UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to_______________
Commission file number 0-4117-1
IES UTILITIES INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0331370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
IES Tower, Cedar Rapids, Iowa 52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (319) 398-4411
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
Common Stock, $2.50 par value 13,370,788 shares
IES UTILITIES INC.
INDEX
Page No.
Part I. Financial Information.
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3 - 4
Consolidated Statements of Income -
Three, Nine and Twelve Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Three, Nine and Twelve Months Ended
September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7 - 18
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition. 19 - 41
Part II. Other Information. 42 - 46
Signatures. 47
PART 1. - FINANCIAL INFORMATION
ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
Electric $ 1,949,085 $ 1,900,157
Gas 171,050 165,825
Other 109,924 106,396
2,230,059 2,172,378
Less - Accumulated depreciation 1,020,070 950,324
1,209,989 1,222,054
Leased nuclear fuel, net of amortization 36,525 36,935
Construction work in progress 90,191 52,772
1,336,705 1,311,761
Other, net of accumulated depreciation
and amortization of $1,334,000 and
$1,166,000, respectively 5,145 5,477
1,341,850 1,317,238
Current assets:
Cash and temporary cash investments 1,102 2,734
Accounts receivable -
Customer, less reserve 5,275 18,619
Other 8,816 8,912
Income tax refunds receivable 1,633 846
Production fuel, at average cost 14,224 12,155
Materials and supplies, at average cost 21,536 27,229
Adjustment clause balances 750 0
Regulatory assets 24,351 22,791
Prepayments and other 16,830 18,556
94,517 111,842
Investments:
Nuclear decommissioning trust funds 54,870 47,028
Cash surrender value of life insurance
policies 4,089 3,582
Other 421 475
59,380 51,085
Other assets:
Regulatory assets 212,753 207,202
Deferred charges and other 22,213 21,268
234,966 228,470
$ 1,730,713 $ 1,708,635
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
1996 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1995
(in thousands)
Capitalization:
Common stock - par value $2.50 per share -
authorized 24,000,000 shares;
13,370,788 shares outstanding $ 33,427 $ 33,427
Paid-in surplus 279,042 279,042
Retained earnings 219,206 212,522
Total common equity 531,675 524,991
Cumulative preferred stock - par value
$50 per share - authorized 466,406
shares; 366,354 shares outstanding 18,320 18,320
Long-term debt (excluding current portion) 517,279 465,463
1,067,274 1,008,774
Current liabilities:
Notes payable to associated companies 4,230 8,888
Other short-term borrowings 78,000 101,000
Capital lease obligations 13,523 15,717
Maturities and sinking funds 8,140 15,140
Accounts payable 50,945 64,564
Accrued interest 8,715 8,038
Accrued taxes 59,457 50,369
Accumulated refueling outage provision 14,441 7,690
Adjustment clause balances 0 3,148
Environmental liabilities 5,418 5,521
Other 18,991 17,300
261,860 297,375
Long-term liabilities:
Pension and other benefit obligations 42,463 41,866
Capital lease obligations 23,002 21,218
Environmental liabilities 39,392 40,905
Other 7,310 8,719
112,167 112,708
Deferred credits:
Accumulated deferred income taxes 254,281 252,663
Accumulated deferred investment tax credits 35,131 37,115
289,412 289,778
Commitments and contingencies (Note 6)
$ 1,730,713 $ 1,708,635
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
For the For the For the
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
1996 1995 1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Electric $ 173,626 $ 183,876 $ 436,027 $ 433,502 $ 562,996 $ 558,219
Gas 12,169 14,214 103,854 89,241 151,906 127,767
Other 4,375 2,358 13,296 8,216 17,143 10,829
190,170 200,448 553,177 530,959 732,045 696,815
Operating expenses:
Fuel for production 29,148 31,945 72,168 71,691 96,733 89,576
Purchased power 18,655 19,954 55,125 53,399 68,600 74,061
Gas purchased for resale 5,034 7,940 64,445 59,527 96,116 85,481
Other operating expenses 37,594 35,798 112,506 102,854 154,902 138,620
Maintenance 13,192 11,912 37,516 34,202 46,901 47,972
Depreciation and amortization 21,908 19,315 65,957 60,632 84,709 78,667
Taxes other than income taxes 11,386 12,224 34,996 36,955 43,054 45,952
136,917 139,088 442,713 419,260 591,015 560,329
Operating income 53,253 61,360 110,464 111,699 141,030 136,486
Interest expense and other:
Interest expense 11,466 11,242 33,346 33,432 44,375 43,988
Allowance for funds used during
construction -761 -762 -2,141 -2,662 -2,904 -3,608
Miscellaneous, net 6,230 -244 5,090 348 5,597 -528
16,935 10,236 36,295 31,118 47,068 39,852
Income before income taxes 36,318 51,124 74,169 80,581 93,962 96,634
Income taxes:
Current 15,132 21,463 33,487 24,441 42,513 31,096
Deferred 1,834 486 1,296 11,083 527 9,863
Amortization of investment
tax credits -661 -667 -1,984 -2,012 -2,658 -2,673
16,305 21,282 32,799 33,512 40,382 38,286
Net income 20,013 29,842 41,370 47,069 53,580 58,348
Preferred dividend requirements 229 229 686 686 914 914
Net income available for
common stock $ 19,784 $ 29,613 $ 40,684 $ 46,383 $ 52,666 $ 57,434
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Three For the Nine For the Twelve
Months Ended Months Ended Months Ended
September 30 September 30 September 30
1996 1995 1996 1995 1996 1995
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,013 $ 29,842 $ 41,370 $ 47,069 $ 53,580 $ 58,348
Adjustments to reconcile net income to net
cash flows from operating activities -
Depreciation and amortization 21,908 19,315 65,957 60,632 84,709 78,667
Amortization of principal under capital
lease obligations 4,945 4,934 14,195 10,801 19,108 14,463
Deferred taxes and investment
tax credits 1,173 -181 -688 9,071 -2,131 7,190
Refueling outage provision 1,831 3,006 6,751 -9,954 9,199 -6,807
Amortization of other assets 2,041 2,107 7,191 4,789 9,845 5,429
Other 13 -196 -24 -558 657 -1,057
Other changes in assets and liabilities -
Accounts receivable 5,466 -6,675 6,440 -2,130 -1,146 -6,879
Production fuel, materials and supplies -1,118 839 -190 -2,092 3,560 -3,247
Accounts payable 2,353 -343 -11,075 -19,302 3,832 6,082
Accrued taxes 21,259 32,419 8,301 26,399 -12,313 11,419
Provision for rate refunds -43 2,759 -106 12,966 -12,966 12,966
Adjustment clause balances -3,559 -7 -3,898 1,903 -1,220 969
Gas in storage -8,280 -4,737 965 4,587 -1,193 3,543
Other -2,816 -2,438 1,607 2,481 -2,058 1,213
Net cash flows from operating activities 65,186 80,644 136,796 146,662 151,463 182,299
Cash flows from financing activities:
Dividends declared on common stock -12,000 -10,000 -34,000 -33,000 -44,000 -48,000
Dividends declared on preferred stock -229 -229 -686 -686 -914 -914
Proceeds from issuance of long-term debt 60,000 0 60,000 50,000 110,000 50,000
Reductions in long-term debt -15,000 0 -15,140 -50,140 -65,140 -50,140
Net change in short-term borrowings -47,345 -33,977 -27,658 3,309 23,426 56,196
Principal payments under capital
lease obligations -4,626 -3,314 -14,162 -9,529 -19,096 -13,608
Sale of utility accounts receivable 0 9,000 7,000 11,000 0 12,000
Other -182 0 -354 0 -2,056 0
Net cash flows from financing activities -19,382 -38,520 -25,000 -29,046 2,220 5,534
Cash flows from investing activities:
Construction and acquisition expenditures -
Utility -39,701 -31,669 -97,084 -89,664 -133,524 -154,200
Other -2 -805 -344 -2,782 -902 -4,645
Deferred energy efficiency expenditures -3,887 -4,987 -12,643 -12,965 -17,708 -17,611
Nuclear decommissioning trust funds -1,502 -1,832 -4,506 -4,598 -6,008 -5,981
Other 272 -1,888 1,149 -7,318 3,137 -3,172
Net cash flows from investing activities -44,820 -41,181 -113,428 -117,327 -155,005 -185,609
Net increase (decrease) in cash and temporary
cash investments 984 943 -1,632 289 -1,322 2,224
Cash and temporary cash investments at
beginning of period 118 1,481 2,734 2,135 2,424 200
Cash and temporary cash investments at
end of period $ 1,102 $ 2,424 $ 1,102 $ 2,424 $ 1,102 $ 2,424
Supplemental cash flow information:
Cash paid during the period for -
Interest $ 10,866 $ 8,428 $ 30,443 $ 30,500 $ 44,511 $ 41,842
Income taxes $ 3,921 $ 1,498 $ 35,489 $ 12,881 $ 51,691 $ 25,312
Noncash investing and financing activities -
Capital lease obligations incurred $ 939 $ 149 $ 13,785 $ 2,807 $ 13,896 $ 5,851
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1996
(1) GENERAL:
The interim Consolidated Financial Statements have been prepared by
IES Utilities Inc. (Utilities) and its consolidated subsidiaries
(collectively the Company), without audit, pursuant to the rules and
regulations of the United States Securities and Exchange Commission
(SEC). Utilities is a wholly-owned subsidiary of IES Industries Inc.
(Industries). Utilities' wholly-owned subsidiary is IES Ventures Inc.
(Ventures), which is a holding company for unregulated investments.
