SHARP LANNOM, IV, 56 1987
Mr. Lannom is President and Chief Executive Officer of DeLong
Sportswear, Inc., a sportswear manufacturer in Grinnell, Iowa.
[PHOTO Mr. Lannom has served as Chief Executive Officer of DeLong
APPEARS since 1961. He is chairman of the Ahrens Family Center in
HERE] Grinnell, Iowa. Mr. Lannom has been a director of the Company
since 1991 and was first elected to the board of Iowa Southern
Inc. in 1987. Mr. Lannom serves on the Compensation Committee.
3
<PAGE>
NAME AND AGE YEAR FIRST
ELECTED A
DIRECTOR
LEE LIU, 61 1981
Mr. Liu is Chairman of the Board, President & Chief Executive
Officer of the Company and is Chairman of the Board & Chief
Executive Officer of IES Utilities Inc. Mr. Liu has held a
number of professional, management and executive positions
since joining Iowa Electric Light and Power Company in 1957.
[PHOTO He is a director of: HON Industries Inc., an office equipment
APPEARS manufacturer in Muscatine, Iowa; Principal Financial Group, an
HERE] insurance company in Des Moines, Iowa; and Eastman Chemical
Company, a diversified chemical company in Kingsport,
Tennessee. Mr. Liu is also a director of the Edison Electric
Institute, an electric industry interest group in Washington,
D.C. He also serves as a trustee for Mercy Medical Center, a
hospital in Cedar Rapids, Iowa and is a member of the Iowa
Business Council, the Iowa Utility Association and the
University of Iowa College of Business Board of Visitors. Mr.
Liu has been a director of the Company since 1991 and was
first elected to the board of Iowa Electric Light and Power
Company in 1981. Mr. Liu chairs the Executive Committee and
serves on the Nominating Committee.
JACK R. NEWMAN, 61 1994
Mr. Newman has been a Partner of Morgan, Lewis & Bockius, an
international law firm based in Washington, D.C., specializing
in energy matters since December 1, 1994. Mr. Newman has been
engaged in private practice since 1967 and was previously a
[PHOTO partner in the law firms Newman & Holtzinger and Newman,
APPEARS Bouknight & Edgar. He has served as nuclear legal counsel to
HERE] the Company since 1968. Prior to 1967, Mr. Newman served as
Secretary and General Counsel of the Nuclear Materials and
Equipment Corporation and as Staff Counsel to the Joint
Congressional Committee on Atomic Energy. He advises a number
of utility companies on nuclear power matters, including many
European and Asian companies. Mr. Newman is a member of the
Bar of the State of New York, the Bar Association of the
District of Columbia, the Association of the Bar of the City
of New York, the Federal Bar Association and the Lawyers
Committee of the Edison Electric Institute. He was first
appointed to the board of the Company in August 1994. Mr.
Newman serves on the Compensation Committee.
ROBERT D. RAY, 66 1987
Mr. Ray is President and Chief Executive Officer of IASD
Health Services Inc. (formerly Blue Cross and Blue Shield of
Iowa, Western Iowa and South Dakota), an insurance firm in Des
Moines, Iowa. From 1983 until 1989 he was President and Chief
[PHOTO Executive Officer of Life Investors, Inc., an insurance firm
APPEARS in Cedar Rapids, Iowa. Mr. Ray served as Governor of the State
HERE] of Iowa for fourteen years, and was the United States Delegate
to the United Nations in 1984. He is a director of the Maytag
Company, an appliance manufacturer in Newton, Iowa and a
director of Norwest Bank of Iowa in Des Moines, Iowa. He also
serves as Chairman of the National Leadership Commission on
Health Care Reform and the National Advisory Committee on
Rural Health Care. Mr. Ray is a member of the Board of
Governors of Drake University, Des Moines, Iowa, and the Iowa
Business Council. He has been a director of the Company since
1991 and was first elected to the IE Industries Inc. board in
1987. Mr. Ray serves on the Audit and Nominating Committees.
4
<PAGE>
NAME AND AGE YEAR FIRST
ELECTED A
DIRECTOR
DAVID Q. REED, 63 1967
Mr. Reed is a sole practitioner of law in Kansas City,
Missouri. Mr. Reed has been engaged in the private practice of
law since 1960. From 1972 until 1988, he was a senior member
[PHOTO of the firm of Kodas, Reed & McFadden, P.C. in Kansas City,
APPEARS Missouri. Mr. Reed is a member of the American Bar
HERE] Association, the Association of Trial Lawyers of America, the
Missouri Association of Trial Lawyers, the Missouri Bar and
the Kansas City Metropolitan Bar Association. He served in the
Missouri General Assembly from 1972 until 1974. Mr. Reed has
been a director of the Company since 1991 and was first
elected to the Iowa Electric Light and Power Company board in
1967. Mr. Reed serves on the Executive Committee and chairs
the Nominating Committee.
HENRY ROYER, 63 1984
Mr. Royer has been President and Chief Executive Officer of
River City Bank in Sacramento, California since August 1994.
[PHOTO He served as Chairman of the Board and President of Firstar
APPEARS Bank of Cedar Rapids, N.A. from 1983 until 1994. Mr. Royer is
HERE] a director of CRST, Inc., a trucking company in Cedar Rapids,
Iowa and has served on numerous Cedar Rapids community
organization boards. He has been a director of the Company
since 1991 and was first elected to the board of Iowa Electric
Light and Power Company in 1984. Mr. Royer serves on the
Executive Committee and chairs the Compensation Committee.
ROBERT W. SCHLUTZ, 59 1989
Mr. Schlutz is President of Schlutz Enterprises, a diversified
farming and retailing business in Columbus Junction, Iowa. He
is a director of PM Agri-Nutritional Group Inc., an animal
[PHOTO health business, in St. Louis, Missouri and the Iowa
APPEARS Foundation for Agricultural Advancement. Mr. Schlutz is a Vice
HERE] President of the Iowa State Fair Board and a member of various
community organizations. He also served on the National
Advisory Council for the Kentucky Fried Chicken Corporation.
He is a past chairman of the Environmental Protection
Commission for the State of Iowa. Mr. Schlutz has been a
director of the Company since 1991 and was first elected to
the Iowa Southern Inc. board in 1989. Mr. Schlutz serves on
the Audit Committee.
ANTHONY R. WEILER, 58 1979
Mr. Weiler is Senior Vice President, Merchandising, for
Heilig-Meyers Company, a 650 store furniture retailer
headquartered in Richmond, Virginia. Mr. Weiler was previously
Chairman and Chief Executive Officer of Chittenden & Eastman
[PHOTO Company, a national manufacturer of mattresses in Burlington,
APPEARS Iowa. He was with Chittenden & Eastman from 1960 until 1995,
HERE] and held various management positions. Mr. Weiler is President
of the National Home Furnishings Association and a director of
the Retail Home Furnishings Foundation. He is a trustee of
NHFA Insurance and a past director of the Burlington Area
Development Corporation, the Burlington Area Chamber of
Commerce and various community organizations. Mr. Weiler has
been a director of the Company since 1991 and was first
elected to the Iowa Southern Utilities Company board in 1979.
Mr. Weiler serves on the Nominating Committee.
5
<PAGE>
Except as otherwise noted, all nominees have served in their current positions
for five years or more as of the date of this proxy. All other information is
as of January 1, 1995. All nominees are also the current directors of IES
Utilities Inc. ("IES Utilities"), the principal subsidiary of IES Industries.
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 10, 1995 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 OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
------------------------ ------------------------ ----------
<S> <C> <C>
C.R.S. Anderson...................... 19,000 .07%
J. Wayne Bevis....................... 500 (2)
Dr. George Daly...................... 2,000 (2)
Blake O. Fisher, Jr.................. 11,361 .04%
Dr. Robert J. Latham................. 13,024 .05%
G. Sharp Lannom, IV.................. 800 (2)
Lee Liu.............................. 25,620 .09%
Rene H. Males........................ 7,855 .03%
Jack R. Newman....................... 0 (2)
Robert D. Ray........................ 1,500 (2)
David Q. Reed........................ 4,002 .01%
Larry D. Root........................ 13,295 .05%
Henry Royer.......................... 1,657 (2)
Robert W. Schlutz.................... 1,331 (2)
Anthony R. Weiler.................... 2,496 (2)
All listed Executive Officers and
directors of the Company as a group
(15 persons)........................ 104,441 .36%
</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
The Company has a contract with Blue Cross and Blue Shield of Iowa, now known
as IASD Health Services Inc., for administration of its employee health
insurance plan, as it has for many prior years. In 1994, the Company paid
$294,660 to Blue Cross and Blue Shield of Iowa. As previously stated, Mr. Ray
is President and Chief Executive Officer of the insurance company.
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 current members served on this
Committee during 1994. The Committee met twice during 1994. 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.
6
<PAGE>
Current members of the Audit Committee are C.R.S. Anderson, Chairman; J.