Utilities is engaged principally in the generation, transmission,
distribution and sale of electric energy and the purchase, distribution,
transportation and sale of natural gas. The Company's principal markets
are located in the state of Iowa.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of the Company, the Consolidated Financial
Statements include all adjustments, which are normal and recurring in
nature, necessary for the fair presentation of the results of operations
and financial position. Certain prior period amounts have been
reclassified on a basis consistent with the 1996 presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect: 1) the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and 2) the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
It is suggested that these Consolidated Financial Statements be
read in conjunction with the Consolidated Financial Statements and the
notes thereto included in the Company's Form 10-K for the year ended
December 31, 1995. The accounting and financial policies relative to
the following items have been described in those notes and have been
omitted herein because they have not changed materially through the date
of this report:
Summary of significant accounting policies
Leases
Utility accounts receivable (other than discussed in Note 4)
Income taxes
Benefit plans
Preferred and preference stock
Debt (other than discussed in Note 5)
Estimated fair value of financial instruments
Commitments and contingencies (other than discussed in Note 6)
Jointly-owned electric utility plant
Segments of business
(2) POTENTIAL BUSINESS COMBINATIONS:
(a) Proposed Merger of Industries -
Industries, WPL Holdings, Inc. (WPLH) and Interstate Power Company
(IPC) have entered into an Agreement and Plan of Merger (Merger
Agreement), dated November 10, 1995, as amended, providing for: a) IPC
becoming a wholly-owned subsidiary of WPLH, and b) the merger of
Industries with and into WPLH, which merger will result in the
combination of Industries and WPLH as a single holding company
(collectively, the Proposed Merger). The new holding company will be
named Interstate Energy Corporation (Interstate Energy), and Industries
will cease to exist. Each holder of Industries common stock will
receive 1.14 shares of Interstate Energy common stock for each share of
Industries common stock. The Proposed Merger, which will be accounted
for as a pooling of interests, has been approved by the respective
Boards of Directors and by the shareholders of each company. It is
still subject to approval by several federal and state regulatory
agencies. The companies expect to receive such regulatory approvals by
the summer of 1997. The corporate headquarters of Interstate Energy
will be in Madison, Wisconsin.
The business of Interstate Energy will consist of utility
operations and various non-utility enterprises. The utility
subsidiaries currently serve approximately 870,000 electric customers
and 360,000 natural gas customers in Iowa, Wisconsin, Illinois and
Minnesota.
(b) Unsolicited Acquisition Proposal -
On August 5, 1996, MidAmerican Energy Company (MAEC), an electric
and natural gas utility company based in Des Moines, Iowa, announced
that it had made an unsolicited offer to acquire Industries in a cash
and stock transaction. Industries' Board of Directors rejected MAEC's
offer and the shareholders of Industries subsequently approved the
Proposed Merger, thereby also rejecting MAEC's offer.
(3) RATE MATTERS:
(a) 1995 Gas Rate Case -
On August 4, 1995, Utilities applied to the Iowa Utilities Board
(IUB) for an annual increase in gas rates of $8.8 million, or 6.2%. An
interim increase of $8.6 million was requested and the IUB,
subsequently, approved an interim increase of $7.1 million annually,
effective October 11, 1995, subject to refund. On April 4, 1996, the
IUB issued an order approving a settlement agreement entered into by
Utilities, the Office of Consumer Advocate and all three industrial
intervenor groups, which allowed Utilities a $6.3 million annual
increase. Utilities subsequently filed final compliance tariffs which
became effective on May 30, 1996. Primarily because of changes in rate
design, there was a refund obligation of approximately $43,000 which was
made in the third quarter of 1996.
(b) Electric Price Announcements -
Utilities and its Iowa-based proposed merger partner, IPC,
announced in April their intentions to hold retail electric prices to
their current levels until at least January 1, 2000. The companies made
the proposal as part of their testimony in the merger-related
application filed with the IUB; the application was later withdrawn and
will be resubmitted in either the fourth quarter of 1996 or the first
quarter of 1997 and the companies intend to include the same proposal in
the resubmittal of the filing. The proposal excludes price changes due
to government-mandated programs, such as energy efficiency cost
recovery, or unforeseen dramatic changes in operations.
Utilities, Wisconsin Power and Light Company (the utility
subsidiary of WPLH) and IPC also agreed to freeze their wholesale
electric prices for four years from the effective date of the merger as
part of their merger filing with the Federal Energy Regulatory
Commission (FERC). The Company does not expect the merger-related
electric price proposals to have a material adverse effect on its
financial position or results of operations.
(c) Energy Efficiency Cost Recovery -
Current IUB rules mandate Utilities to spend 2% of electric and
1.5% of gas gross retail operating revenues for energy efficiency
programs. Under provisions of the IUB rules, Utilities is currently
recovering the energy efficiency costs incurred through 1993 for such
programs, including its direct expenditures, carrying costs, a return on
its expenditures and a reward. These costs are being recovered over a
four-year period and the recovery began on June 1, 1995. In December
1996, under provisions of the IUB rules, the Company will file for
recovery of the costs relating to its 1994 and 1995 programs.
Iowa statutory changes enacted in 1996, and applicable to future
programs once the legislation is adopted by the IUB, have eliminated
both: 1) the 2% and 1.5% spending requirements described above in favor
of IUB-determined energy savings targets and 2) the delay in recovery of
energy efficiency costs by allowing recovery which is concurrent with
spending. This will eventually eliminate the regulatory asset which
exists under the current rate making mechanism.
(4) UTILITY ACCOUNTS RECEIVABLE:
Utilities has entered into an agreement, which expires in 1999,
with a financial institution to sell, with limited recourse, an
undivided fractional interest of up to $65 million in its pool of
utility accounts receivable. At September 30, 1996, $65 million was
sold under the agreement.
(5) DEBT:
(a) Long-Term Debt -
In September 1996, Utilities repaid at maturity $15 million of
Series J, 6.25% First Mortgage Bonds and, in a separate transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.
(b) Short-Term Debt -
At September 30, 1996, the Company had bank lines of credit
aggregating $121.1 million, of which $78 million was being used to
support commercial paper (weighted average interest rate of 5.47%) and
$11.1 million to support certain pollution control obligations.
Commitment fees are paid to maintain these lines and there are no
conditions which restrict the unused lines of credit. In addition to
the above, Utilities has an uncommitted credit facility with a financial
institution whereby it can borrow up to $40 million. Rates are set at
the time of borrowing and no fees are paid to maintain this facility.
At September 30, 1996, there were no borrowings outstanding under this
facility.
(6) CONTINGENCIES:
(a) Environmental Liabilities -
The Company has recorded environmental liabilities of approximately
$45 million in its Consolidated Balance Sheets at September 30, 1996.
The significant items are discussed below.
Former Manufactured Gas Plant (FMGP) Sites
Utilities has been named as a Potentially Responsible Party (PRP)
by various federal and state environmental agencies for 28 FMGP sites,
but believes it is not responsible for two of these sites based on
extensive reviews of the ownership records and historical information
available for the two sites. Utilities has notified the appropriate
regulatory agency that it believes it does not have any responsibility
as relates to these two sites, but no response has been received from
the agency on this issue. Utilities is also aware of six other sites
that it may have owned or operated in the past and for which, as a
result, it may be designated as a PRP in the future in the event that
environmental concerns arise at these sites. Utilities is working
pursuant to the requirements of the various agencies to investigate,
mitigate, prevent and remediate, where necessary, damage to property,
including damage to natural resources, at and around the sites in order
to protect public health and the environment. Utilities believes it has
completed the remediation of seven sites although it is in the process
of obtaining final approval from the applicable environmental agencies
on this issue for each site. Utilities is in various stages of the
investigation and/or remediation processes for the remaining 19 sites
and estimates the range of additional costs to be incurred for
investigation and/or remediation of the sites to be approximately $22
million to $54 million.
Utilities has recorded environmental liabilities related to the
FMGP sites of approximately $34 million (including $4.6 million as
current liabilities) at September 30, 1996. These amounts are based
upon Utilities' best current estimate of the amount to be incurred for
investigation and remediation costs for those sites where the
investigation process has been or is substantially completed, and the
minimum of the estimated cost range for those sites where the
investigation is in its earlier stages. 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; in
addition, Utilities may be required to monitor these sites for a number
of years upon completion of remediation, as is the case with several of
the sites for which remediation has been completed.
In April 1996, Utilities filed a lawsuit against certain of its
insurance carriers seeking reimbursement for investigation, mitigation,
prevention, remediation and monitoring costs associated with the FMGP
sites. Settlement discussions are proceeding between Utilities and its
insurance carriers regarding the recovery of these FMGP-related costs.
The amount of aggregate potential recovery, or the regulatory treatment
of any such recoveries, cannot be reasonably determined at this time
and, accordingly, no estimated amounts have been recorded at September
30, 1996. Regulatory assets of approximately $34 million, which reflect
the future recovery that is being provided through Utilities' rates,
have been recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes that the
clean-up costs incurred by Utilities for these FMGP sites will not have
a material adverse effect on its financial position or results of
operations.
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 Duane Arnold Energy Center
(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, $10.7 million payable through 2007, has been recorded as a
liability in the Consolidated Balance Sheets, including $0.8 million
included in "Current liabilities - Environmental liabilities," with a
related regulatory asset for the unrecovered amount.
(b) Air Quality Issues -
The Clean Air Act Amendments of 1990 (Act) requires emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve
reductions of atmospheric chemicals believed to cause acid rain. The
provisions of the Act are being implemented in two phases; the Phase I
requirements have been met and the Phase II requirements affect eleven
other fossil units beginning in the year 2000. Utilities expects to
meet the requirements of Phase II by switching to lower sulfur fuels,
capital expenditures primarily related to fuel burning equipment and
boiler modifications, and the possible purchase of SO2 allowances.