Wayne Bevis; Robert D. Ray and Robert W. Schlutz. The current members served on
this Committee during 1994. The Committee met twice during 1994. 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 current members served on this
Committee during 1994. The Committee met twice during 1994. 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 Jack R. Newman. Dr. Salomon Levy was a
member of the Committee until May 17, 1994. Mr. Newman was appointed to the
Committee on August 2, 1994. The other current members served on this Committee
during 1994. The Committee met three times during 1994. 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 1994. The various committees of the
Board met an aggregate of nine times. All of the directors, except G. Sharp
Lannom, IV, attended 75% or more of these meetings. Mr. Lannom attended 83% of
the Board meetings and 33% of the Compensation Committee meetings.
COMPENSATION OF DIRECTORS
Non-employee directors of IES Industries receive fees of $12,000 per year
plus $700 per meeting attended. Non-employee directors also receive $700 per
committee meeting attended. If a Committee meeting is the same day as a meeting
of the Board of Directors or if a Committee meeting is by telephone conference,
each participating non-employee director receives $350, one-half the regular
Committee meeting fee. 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 do not receive any fees for attendance at Board
meetings or meetings of committees of which they are members. Robert F. Brewer
and Dr. Salomon Levy, who served as directors until May 17, 1994, will serve as
emeritus directors of the Company until May 16, 1995. As emeritus directors,
Mr. Brewer received meeting fee payments of $2,800 and Dr. Levy received
meeting fee payments of $700 in 1994.
Under the Director Retirement Plan, the Company provides a retirement or
death benefit to directors, including directors who are employees of the
Company, 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, with a maximum payment period of eight years. Mr. Brewer and
Dr. Levy each received payments of $8,000 under the Director Retirement Plan in
1994.
S. Levy, Incorporated, an engineering and management consulting firm of which
Dr. Salomon Levy, a director until May 17, 1994, is Chairman, performed
consulting services for IES Utilities in 1994 for which it was paid $205,398.
Dr. Levy has retired as Chief Executive Officer of S. Levy, Incorporated and
does not participate in the day to day management of the company. 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 1995. Dr. Salomon
Levy was appointed as the Nuclear Advisor to the Board of Directors on May 17,
1994 and was paid $2,824 in 1994 for his services as Nuclear Advisor. Dr. Levy
also serves on the IES Utilities Nuclear Safety Committee.
7
<PAGE>
Director Jack R. Newman has served as nuclear legal counsel to the Company
since 1968. The law firm of which Mr. Newman is a Partner went through two
reorganizations in 1994. The law firm Newman & Holtzinger was paid $79,825; the
law firm Newman, Bouknight & Edgar was paid $326,250 for a total payment to Mr.
Newman's law firms for legal services in 1994 of $406,075. Mr. Newman's current
firm, Morgan, Lewis & Bockius, did not perform any legal services for the
Company in 1994, but is expected to provide legal services to the Company in
1995.
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 $13 per
director. No director received any payments under such policy in 1994.
<PAGE>
The following table shows, for the fiscal years ending December 31, 1992-
1994, 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
----------------------------- ----------------
NAME AND PRINCIPAL RESTRICTED STOCK ALL OTHER
POSITION(1) YEAR SALARY BONUS(3) OTHER(4) AWARDS(5) COMPENSATION(6)
------------------ ---- -------- -------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Lee Liu--Chairman of the
Board, 1994 $324,375 $161,798 $1,114 * $13,604
President & Chief 1993 307,450(2) 157,500 1,625 $237,341 10,571
Executive Officer 1992 298,600(2) 71,250 798 186,750 9,518
---------------------------------------------------------------------------------------------
Blake O. Fisher, Jr.-- 1994 210,060 88,800 160 * 7,138
Executive Vice
President & 1993 212,475(2) 81,974 720 74,049 4,392
Chief Financial Officer 1992 204,959(2) 50,000 386 32,868 3,070
---------------------------------------------------------------------------------------------
Larry D. Root-- 1994 197,765 70,935 483 * 7,820
Executive Vice
President 1993 200,694(2) 77,176 2,168 69,724 5,948
1992 194,069(2) 37,724 1,051 28,355 6,748
---------------------------------------------------------------------------------------------
Rene H. Males-- 1994 162,750 57,534 1,761 -- 4,910
Executive Vice
President 1993 179,024(2) 65,100 404 -- 25,817
1992 179,218(2) 22,800 94 -- 901
---------------------------------------------------------------------------------------------
Robert J. Latham-- 1994 133,269 31,204 561 * 4,202
Senior Vice President, 1993 112,582 31,984 1,864 19,518 2,789
Finance 1992 108,251 21,746 930 8,746 3,368
</TABLE>
10
<PAGE>
--------
* The grants of restricted stock pursuant to the long-term incentive plan
for the 1994 plan year have not been determined as of the date of this
Proxy Statement. See footnote (5) below for a discussion of restricted
stock awards.