Utilities estimates capital expenditures at approximately $23.5 million,
including $7.4 million in 1996 (of which $4.1 million was expended as of
September 30, 1996), in order to meet the acid rain requirements of the
Act.
The acid rain program under the Act also governs SO2 allowances.
An allowance is defined as an authorization for an owner to emit one ton
of SO2 into the atmosphere. Currently, Utilities receives a sufficient
number of allowances annually to offset its emissions of SO2 from its
Phase I units. It is anticipated that in the year 2000, Utilities may
have an insufficient number of allowances annually to offset its
estimated emissions and may have to purchase additional allowances, or
make modifications to the plants or limit operations to reduce
emissions. Utilities is reviewing its options to ensure that it will
have sufficient allowances to offset its emissions in the future.
Utilities believes that the potential cost of ensuring sufficient
allowances will not have a material adverse effect on its financial
position or results of operations.
The Act and other federal laws also require the United States
Environmental Protection Agency (EPA) to study and regulate, if
necessary, additional issues that potentially affect the electric
utility industry, including emissions relating to NOx, ozone transport,
mercury and particulate control; toxic release inventories and
modifications to the PCB rules. Currently, the impacts of these
potential regulations are too speculative to quantify.
In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case modeling method suggests that the Cedar Rapids area could be
classified as "nonattainment" for the National Ambient Air Quality
Standard (NAAQS) established for SO2. The worst-case modeling study
suggested that two of Utilities' generating facilities contribute to the
modeled exceedences and recommended that additional monitors be located
near Utilities' sources to assess actual ambient air quality. In the
event that Utilities' facilities contribute excessive emissions,
Utilities would be required to reduce emissions, which would primarily
entail capital expenditures for modifications to the facilities.
Utilities is currently exploring its options to modify one of its fossil
generating facilities to reduce SO2 emissions. Utilities is proposing
to resolve the remainder of EPA's nonattainment concerns by installing a
new stack at the other generating facility contributing to the modeled
exceedences at a potential aggregate capital cost of up to $4.5 million
over the next four years.
(c) FERC Order No. 636 -
Pursuant to FERC Order No. 636 (Order 636), which transitions the
natural gas supply business to a less regulated environment, Utilities
has enhanced access to competitively priced gas supply and more flexible
transportation services. However, under Order 636, Utilities is
required to pay certain transition costs incurred and billed by its
pipeline suppliers.
Utilities began paying the transition costs in 1993 and at
September 30, 1996, has recorded a liability of $4.2 million for those
transition costs that have been incurred, but not yet billed, by the
pipelines to date, including $2.0 million expected to be billed through
September 1997. 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 $4.1 million. The ultimate level of costs to be billed to
Utilities depends on the pipelines' future 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.
(d) Nuclear Insurance Programs -
Public liability for nuclear accidents is governed by the Price
Anderson Act of 1988 which sets a statutory limit of $8.9 billion for
liability to the public for a single nuclear power plant incident and
requires nuclear power plant operators to provide financial protection
for this amount. As required, Utilities provides this financial
protection for a nuclear incident at the DAEC through a combination of
liability insurance ($200 million) and industry-wide retrospective
payment plans ($8.7 billion). Under the industry-wide plan, each
operating licensed nuclear reactor in the United States is subject to an
assessment in the event of a nuclear incident at any nuclear plant in
the United States. Based on its ownership of the DAEC, Utilities could
be assessed a maximum of $79.3 million per nuclear incident, with a
maximum of $10 million per incident per year (of which Utilities' 70%
ownership portion would be approximately $55 million and $7 million,
respectively) if losses relating to the incident exceeded $200 million.
These limits are subject to adjustments for changes in the number of
participants and inflation in future years.
Utilities is a member of Nuclear Mutual Limited (NML) and Nuclear
Electric Insurance Limited (NEIL). These companies provide $1.9 billion
of insurance coverage on certain property losses at DAEC for property
damage, decontamination and premature decommissioning. The proceeds
from such insurance, however, must first be used for reactor
stabilization and site decontamination before they can be used for plant
repair and premature decommissioning. NEIL also provides separate
coverage for the cost of replacement power during certain outages.
Owners of nuclear generating stations insured through NML and NEIL are
subject to retroactive premium adjustments if losses exceed accumulated
reserve funds. NML and NEIL's accumulated reserve funds are currently
sufficient to more than cover its exposure in the event of a single
incident under the primary and excess property damage or replacement
power coverages. However, Utilities could be assessed annually a maximum
of $3.0 million under NML, $9.8 million for NEIL property and $0.7
million for NEIL replacement power if losses exceed the accumulated
reserve funds. Utilities is not aware of any losses that it believes
are likely to result in an assessment.
In the unlikely event of a catastrophic loss at DAEC, the amount of
insurance available may not be adequate to cover property damage,
decontamination and premature decommissioning. Uninsured losses, to the
extent not recovered through rates, would be borne by Utilities and
could have a material adverse effect on Utilities' financial position
and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Consolidated Financial Statements include the accounts of IES
Utilities Inc. (Utilities) and its consolidated subsidiaries
(collectively the Company). Utilities is a wholly-owned subsidiary of
IES Industries Inc. (Industries). Utilities' wholly-owned subsidiary is
IES Ventures Inc. (Ventures), which is a holding company for unregulated
investments.
POTENTIAL BUSINESS COMBINATIONS
(a) Proposed Merger of Industries -
Industries, WPL Holdings, Inc. (WPLH) and Interstate Power Company
(IPC) have entered into an Agreement and Plan of Merger (Merger
Agreement), dated November 10, 1995, as amended, providing for: a) IPC
becoming a wholly-owned subsidiary of WPLH, and b) the merger of
Industries with and into WPLH, which merger will result in the
combination of Industries and WPLH as a single holding company
(collectively, the Proposed Merger). The new holding company will be
named Interstate Energy Corporation (Interstate Energy), and Industries
will cease to exist. Each holder of Industries common stock will
receive 1.14 shares of Interstate Energy common stock for each share of
Industries common stock. The Proposed Merger, which will be accounted
for as a pooling of interests, has been approved by the respective
Boards of Directors and by the shareholders of each company. It is
still subject to approval by several federal and state regulatory
agencies. The companies expect to receive such regulatory approvals by
the summer of 1997. The corporate headquarters of Interstate Energy
will be in Madison, Wisconsin.
The business of Interstate Energy will consist of utility
operations and various non-utility enterprises. The utility
subsidiaries currently serve approximately 870,000 electric customers
and 360,000 natural gas customers in Iowa, Wisconsin, Illinois and
Minnesota.
(b) Unsolicited Acquisition Proposal -
On August 5, 1996, MidAmerican Energy Company (MAEC), an electric
and natural gas utility company based in Des Moines, Iowa, announced
that it had made an unsolicited offer to acquire Industries in a cash
and stock transaction. Industries' Board of Directors rejected MAEC's
offer and the shareholders of Industries subsequently approved the
Proposed Merger, thereby also rejecting MAEC's offer.
RESULTS OF OPERATIONS
The following discussion analyzes significant changes in the
components of net income available for common stock and financial
condition from the prior periods for the Company:
The Company's net income available for common stock decreased
($9.8) million, ($5.7) million and ($4.8) million during the three, nine
and twelve month periods, respectively. The decrease in earnings for
all three periods was primarily due to cooler weather conditions during
the third quarter of 1996 as compared to the third quarter of 1995 and
Utilities' share of the costs incurred relating to the successful
defense of the hostile takeover attempt mounted by MAEC. The weather
conditions in the third quarter of 1996 and 1995 were cooler than normal
and significantly warmer than normal, respectively. Accordingly, the
Company estimates the weather conditions impacted the quarterly earnings
by approximately $8 million on a comparative basis. The company
estimates that its share of the hostile takeover defense costs reduced
earnings for the three periods by approximately $4 million. Increased
operating expenses and a higher effective income tax rate also adversely
impacted earnings for the three periods. These items were partially
offset by sales growth in Utilities' service territory, the impact of a
natural gas pricing increase implemented in the fourth quarter of 1995
and increased steam volumes sold.
The Company's operating income increased or (decreased) ($8.1)
million, ($1.2) million and $4.5 million during the three, nine and
twelve month periods, respectively. The contrasting relationship
between the change in operating income and net income was primarily due
to Utilities' share ($6.5 million) of the hostile takeover defense costs
which are included in "Miscellaneous, net" in the Consolidated
Statements of Income. Reasons for the changes in the results of
operations are explained in the following discussion.
Electric Revenues Electric revenues and Kwh sales (before off-system
sales) for Utilities increased or (decreased) as compared with the prior
period as follows:
Changes vs. Prior Period
Three Nine Twelve
Months Months Months
($ in millions)
Total electric revenues $ (10.3) $ 2.5 $ 4.8
Off-system sales revenues (2.0) 2.1 3.6
Electric revenues (excluding off-system sales) $ (8.3) $ 0.4 $ 1.2
Electric sales (excluding off-system sales):
Residential and Rural (17.9)% (4.7)% (2.8)%
General Service (7.9) (2.9) 0.1
Large General Service 5.2 3.5 4.4
Total (3.9) 0.2 1.5
Weather had a significant impact on sales during the three and nine
month periods. The largest effect of weather for the periods was on
sales to residential and rural customers. Under historically normal
weather conditions, total sales (excluding off-system sales) during the
three, nine and twelve month periods would have increased 4.9%, 2.7% and
2.9%, respectively. The sales comparisons for the nine and twelve month
periods were impacted by a true-up adjustment to Utilities' unbilled
sales recorded in the second quarter of 1995. The sales increases to
the large general service customers (which are not significantly
impacted by weather) during all three periods reflect the underlying
strength of the economy as industrial expansions in Utilities' service
territory continued during these periods.