(1) Mr. Males is not an officer of the registrant, but is an officer of IES
Utilities Inc., a wholly-owned subsidiary of the registrant.
(2) The amounts reported as salary include director's fees and payments in lieu
of director's fees for each of Messrs. Liu, Fisher, Root and Males, of
$11,200 in 1993, and $13,600 in 1992.
(3) The Company does not pay bonuses. The amounts listed represent plan year
awards pursuant to the Management Incentive Compensation Plan, the
Company's annual incentive plan, with cash payment made in the subsequent
calendar year.
(4) The 1994 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.
(5) The awards of restricted stock have been made on the first day of June
since 1988, with one-third of the award being restricted for one year, one-
third being restricted for two years and one-third being restricted for
three years. In addition, in December 1992 and June 1993, Mr. Liu received
grants of 4,000 shares, and in June 1994, Mr. Liu received a grant of 3,000
shares, all of which will vest at retirement. Restricted stock is
considered outstanding upon award 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 awards based upon closing price
of IES Industries Common Stock on the award date. The award date is in the
calendar year following the plan year. At December 31, 1994, the listed
officers had restricted stock for which restrictions had not lapsed (based
upon the December 30, 1994 closing price of IES Industries Common Stock) as
follows:
<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
Lee Liu................................................... 19,669 $496,642
Blake O. Fisher, Jr....................................... 3,709 93,652
Larry D. Root............................................. 3,654 92,264
Rene H. Males............................................. -- --
Robert J. Latham.......................................... 1,080 27,270
</TABLE>
No stock options nor stock appreciation rights have been awarded to the
Executive Officers listed above.
(6) Amounts shown for 1994 represent: (a) contributions by the Company to the
applicable employee savings plan in the following amounts: Mr. Liu--$5,510,
Mr. Fisher--$4,999, Mr. Root--$4,700, Mr. Males--$3,323 and Dr. Latham--
$2,954; and (b) amounts included in W-2 earnings for life insurance
coverage in excess of $50,000 in the following amounts: Mr. Liu--$8,094,
Mr. Fisher--$2,139, Mr. Root--$3,120, Mr. Males--$1,587, and Dr. Latham--
$1,248.
<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
SALARY (RENUMERATION) BENEFITS 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 26,307 35,076 43,846 52,615 61,384
150,000 31,932 42,576 53,221 63,865 74,509
175,000 37,182 49,701 62,221 74,740 87,259
200,000 42,432 56,826 71,221 85,615 100,009
225,000 47,682 63,951 80,221 96,490 112,759
250,000 48,516 65,084 81,651 98,218 114,785
300,000 48,516 65,084 81,651 98,218 114,785
400,000 48,516 65,084 81,651 98,218 114,785
450,000 48,516 65,084 81,651 98,218 114,785
500,000 48,516 65,084 81,651 98,218 114,785
</TABLE>
For 1994, $118,800 is the maximum benefits allowable under the retirement
plans prescribed by Section 415 of the Internal Revenue Code. The 1995 maximum
is $120,000.
With respect to the officers named in the Summary Compensation Table, the
renumeration for retirement plan purposes would be substantially the same as
that shown as "Salary". As of December 31, 1994, the officers had accredited
years of service for the retirement plan as follows: Lee Liu, 37 years; Blake
O. Fisher, Jr., 4 years; Larry D. Root, 24 years; and Robert J. Latham, 11
years.
Supplemental Retirement Plans: IES Industries has a non-qualified
Supplemental Retirement Plan ("SRP") for eligible officers of IES Industries
and IES Utilities which includes Messrs. Fisher & Latham. The plan provides for
payment of supplemental retirement benefits equal to 69% 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.
16
<PAGE>
The following table shows the estimated aggregate annual benefits payable
under the Supplemental Retirement Plan equal to 69% of the officer's base
salary in effect at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
69% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL ---------------------------------------------------------------------------
SALARY 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000 59,943 51,174 42,404 33,635 24,866
150,000 71,568 60,924 50,279 39,635 28,991
175,000 83,568 71,049 58,529 46,010 33,491
200,000 95,568 81,174 66,779 52,385 37,991
225,000 107,568 91,299 75,029 58,760 42,491
250,000 123,984 107,416 90,849 74,282 57,715
300,000 158,484 141,916 125,349 108,782 92,215
400,000 227,484 210,916 194,349 177,782 161,215
450,000 261,984 245,416 228,849 212,282 195,715
500,000 296,484 279,916 263,349 246,782 230,215
</TABLE>
Messrs. Liu and Root have elected to continue under supplemental retirement
agreements previously provided to them by the Company with provisions for
payment of benefits equal to 75% 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. The remaining provisions of these agreements
are identical to the Supplemental Retirement Plan discussed above.