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.
The decrease in the electric revenues during the three month period
was primarily due to the weather-related decrease in sales to consumers
as discussed previously, lower fuel costs collected through the EAC and
lower off-system sales. The nine and twelve month increases were
primarily due to increased sales to consumers, higher off-system sales
and the recovery of expenditures for energy efficiency programs pursuant
to an Iowa Utilities Board (IUB) order. The impact of the nine and
twelve month increases was partially offset by the 1995 unbilled revenue
adjustment.
Refer to Note 3(b) of the Notes to Consolidated Financial
Statements for a discussion of merger-related retail and wholesale
electric price proposals that Utilities has announced.
Gas Revenues Gas revenues increased or decreased ($2.0) million, $14.6
million and $24.1 million for the three, nine and twelve month periods,
respectively. Utilities' gas sales and transported volumes increased or
(decreased) for the periods ended September 30, 1996, as compared with
the prior periods, as follows:
Changes vs. Prior Period
Three Months Nine Months Twelve Months
Residential (8.2)% 11.7% 14.9%
Commercial (11.2) 8.6 11.7
Industrial (5.3) 2.2 (5.5)
Sales to consumers (8.6) 9.7 11.4
Transported volumes (15.3) (6.3) (3.4)
Total (12.2) 4.9 7.2
Under historically normal weather conditions, Utilities' gas sales
and transported volumes would have increased or (decreased) (12.1)%,
0.1% and 0.7% during the three, nine and twelve month periods,
respectively.
Utilities' gas tariffs include purchased gas adjustment clauses
(PGA) that are designed to currently recover the cost of gas sold.
On August 4, 1995, Utilities applied to the IUB for an annual
increase in gas rates of $8.8 million, or 6.2%. The IUB approved an
interim increase of $7.1 million annually, effective October 11, 1995,
subject to refund. On April 4, 1996, the IUB issued an order which
allowed Utilities a $6.3 million annual increase. Refer to Note 3(a) of
the Notes to Consolidated Financial Statements for a further discussion
of the gas rate case.
Utilities' gas revenues increased during both the nine and twelve
month periods primarily because of higher gas costs recovered through
the PGA, the gas pricing increase, recovery of expenditures for the
energy efficiency programs and increased sales to ultimate consumers
(largely on account of the weather). The three month decrease in
Utilities' gas revenues was due to lower gas costs recovered through the
PGA partially offset by the gas pricing increase.
Other Revenues Other revenues increased $2.0 million, $5.1 million and
$6.3 million during the three, nine and twelve month periods,
respectively, primarily because of an increase in steam revenues, due to
increased volumes sold.
Operating Expenses Fuel for production increased or (decreased) ($2.8)
million, $0.5 million and $7.2 million during the three, nine and twelve
month periods, respectively. The three month decrease was primarily due
to lower Kwh generation, due to the decreased sales, and lower average
fuel costs. The twelve month increase was substantially related to
increased Kwh generation, primarily the result of a refueling outage
during early 1995 at Utilities' nuclear generating station, the Duane
Arnold Energy Center (DAEC). There was no refueling outage during the
first nine months of 1996.
Purchased power increased or (decreased) ($1.3) million, $1.7
million and ($5.5) million during the three, nine and twelve month
periods, respectively. The three and twelve month decreases were due to
decreased energy purchases with lower capacity costs also contributing
to the twelve month decrease. The nine month increase was due to
increased energy purchases, partially offset by lower capacity costs.
Gas purchased for resale increased or (decreased) ($2.9) million,
$4.9 million and $10.6 million during the three, nine and twelve month
periods, respectively. The three month decrease was primarily due to
the timing of the recovery of gas costs through the PGA and decreased
gas sales, partially offset by the effects of higher average natural gas
prices. The nine and twelve month increases were due to higher average
natural gas prices and increased sales, partially offset by the timing
of the recovery of gas costs through the PGA.
Other operating expenses increased $1.8 million, $9.7 million and
$16.3 million during the three, nine and twelve month periods,
respectively. Contributing to the increase in all periods were
increased labor and benefits costs and costs incurred in the Company's
efforts to prepare for an increasingly competitive utility industry
including, among other items, costs relating to the Proposed Merger and
the Company's reengineering effort (Process Redesign). The nine and
twelve month increases were also due to the amortization of previously
deferred energy efficiency expenditures (which are currently being
recovered through rates) and were partially offset by lower former
manufactured gas plant (FMGP) clean-up costs.
Maintenance expenses increased or (decreased) $1.3 million, $3.3
million and ($1.1) million during the three, nine and twelve month
periods, respectively. The three and nine month increases were
primarily due to increased maintenance activities at Utilities' fossil-
fueled generating stations. The twelve month decrease was primarily
caused by less required maintenance at the DAEC and lower tree trimming
costs, partially offset by increased maintenance activities at
Utilities' fossil-fueled generating stations.
Depreciation and amortization increased during all periods
primarily because of increases in utility plant in service. The
increases for the three and nine month periods were also due to an
adjustment recorded in the third quarter of 1995 to implement lower
depreciation rates as a result of an IUB rate order. Depreciation and
amortization expenses for all periods included a provision for
decommissioning the DAEC, which is collected through rates. The current
annual recovery level is $6.0 million.
During the first quarter of 1996, the Financial Accounting
Standards Board (FASB) issued an Exposure Draft on Accounting for
Liabilities Related to Closure and Removal of Long-Lived Assets which
deals with, among other issues, the accounting for decommissioning
costs. If current electric utility industry accounting practices for
such decommissioning are changed: 1) annual provisions for
decommissioning could increase and 2) the estimated cost for
decommissioning could be recorded as a liability, rather than as
accumulated depreciation, with recognition of an increase in the
recorded amount of the related DAEC plant. 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.
Taxes other than income taxes decreased ($0.8) million, ($2.0)
million and ($2.9) million during the three, nine and twelve month
periods, respectively, primarily because of decreased property taxes,
resulting from lower assessed property values.
Interest Expense and Other Miscellaneous, net reflects comparative
decreases in income of ($6.5) million, ($4.7) million and ($6.1) million
for the three, nine and twelve month periods, respectively. The
decreases for all three periods were primarily due to approximately $6.5
million in costs incurred relating to the successful defense of the
hostile takeover attempt mounted by MAEC.
Income Taxes Income taxes increased or (decreased) ($5.0) million,
($0.7) million and $2.1 million for the three, nine and twelve month
periods, respectively. The variances for all periods were due to
changes in pre-tax income and a higher effective tax rate. The higher
effective tax rate for each period is due to: 1) the effect of property
related temporary differences for which deferred taxes had not been
provided, pursuant to rate making principles, that are now becoming
payable and are being recovered from ratepayers, 2) the effect of prior
period adjustments, and 3) the incurrence of certain merger-related
expenses, which are not tax deductible.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily attributable to
its construction programs and debt maturities. The Company's pre-tax
ratio of times interest earned was 3.12 and 3.20 for the twelve months
ended September 30, 1996 and September 30, 1995, respectively. Cash
flows from operating activities for the twelve months ended September
30, 1996 and September 30, 1995 were $151 million and $182 million,
respectively. The decrease was primarily due to the electric rate case
refund paid to customers in the fourth quarter of 1995 and other changes
in working capital.
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 6 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. The Company's debt ratings
are as follows:
Moody's Standard & Poor's
Long-term debt A2 A
Short-term debt P1 A1
Utilities' credit ratings are under review for potential upgrade
related to the Proposed Merger.
The Company's liquidity and capital resources will be affected by
environmental and legislative issues, including the ultimate disposition
of remediation issues surrounding the Company's environmental
liabilities and the Clean Air Act as amended, as discussed in Note 6 of
the Notes to Consolidated Financial Statements, and the National Energy
Policy Act of 1992 as discussed in the Other Matters section. 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.
Current IUB rules require Utilities to spend 2% of electric and
1.5% of gas gross retail operating revenues annually for energy
efficiency programs. Energy efficiency costs in excess of the amount in
the most recent electric and gas rate cases are being recorded as
regulatory assets by Utilities. At September 30, 1996, Utilities had
approximately $58 million of such costs recorded as regulatory assets.
On June 1, 1995, Utilities began recovery of those costs incurred
through 1993. See Note 3(c) of the Notes to Consolidated Financial
Statements for a discussion of the timing of the filings for the
recovery of these costs under IUB rules and Iowa statutory changes
recently enacted relating to these programs.
Under provisions of the Merger Agreement, there are restrictions on
the amount of long-term debt the Company can issue pending the merger.
The Company does not expect the restrictions to have a material effect
on its ability to meet its future capital requirements.
CONSTRUCTION AND ACQUISITION PROGRAM
The Company's construction and acquisition program anticipates
expenditures of approximately $164 million for 1996, of which
approximately 55% represents expenditures for electric, gas and steam
transmission and distribution facilities, 19% represents fossil-fueled
generation expenditures, 13% represents information technology
expenditures and 5% represents nuclear generation expenditures. The
remaining 8% represents miscellaneous electric and general expenditures.
In addition to the $164 million, Utilities anticipates expenditures of
$13 million in connection with mandated energy efficiency programs. The
Company had construction and acquisition expenditures of approximately
$97 million for the nine months ended September 30, 1996.
The Company's construction and acquisition expenditures are
projected to be approximately $150 million per year in 1997 - 2000. It
is estimated that approximately 80% of Utilities' construction and
acquisition expenditures will be provided by cash from operating
activities (after payment of dividends) for the five-year period 1996-
2000.
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 and business
combination 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.
Under provisions of the Merger Agreement, there are restrictions on
the amount of construction and acquisition expenditures the Company can
make pending the merger. The Company does not expect the restrictions
to have a material effect on its ability to implement its anticipated
construction and acquisition program.
LONG-TERM FINANCING
Other than Utilities' periodic sinking fund requirements, which
Utilities intends to meet by pledging additional property, approximately
$125 million of long-term debt will mature prior to December 31, 2000.
The Company intends to refinance the majority of the debt maturities
with long-term securities.
In September 1996, Utilities repaid at maturity $15 million of
Series J, 6.25% First Mortgage Bonds and, in a separate transaction,
issued $60 million of Collateral Trust Bonds, 7.25%, due 2006.
Utilities has entered into an Indenture of Mortgage and Deed of
Trust dated September 1, 1993 (New Mortgage). The New Mortgage provides
for, among other things, the issuance of Collateral Trust Bonds upon the
basis of First Mortgage Bonds being issued by Utilities. The lien of
the New Mortgage is subordinate to the lien of Utilities' first
mortgages until such time as all bonds issued under the first mortgages
have been retired and such mortgages satisfied. Accordingly, to the
extent that Utilities issues Collateral Trust Bonds on the basis of
First Mortgage Bonds, it must comply with the requirements for the
issuance of First Mortgage Bonds under Utilities' first mortgages.
Under the terms of the New Mortgage, Utilities has covenanted not to
issue any additional First Mortgage Bonds under its first mortgages
except to provide the basis for issuance of Collateral Trust Bonds.
The indentures pursuant to which Utilities issues First Mortgage
Bonds constitute direct first mortgage liens upon substantially all
tangible public utility property and contain covenants which restrict
the amount of additional bonds which may be issued. At September
30, 1996, such restrictions would have allowed Utilities to issue at
least $229 million of additional First Mortgage Bonds.
In order to provide an instrument for the issuance of unsecured
subordinated debt securities, Utilities entered into an Indenture dated
December 1, 1995 (Subordinated Indenture). The Subordinated Indenture
provides for, among other things, the issuance of unsecured subordinated
debt securities. Any debt securities issued under the Subordinated
Indenture are subordinate to all senior indebtedness of Utilities,
including First Mortgage Bonds and Collateral Trust Bonds.
Utilities has received authority from the Federal Energy Regulatory
Commission (FERC) and the SEC to issue up to $250 million of long-term
debt, and has $190 million of remaining authority under the current FERC
docket through April 1998, and $140 million of remaining authority under
the current SEC shelf registration.
The Articles of Incorporation of Utilities authorize and limit the
aggregate amount of additional shares of Cumulative Preference Stock and
Cumulative Preferred Stock that may be issued. At September 30, 1996,
Utilities could have issued an additional 700,000 shares of Cumulative
Preference Stock and no additional shares of Cumulative Preferred Stock.
The Company's capitalization ratios at September 30, 1996, were as
follows:
Long-term debt 48%
Preferred stock 2
Common equity 50
100%
Under provisions of the Merger Agreement, there are restrictions on
the amount of long-term debt the Company can issue pending the merger.
The Company does not expect the restrictions to have a material effect
on its ability to meet its future capital requirements.
SHORT-TERM FINANCING
For interim financing, Utilities is authorized by the FERC to
issue, through 1996, up to $200 million of short-term notes. Utilities
will be making a filing with FERC in the fourth quarter of 1996 to
extend such authorization. In addition to providing for ongoing working
capital needs, this availability of short-term financing provides
Utilities flexibility in the issuance of long-term securities. At
September 30, 1996, Utilities had outstanding short-term borrowings of
$82.2 million, including $4.2 million of notes payable to associated
companies.
Utilities has entered into an agreement, which expires in 1999,
with a financial institution to sell, with limited recourse, an
undivided fractional interest of up to $65 million in its pool of
utility accounts receivable. At September 30, 1996, $65 million was
sold under the agreement.
At September 30, 1996, the Company had bank lines of credit
aggregating $121.1 million, of which $78 million was being used to
support commercial paper (weighted average interest rate of 5.47%) and
$11.1 million to support certain pollution control obligations.
Commitment fees are paid to maintain these lines and there are no
conditions which restrict the unused lines of credit. In addition to
the above, Utilities has an uncommitted credit facility with a financial
institution whereby it can borrow up to $40 million. Rates are set at
the time of borrowing and no fees are paid to maintain this facility.
At September 30, 1996, there were no borrowings outstanding under this
facility.
ENVIRONMENTAL MATTERS
Utilities has been named as a Potentially Responsible Party (PRP)
by various federal and state environmental agencies for 28 FMGP sites,
but believes it is not responsible for two of these sites based on
extensive reviews of the ownership records and historical information
available for the two sites. Utilities has notified the appropriate
regulatory agency that it believes it does not have any responsibility
as relates to these two sites, but no response has been received from
the agency on this issue. Utilities is also aware of six other sites
that it may have owned or operated in the past and for which, as a
result, it may be designated as a PRP in the future in the event that
environmental concerns arise at these sites. Utilities is working
pursuant to the requirements of the various agencies to investigate,
mitigate, prevent and remediate, where necessary, damage to property,
including damage to natural resources, at and around the sites in order
to protect public health and the environment. Utilities believes it has
completed the remediation of seven sites although it is in the process
of obtaining final approval from the applicable environmental agencies
on this issue for each site. Utilities is in various stages of the
investigation and/or remediation processes for the remaining 19 sites
and estimates the range of additional costs to be incurred for
investigation and/or remediation of the sites to be approximately $22
million to $54 million.
Utilities has recorded environmental liabilities related to the
FMGP sites of approximately $34 million (including $4.6 million as
current liabilities) at September 30, 1996. These amounts are based
upon Utilities' best current estimate of the amount to be incurred for
investigation and remediation costs for those sites where the
investigation process has been or is substantially completed, and the
minimum of the estimated cost range for those sites where the
investigation is in its earlier stages. 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; in
addition, Utilities may be required to monitor these sites for a number
of years upon completion of remediation, as is the case with several of
the sites for which remediation has been completed.
In April 1996, Utilities filed a lawsuit against certain of its
insurance carriers seeking reimbursement for investigation, mitigation,
prevention, remediation and monitoring costs associated with the FMGP
sites. Settlement discussions are proceeding between Utilities and its
insurance carriers regarding the recovery of these FMGP-related costs.
The amount of aggregate potential recovery, or the regulatory treatment
of any such recoveries, cannot be reasonably determined at this time
and, accordingly, no estimated amounts have been recorded at September
30, 1996. Regulatory assets of approximately $34 million, which reflect
the future recovery that is being provided through Utilities' rates,
have been recorded in the Consolidated Balance Sheets. Considering the
current rate treatment allowed by the IUB, management believes that the
clean-up costs incurred by Utilities for these FMGP sites will not have
a material adverse effect on its financial position or results of
operations.
The Clean Air Act Amendments of 1990 (Act) requires emission
reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve
reductions of atmospheric chemicals believed to cause acid rain. The
provisions of the Act are being implemented in two phases; the Phase I
requirements have been met and the Phase II requirements affect eleven
other fossil units beginning in the year 2000. Utilities expects to
meet the requirements of Phase II by switching to lower sulfur fuels,
capital expenditures primarily related to fuel burning equipment and
boiler modifications, and the possible purchase of SO2 allowances.
Utilities estimates capital expenditures of approximately $23.5 million,
including $7.4 million in 1996 (of which $4.1 million was expended as of
September 30, 1996), in order to meet the acid rain requirements of the
Act.
The acid rain program under the Act also governs SO2 allowances.
An allowance is defined as an authorization for an owner to emit one ton
of SO2 into the atmosphere. Currently, Utilities receives a sufficient
number of allowances annually to offset its emissions of SO2 from its
Phase I units. It is anticipated that in the year 2000, Utilities may
have an insufficient number of allowances annually to offset its
estimated emissions and may have to purchase additional allowances, or
make modifications to the plants or limit operations to reduce
emissions. Utilities is reviewing its options to ensure that it will
have sufficient allowances to offset its emissions in the future.
Utilities believes that the potential cost of ensuring sufficient
allowances will not have a material adverse effect on its financial
position or results of operations.
The Act and other federal laws also require the United States
Environmental Protection Agency (EPA) to study and regulate, if
necessary, additional issues that potentially affect the electric
utility industry, including emissions relating to NOx, ozone transport,
mercury and particulate control; toxic release inventories and
modifications to the PCB rules. Currently, the impacts of these
potential regulations are too speculative to quantify.
In 1995, the EPA published the Sulfur Dioxide Network Design Review
for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst-
case modeling method suggests that the Cedar Rapids area could be
classified as "nonattainment" for the National Ambient Air Quality
Standard (NAAQS) established for SO2. The worst-case modeling study
suggested that two of Utilities' generating facilities contribute to the
modeled exceedences and recommended that additional monitors be located
near Utilities' sources to assess actual ambient air quality. In the
event that Utilities' facilities contribute excessive emissions,
Utilities would be required to reduce emissions, which would primarily
entail capital expenditures for modifications to the facilities.
Utilities is currently exploring its options to modify one of its fossil
generating facilities to reduce SO2 emissions. Utilities is proposing
to resolve the remainder of EPA's nonattainment concerns by installing a
new stack at the other generating facility contributing to the modeled
exceedences at a potential aggregate capital cost of up to $4.5 million
over the next four years.
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, $10.7
million payable through 2007, has been recorded as a liability in the
Consolidated Balance Sheets, including $0.8 million included in "Current
liabilities - Environmental liabilities," with a related regulatory
asset for the unrecovered amount.