The following table shows the estimated aggregate annual benefits payable
under the Supplemental Retirement Plan equal to 75% of the officer's base
salary in effect at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
75% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL ---------------------------------------------------------------------------
SALARY 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000 67,443 58,674 49,904 41,135 32,366
150,000 80,568 69,924 59,279 48,635 37,991
175,000 94,068 81,549 69,029 56,510 43,991
200,000 107,568 93,174 78,779 64,385 49,991
225,000 121,068 104,799 88,529 72,260 55,991
250,000 138,984 122,416 105,849 89,282 72,715
300,000 176,484 159,916 143,349 126,782 110,215
400,000 251,484 234,916 218,349 201,782 185,215
450,000 288,984 272,416 255,849 239,282 222,715
500,000 326,484 309,916 293,349 276,782 260,215
</TABLE>
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% 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.
17
<PAGE>
The following table shows the estimated aggregate annual benefits payable
under the Supplemental Retirement Plan equal to 65% of the officer's base
salary in effect at the date of retirement:
IES INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT PLAN PAYMENTS
65% SRP BENEFIT
<TABLE>
<CAPTION>
SERVICE YEARS
FINAL ANNUAL ---------------------------------------------------------------------------
SALARY 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
125,000 54,943 46,174 37,404 28,635 19,866
150,000 65,568 54,924 44,279 33,635 22,991
175,000 76,568 64,049 51,529 39,010 26,491
200,000 87,568 73,174 58,779 44,385 29,991
225,000 98,568 82,299 66,029 49,760 33,491
250,000 113,984 97,416 80,849 64,282 47,715
300,000 146,484 129,916 113,349 96,782 80,215
400,000 211,484 194,916 178,349 161,782 145,215
450,000 243,984 227,416 210,849 194,282 177,715
500,000 276,484 259,916 243,349 226,782 210,215
</TABLE>
Executive Guaranty Plan: IES Industries Board has approved an Executive
Guaranty Plan (the "Guaranty Plan") for 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, 1994, guarantees of $82,891, $53,060 and $50,000,
were outstanding for Messrs. Liu, Root and Fisher, 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 and Latham. IE Industries' merger with Iowa Southern
constituted a change of control of IE Industries for purposes of these
agreements. Accordingly, if an Executive Officer was terminated within a three-
year period following the consummation of the merger, July 1, 1991, the
surviving corporation (IES Industries) would have been required to continue the
Executive Officer's salary and provide certain other benefits as described
below. No Executive Officer was terminated during this three year period. These
agreements were updated in 1994 for Messrs. Root, Fisher and Latham and the
other executive officers to coordinate these agreements with the Supplemental
Retirement Plan. In addition, the Company entered into agreements with three
additional executive officers. The 1991 agreement for Mr. Liu is still in
effect. 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
18
<PAGE>
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, 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 signed in 1991
was effective for three years following execution and is deemed thereafter to
be extended automatically for one-year periods unless the IES Industries Board
terminates such agreement. The 1994 agreements are effective for one year
following execution and are deemed thereafter to be extended automatically for
one-year periods unless the IES Industries Board terminates such agreements.
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, 1994, Mr. Males has four 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
SALARY (REMUNERATION) BENEFITS 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 26,307 35,076 43,846 52,615 61,384
150,000 31,932 42,576 53,221 63,865 74,509
175,000 37,182 49,701 62,221 74,740 87,259
200,000 42,432 56,826 71,221 85,615 100,009
225,000 47,682 63,951 80,221 96,490 112,759
250,000 48,516 65,084 81,651 98,218 114,785
300,000 48,516 65,084 81,651 98,218 114,785
400,000 48,516 65,084 81,651 98,218 114,785
450,000 48,516 65,084 81,651 98,218 114,785
500,000 48,516 65,084 81,651 98,218 114,785
</TABLE>
For 1994, $118,800 is the maximum benefits allowable under the retirement
plans prescribed by Section 415 of the Internal Revenue Code. The 1995 maximum
is $120,000.
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 were generally as
follows: a lump sum payment equal to the executives' 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 was entitled
to continuation of life and health insurance coverage during the payment period
and reimbursement of certain other expenses. No senior executive was terminated
under these agreements. The only agreement still in effect is with Mr. Males.
19
<PAGE>
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
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
IE Industries Inc. and Iowa Electric Light and Power Company, the predecessor
companies of 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"). To date, neither party has
given such notice. 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
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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 1994 transactions 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.