The Nuclear Waste Policy Act of 1982 assigned responsibility to the
U.S. Department of Energy (DOE) to establish a facility for the ultimate
disposition of high level waste and spent nuclear fuel and authorized
the DOE to enter into contracts with parties for the disposal of such
material beginning in January 1998. Utilities entered into such a
contract and has made the agreed payments to the Nuclear Waste Fund
(NWF) held by the U.S. Treasury. The DOE, however, has experienced
significant delays in its efforts and material acceptance is now
expected to occur no earlier than 2010 with the possibility of further
delay being likely. 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 2001. Utilities is aggressively
reviewing options for additional spent nuclear fuel storage capability,
including expanding on-site storage. In July 1996, the IUB initiated a
Notice of Inquiry (NOI) on spent nuclear fuel. One purpose of the NOI
was to evaluate whether the current collection of money from Utilities'
customers for payment to the NWF should be placed in an escrow account
in lieu of being paid to the NWF. Utilities does not support this
alternative and cannot predict the outcome of this NOI.
The Low-Level Radioactive Waste Policy Amendments Act of 1985
mandated that each state must take responsibility for the storage of low-
level radioactive waste produced within its borders. The State of Iowa
has joined the Midwest Interstate Low-Level Radioactive Waste Compact
Commission (Compact), which is planning a storage facility to be located
in Ohio to store waste generated by the Compact's six member states. At
September 30, 1996, Utilities has prepaid costs of approximately
$1.1 million to the Compact for the building of such a facility. A
Compact disposal facility is anticipated to be in operation in
approximately ten years after approval of new enabling legislation by
the member states. Such legislation was approved in 1996 by all six
states that are members of the Compact. Final approval by the U.S.
Congress is now required. On-site storage capability currently exists
for low-level radioactive waste expected to be generated until the
Compact facility is able to accept waste materials. In addition, the
Barnwell, South Carolina disposal facility has reopened for an
indefinite time period and Utilities is in the process of shipping to
Barnwell the majority of the low-level radioactive waste it has
accumulated on-site, and currently intends to ship the waste it produces
in the future as long as the Barnwell site remains open, thereby
minimizing the amount of low-level waste stored on-site. However,
management of the Barnwell site is in the process of modifying its fee
schedule to include more emphasis on total radioactivity content, in
addition to volume related fees. Utilities cannot predict the outcome
of these changes on its potential future disposal costs at the Barnwell
site or if such changes would result in a revision to Utilities' future
disposal plans.
The possibility that exposure to electric and magnetic fields (EMF)
emanating from power lines, household appliances and other electric
sources may result in adverse health effects has been the subject of
increased public, governmental, industry and media attention. A recent
study completed by the National Research Council concluded that the
current body of evidence does not support the notion that exposure to
these fields may result in adverse health effects. Utilities will
continue to monitor the events in this area, including future scientific
research.
OTHER MATTERS
Competition As legislative, regulatory, economic and technological
changes occur, electric utilities are faced with increasing pressure to
become more competitive. Such competitive pressures could result in
loss of customers and an incurrence of stranded costs (i.e. the cost of
assets rendered unrecoverable as the result of competitive pricing). To
the extent stranded costs cannot be recovered from customers, they would
be borne by security holders.
The National Energy Policy Act of 1992 addresses several matters
designed to promote competition in the electric wholesale power
generation market. In April 1996, the FERC issued final rules (FERC
Orders 888 and 889), largely confirming earlier proposals, requiring
electric utilities to open their transmission lines to other wholesale
buyers and sellers of electricity. The rules became effective on July
9, 1996. The key provisions of the rules are: 1) utilities must act as
"common carriers" of electricity, reserving capacity on their lines for
other wholesale buyers and sellers of electricity and charging
competitors no more than they pay themselves for use of the lines; 2)
utilities must establish electronic bulletin boards to share information
about transmission capacity; 3) utilities must separate the energy
marketing function from the transmission system operation function, to
insure there is not inappropriate information being used by energy
marketing; and 4) utilities can recover "stranded costs" applicable to
wholesale sales. Utilities filed conforming pro-forma open access
transmission tariffs with the FERC which became effective October 1,
1995. In response to FERC Order 888, Utilities filed its final pro-
forma tariffs with FERC on July 9, 1996. These tariffs have not yet
been approved by the FERC. The geographic position of Utilities'
transmission system could provide revenue opportunities in the open
access environment. The Company cannot predict the long-term
consequences of these rules on its results of operation or financial
condition.
The final FERC rules do not provide for the recovery of stranded
costs resulting from retail competition. The various states retain
jurisdiction over whether to permit retail competition, the terms of
such retail competition and the recovery of any portion of stranded
costs that are ultimately determined by FERC and the states to have
resulted from retail competition.
As part of Utilities' strategy for the emerging and competitive
power markets, Utilities, IPC and Wisconsin Power and Light Company (the
utility subsidiary of WPLH), and a number of other utilities have
proposed the creation of an independent system operator (ISO) for the
companies' power transmission grid. The companies would retain
ownership and control of the facilities, but the ISO would set rates for
access and assume fair treatment for all companies seeking access. The
proposal requires approval from state regulators and the FERC.
The IUB initiated a Notice of Inquiry (Docket No. NOI-95-1) in
early 1995 on the subject of "Emerging Competition in the Electric
Utility Industry." A one-day roundtable discussion was held to address
all forms of competition in the electric utility industry and to assist
the IUB in gathering information and perspectives on electric
competition from all persons or entities with an interest or stake in
the issues. Additional discussions were held in December 1995, May 1996
and July 1996. In January 1996, the IUB created its own timeline for
evaluating industry restructuring in Iowa. Included in the IUB's
process was the creation of a 22-member advisory panel, of which
Utilities is a member. The IUB has established a self-imposed deadline
of the fourth quarter of 1996, for publishing its analysis of various
restructuring options and any advisory panel comments on the IUB's
options and analysis. The IUB's schedule calls for public information
meetings to be held around the state of Iowa. These meetings began in
September 1996 and are scheduled to be completed in the fourth quarter
of 1996.
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). If a portion of Utilities' operations
become no longer subject to the provisions of SFAS 71, as a result of
competitive restructurings or otherwise, a write-down of related
regulatory assets would be required, unless some form of transition cost
recovery is established by the appropriate regulatory body. Utilities
believes that it still meets the requirements of SFAS 71.
The Company cannot predict the long-term consequences of these
competitive issues on its results of operations or financial condition.
The Company's strategy for dealing with these emerging issues includes
seeking growth opportunities, continuing to offer quality customer
service, ongoing cost reductions and productivity enhancements, the
major objective of which is to allow Utilities to better prepare for a
competitive, deregulated electric utility industry. In this connection,
Utilities has undertaken Process Redesign, an effort to improve service
levels, to reduce its cost structure and to become more market-focused
and customer-oriented.
Process Redesign is examining the major business processes within
Utilities, which are: Customer Service Fulfillment, Fossil-Fueled Energy
Supply, Nuclear Energy Supply, Non-Electric Fuel Supply Chain,
Transmission and Distribution Energy Delivery, and Planning, Budgeting &
Performance Management. These areas were examined during Phase I of the
effort, which lasted from January 1995 through May 1995. Phase I
recommendations were designed to make broad-based changes in the way
work was performed and results were achieved in each of the processes.
Management accepted the recommendations and, in June 1995, initiated
Phase II of the project. The detailed designs resulting from Phase II
were substantially completed in November 1995 and pilot programs began.
Examples of the Process Redesign changes include, but are not
limited to: managing the business in business unit form, rather than
functionally; formation of alliances with vendors of certain types of
material and/or services rather than opening most purchases to a bidding
process; changing standards and construction practices in transmission
and distribution areas; changing certain work practices in power plants;
and improving the method by which service is delivered to customers in
all customer classes. The specific recommendations range from simple
improvements in current operations to radical changes in the way work is
performed and service is delivered. Utilities currently intends to
implement all of the recommendations of the Process Redesign teams,
although the pilot stage or potential effects of the Proposed Merger
could prove that some of the recommendations are not efficient or
effective and must be revised or eliminated. Subject to delays caused
by implementing any such revisions, implementation of the Process
Redesign changes will be partially completed in 1996, but, certain
results will not be achieved until 1997. In addition, the Company must
give consideration to the potential effects of the Proposed Merger as
part of the implementation process so that duplication of efforts are
avoided.
Accounting Pronouncements SFAS 121, issued in March 1995 by the FASB
and effective for 1996, establishes accounting standards for the
impairment of long-lived assets. SFAS 121 also requires that regulatory
assets that are no longer probable of recovery through future revenues
be charged to earnings. The Company adopted this standard on January 1,
1996, and the adoption had no effect on the financial position or
results of operations of the Company.
Financial Derivatives The Company has a policy that financial
derivatives are to be used only to mitigate business risks and not for
speculative purposes. At September 30, 1996, the Company did not have
any material financial derivatives outstanding.
Inflation Utilities does not expect the effects of inflation at
current levels to have a significant effect on its financial position or
results of operations.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
On April 30, 1996, Utilities filed suit, IES Utilities Inc. v. Home
Ins. Co., et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr. 30, 1996),
against various insurers who had sold comprehensive general liability
policies to Iowa Southern Utilities Company (ISU) and Iowa Electric
Light and Power Company (IE) (Utilities was formed as the result of a
merger of ISU and IE). The suit seeks judicial determination of the
respective rights of the parties, a judgment that each defendant is
obligated under its respective insurance policies to pay in full all
sums that the Company has become or may become obligated to pay in
connection with its defense against allegations of liability for
property damage at and around FMGP sites, and indemnification for all
sums that it has or may become obligated to pay for the investigation,
mitigation, prevention, remediation and monitoring of damage to
property, including damage to natural resources like groundwater, at and
around the FMGP sites.
On October 3, 1996, Lambda Energy Marketing Company, L. C.
("Lambda") filed a request with the IUB that the IUB initiate formal
complaint proceedings against Utilities. Lambda alleges that Utilities
is discriminating against it by refusing to enter into contracts with it
for remote displacement service and by favoring IEA, a subsidiary of
Industries, in such matters. On October 17, 1996, Utilities filed a
Response which denies the allegations, a Motion for Bifurcation, a
Motion of Summary Judgment, a Countercomplaint and a Request for
Temporary Relief, alleging, inter alia, that Lambda is unlawfully
attempting to provide retail electrical services in Utilities' exclusive
service territory.
On October 9, 1996, Industries filed a civil suit in the Iowa
District Court in and for Linn County against Lambda, Robert Latham,
Louie Ervin, and David Charles (collectively the "Defendants", including
three former employees of Industries and/or its subsidiaries) alleging,
inter alia, violations of Iowa's trade secret act and interference with
existing and prospective business advantage. On November 1, 1996, the
Defendants filed their Answer and Counterclaims alleging, inter alia,
violation of Iowa competition law, tortious interference and commercial
disparagement. The Defendants therewith also filed a Third-Party
Petition against Utilities, IEA and Lee Liu alleging, inter alia,
tortious interference and commercial disparagement.
Reference is made to Notes 3 and 6 of the Notes to Consolidated
Financial Statements for a discussion of rate matters and environmental
matters, respectively, and Item 2. Management's Discussion and Analysis
of the Results of Operations and Financial Condition - Environmental
Matters.
Item 2. Changes in the Rights of the Company's Security Holders.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Results of Votes of Security Holders.
(a) The Company held its Annual Meeting of Shareholders on September 5,
1996.
(b) The following matters were voted upon at the Annual Meeting of
Shareholders.
The election of nominees for Directors who will serve a one-year
term or until their respective successors shall be duly
elected. The nominees were as follows:
C.R.S. Anderson, J. Wayne Bevis, Lee Liu, Jack R. Newman,
Robert D. Ray, David Q. Reed, Henry Royer, Robert W. Schlutz,
Anthony R. Weiler.
IES Industries Inc., the sole shareholder of the Company, voted
all 13,370,788 shares for the election of the above nominees.
Item 5. Other Information.
(a) The Company has calculated the ratio of earnings to fixed charges
pursuant to Item 503 of Regulation S-K of the Securities and
Exchange Commission as follows:
For the twelve months ended:
September 30, 1996 2.93
December 31, 1995 3.04
December 31, 1994 3.18
December 31, 1993 3.41
December 31, 1992 2.49
December 31, 1991 2.64
(b) On November 6, 1996, Larry D. Root, who retired from IES
Industries Inc. in 1995, was named President & Chief Operating
Officer of the Company. Lee Liu will continue to serve as Chairman
of the Board & Chief Executive Officer.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
*3(a) Bylaws of Registrant, as amended November 6, 1996.
4(a) Sixty-second Supplemental Indenture, dated as
of September 1, 1996, supplementing Utilities' Indenture of
Mortgage and Deed of Trust, dated August 1, 1940. (Filed as
Exhibit 4(f) to the Company's Current Report on Form 8-K,
dated September 19, 1996).
4(b) Fourth Supplemental Indenture, dated as of September
1, 1996, supplementing Utilities' Indenture of Mortgage and
Deed of Trust, dated September 1, 1993. (Filed as Exhibit
4(c)(i) to the Company's Current Report on Form 8-K, dated
September 19, 1996).
10(a) Executive Change of Control Severance Agreement -
CEO (Filed as Exhibit 10(a) to Industries' Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-9187)).
10(b) Executive Change of Control Severance Agreement -
Vice Presidents (Filed as Exhibit 10(b) to Industries' Form 10-
Q for the quarter ended September 30, 1996 (File No. 1-9187)).
10(c) Executive Change of Control Severance Agreement -
Other Officers (Filed as Exhibit 10(c) to Industries' Form 10-
Q for the quarter ended September 30, 1996 (File No. 1-9187)).
*12 Ratio of Earnings to Fixed Charges
*27 Financial Data Schedule.
* Exhibits designated by an asterisk are filed herewith.
(b) Reports on Form 8-K -
Items Reported Financial Statements Date of Report
5,7 None September 19, 1996 (1)
(1) The Form 8-K report was filed on September 27, 1996 with
the earliest event reported occurring on September 19, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
IES UTILITIES INC.
(Registrant)
Date: November 13, 1996 By /s/ Dennis B. Vass
(Signature)
Dennis B. Vass
Treasurer & Principal Financial Officer
By /s/ John E. Ebright
(Signature)
John E. Ebright
Controller & Chief Accounting Officer
Exhibit 3(a)
BYLAWS AS AMENDED
OF
IES UTILITIES INC.
(Amended as of November 6, 1996)
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. - The principal office shall be
established and maintained in the ie: Tower, 200 First Street, S.E., in
the City of Cedar Rapids, in the County of Linn, in the State of Iowa.
SECTION 1.2. OTHER OFFICES. - The Corporation may have other
offices, either within or without the State of Iowa, at such place or
places as the Board of Directors may from time to time appoint or the
business of the Corporation may require. The registered office of the
Corporation required by the Iowa Business Corporation Act to be
maintained in the State of Iowa may be, but need not be identical with
the principal office in the State of Iowa, and the address of the
registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders
for the election of directors and the transaction of other business
shall be held, in each year, on the third Tuesday in May at two o'clock
in the afternoon (if such day is a holiday, the annual meeting will be
held at such time on the next succeeding business day) or any other date
specified by the Board of Directors.
SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting
or any special meeting of shareholders shall be held at the principal
office of the Corporation or any place, within the State of Iowa, as
shall be designated by the Board of Directors and stated in the notice
of the meeting.
SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the
shareholders may be called by the Chairman of the Board, the President,
the Board of Directors, or the holders of not less than ten percent of
all the shares entitled to vote at the meeting.
SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed
notice, stating the place, day and hour of the meeting and, in case of a
special meeting, the purpose or purposes for which the meeting is
called, shall be delivered not less than ten nor more than sixty days
before the date of the meeting, either personally or by mail, by or at
the direction of the Board of Directors, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail
addressed to the shareholder at the address appearing on the stock
transfer books of the Corporation, with postage thereon prepaid.
SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. -
For the purpose of determining shareholders entitled to notice of, or to
vote at, any special meeting of shareholders, or at any adjournment
thereof, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper
purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to
exceed, in any case, 60 days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of
or to vote at a meeting of shareholders, such books shall be closed for
at least 10 days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such
date in any case not to be more than 70 days, and in the case of a
meeting of shareholders not less than 10 days, prior to the date on
which the particular action, requiring such determination of
shareholders, is to be taken. If the stock transfer books are not
closed and no record date is fixed for the determination of
shareholders, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for
such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been
made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 2.6. VOTING RECORD. - The officer or agent having charge
of the stock transfer books for shares of the Corporation shall make, at
least 10 days prior to each meeting of shareholders, a complete record
of the shareholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order with the address of and the
number of shares held by each, which record shall be kept on file at the
registered office of the Corporation and shall be subject to inspection
by any shareholder at any time during usual business hours for a period
of 10 days prior to such meeting. Such record shall also be produced
and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the
meeting. The original stock transfer book shall be prima facie evidence
of the identity of the shareholders entitled to examine such record or
transfer books or to vote at any meeting of shareholders.
SECTION 2.7. QUORUM. - A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a
majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time
to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
The shareholders present at a duly organized meeting may continue to
transact business until adjournment only if a quorum is represented
throughout.
SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders
shall be presided over by one of the following officers in the order of
seniority if present and acting - the Chairman of the Board, the
President, the Secretary, or if none of the foregoing is in office and
present and acting, by a chairperson to be chosen by the shareholders.
The Secretary of the Corporation, or if absent, an Assistant Secretary,
shall act as secretary of the meeting, but if neither the Secretary nor
an Assistant Secretary is present, or if the Secretary is presiding over
the meeting and the Assistant Secretary is not present, the Chairman of
the meeting shall appoint a secretary of the meeting.
SECTION 2.9. PROXIES. - At all meetings of shareholders, a
shareholder may vote by proxy executed in writing by the shareholder or
by a duly authorized attorney-in-fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting.
No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled
to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. - Shares
standing in the name of another corporation may be voted by such
officer, agent or proxy as the Bylaws of such corporation may
prescribe, or, in the absence of such provision, as the Board of
Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator
may be voted by such person, either in person or by proxy, without a
transfer of such shares into that person's name. Shares standing in the
name of a trustee may be voted by such trustee, either in person or by
proxy, without a transfer of such shares into the trustee's name. The
Corporation may request evidence of such fiduciary status with respect
to the vote, consent, waiver, or proxy appointment.
Shares standing in the name of a receiver or trustee in bankruptcy
may be voted by such receiver or trustee, and shares held by or under
the control of a receiver may be voted by such receiver without the
transfer of the shares into such person's name if authority so to do be
contained in an appropriate order of the court by which such receiver
was appointed.
A pledgee, beneficial owner, or attorney-in-fact of the shares held
in the name of a shareholder shall be entitled to vote such shares. The
Corporation may request evidence of such signatory's authority to sign
for the shareholder with respect to the vote, consent, waiver, or proxy
appointment.
Neither treasury shares nor shares held by another corporation, if
a majority of the shares entitled to vote for the election of Directors
of such other corporation is held by the Corporation, shall be voted at
any meeting or counted in determining the total number of outstanding
shares at any given time.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. - The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND REMOVAL. - The
number of Directors of the Corporation shall be nine. Each Director
shall hold office until the next annual meeting of shareholders and
until the Director's successor shall have been elected and qualified,
unless removed at a meeting called expressly for that purpose by a vote
of the holders of a majority of the shares then entitled to vote at an
election of Directors. A Director may only be removed upon a showing of
cause. Directors need not be residents of the State of Iowa or
shareholders of the Corporation. Not more than three Directors shall be
officers or employees of the Corporation or its subsidiaries. No person
who has reached the age of 70 years shall be eligible for election or re-
election to the Board of Directors. Except for the Chief Executive
Officer, any Officer or employee of the Corporation serving as a
Director who retires, resigns or is removed or terminated from his or
her present office or employment with the Corporation shall
simultaneously resign from the Board of Directors. In the event the
Chief Executive Officer resigns or retires from his or her office or
employment with the Corporation, he or she shall simultaneously submit
his or her resignation from the Board of Directors if requested by the
Nominating Committee. In the event that the Chief Executive Officer is
removed from his or her office by the Board of Directors, or is
involuntarily terminated from employment with the Corporation, he or she
shall simultaneously submit his or her resignation from the Board of
Directors.
SECTION 3.3. REGULAR MEETINGS. - An annual meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately
after, and at the same place as, the annual meeting of shareholders.
Unless otherwise provided by resolution of the Board of Directors,
regular meetings of the Board of Directors, additional to the annual
meeting, shall be held on the first Tuesday of February, May, and
August, and on the first Wednesday of November of each year, at the
principal office or any place within or without the State of Iowa as
shall be designated by the Board of Directors without notice other than
such resolution.
SECTION 3.4. SPECIAL MEETINGS. - Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the
Board, President or any two Directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place
either within or without the State of Iowa, whether in person or by
telecommunications, as the place for holding any special meeting of the
Board of Directors called by them.
SECTION 3.5. NOTICE. - Notice of any special meeting shall be
given at least three days prior to the meeting by written notice
delivered personally or mailed to each Director at the Director's
business address, by telegram, or orally by telephone. If mailed, such
notice shall be deemed to be delivered when deposited in the United
States mail, so addressed, with postage prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company. Any director may waive notice of
any meeting. The attendance of a Director at a meeting shall constitute
a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
SECTION 3.6. QUORUM. - A majority of the number of Directors fixed
by Section 3.2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if
less than such majority is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time without
further notice.
SECTION 3.7. MANNER OF ACTING. - The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. A Director shall be considered present
at a meeting of the Board of Directors or of a committee designated by
the Board if the Director participates in such meeting by conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
SECTION 3.8. INFORMAL ACTION. Any action required or permitted to
be taken at any meeting of the Directors of the Corporation or of any
committee of the Board may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
Directors or all of the members of the committee of Directors, as the
case may be. Such consent shall have the same force and effect as a
unanimous vote at a meeting and shall be filed with the Secretary of the
Corporation to be included in the official records of the Corporation.
SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the
Corporation who is present at a meeting of the Board of Directors at
which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless (a) the Director objects at the
beginning of the meeting or promptly upon arrival to the holding of or
transacting business at the meeting, (b) the Director's dissent shall be
entered in the minutes of the meeting, or (c) the Director shall file a
written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such
dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such
right to dissent shall not apply to a Director who voted in favor of
such action.
SECTION 3.10. VACANCIES. - Any vacancy occurring in the Board of
Directors and any directorship to be filled by reason of an increase in
the number of Directors may be filled by the affirmative vote of a
majority of the Directors then in office, even if less than a quorum of
the Board of Directors. Failure to attend three consecutive regular
meetings of the Board of Directors shall disqualify a Director from
further service as a Director during the year in which the third
delinquency occurs and shall make such Director ineligible for re-
election, unless such failure to attend be determined by the affirmative
vote of two-thirds of the remaining Directors holding office to be due
to circumstances beyond the control of such Director. A resignation may
be tendered by any Director at any meeting of the shareholders or of the
Board of Directors, who shall at such meeting accept the same.
SECTION 3.11. COMPENSATION. - The Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or may receive a stated salary as Director. No
such payment shall preclude any Director from serving the Corporation in
any other capacity and receiving compensation therefor. Members of
special or standing committees may be allowed like compensation for
attending committee meetings.
SECTION 3.12. EXECUTIVE COMMITTEE. - The Board of Directors shall,
at each annual meeting thereof, appoint from its number an Executive
Committee of not less than three (3) nor more than five (5) members,
including the Chairman of the Board and the Chief Executive Officer of
the Corporation, to serve, subject to the pleasure of the Board, for the
year next ensuing and until their successors are appointed by the Board.
The Board of Directors at such time shall also fix the compensation to
be paid to the members of the Executive Committee. No member of the
Executive Committee shall continue to be a member after ceasing to be a
Director of the Corporation. The Board of Directors shall have the
power at any time to increase or decrease the number of members of the
Executive Committee, to fill vacancies, to change any member, and to
change the functions or terminate the Committee's existence.
SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The Executive
Committee appointed by the Board of Directors as above provided shall
possess all the power and authority of the Board of Directors when said
Board is not in session, but the Executive Committee shall not have the
power to: (1) declare dividends or distributions, (2) approve or
recommend directly to the shareholders actions required by law to be
approved by shareholders, (3) fill vacancies on the Board of Directors
or designate directors for purposes of proxy solicitation, (4) amend the
Articles, (5) adopt, amend, or repeal Bylaws, (6) approve a plan of
merger not requiring shareholders approval, (7) authorize reacquisition
of shares unless pursuant to a method specified by the Board, or
(8) authorize the sale or issuance of shares or designate the terms of a
series of a class of shares, except pursuant to a method specified by
the Board, to the extent permitted by law.
SECTION 3.14. PROCEDURE: MEETINGS: QUORUM. - Regular meetings of
the Executive Committee may be held at least once in each month on such
day as the Committee shall elect and special meetings may be held at
such other times as the Chairman of the Board or any two members of the
Executive Committee may designate. Notice of special meetings of the
Executive Committee shall be given by letter, telegram, or cable
delivered for transmission not later than during the second day
immediately preceding the day for such meeting or by word of mouth or
telephone not later than the day immediately preceding the date for such
meeting. No such notice need state the business to be transacted at the
meeting. No notice need be given of an adjourned meeting. The
Executive Committee may fix its own rules of procedure. It shall keep a
record of its proceedings and shall report these proceedings to the
Board of Directors at the regular meeting thereof held next after the
meeting of the Executive Committee. Attendance at any meeting of the
Executive Committee at a special meeting shall constitute a waiver of
notice of such special meeting.
At its last meeting preceding the annual meeting of the Board of
Directors, the Executive Committee shall make to the Board its
recommendation of officers of the Corporation to be elected by the Board
for the ensuing year.
The Chairman of the Board shall act as Chairman at all meetings of
the Executive Committee. The Secretary of the Corporation shall act as
Secretary of the meeting. In case of the absence from any meeting of
the Executive Committee of the Secretary of the Corporation, the
Executive Committee shall appoint a secretary of the meeting. The
Executive Committee may hold its meetings within or without the State of
Iowa, as it may from time to time by resolution determine. A majority
of the Executive Committee shall be necessary to constitute a quorum for
the transaction of any business, and the act of a majority of the
members present at a meeting at which a quorum is present shall be the
act of the Executive Committee. The members of the Executive Committee
shall act only as a committee, and the individual members shall have no
power as such.
SECTION 3.15. OTHER COMMITTEES. - The Board of Directors may
appoint by resolution adopted by a majority of the full Board of
Directors from among its members, other committees, temporary or
permanent, and, to the extent permitted by law and these Bylaws, may
designate the duties, powers, and authorities of such committees subject
to the same restriction of powers as provided in Section 3.13.
ARTICLE IV
OFFICERS
SECTION 4.1. OFFICERS. - The officers of the Corporation shall be
a Chairman of the Board, a President, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other
officers, including vice presidents, general counsel and assistant
officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more of the offices may be held by the
same person if so decided by the Board of Directors.
SECTION 4.2. ELECTION AND TERM OF OFFICE. - The officers of the
Corporation to be elected by the Board of Directors shall be elected
annually by the Board at its annual meeting held after each annual
meeting of the shareholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as
may be convenient. A vacancy in any office for any reason may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by
the Board of Directors whenever in its judgment the best interests of
the Corporation will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not of itself
create contract rights.
SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board
shall be the Chief Executive Officer of the Corporation. The Chairman
of the Board shall preside at all meetings of the Board of Directors and
shall be a member of the Executive Committee. The Chairman of the Board
shall see that all resolutions and orders of the Board of Directors or
the Executive Committee are carried into effect and shall exercise such
other powers and perform such other duties as may be designated by the
Board of Directors and the Executive Committee.
SECTION 4.5. PRESIDENT. - The President shall be the Chief
Operating Officer of the Corporation and shall have general supervision
of and be accountable for the control of the Corporation's business
affairs, properties and management and otherwise shall have the general
powers and duties usually vested with the office of President of a
Corporation, subject, however, to the control of the Board of Directors,
the Executive Committee, and the Chairman of the Board & Chief Executive
Officer. The President shall see that all resolutions and orders of the
Board of Directors or the Executive Committee are carried into effect
and shall exercise such other powers and perform such other duties as
may be designated by the Board of Directors, the Executive Committee,
and the Chairman of the Board & Chief Executive Officer.
SECTION 4.6. VICE-PRESIDENTS. - A Vice President (if one or more
be elected or appointed) shall have such powers and perform such duties
as the Board of Directors may from time to time prescribe or as the
Chairman of the Board or the President may from time to time delegate.
SECTION 4.7. TREASURER. - The Treasurer shall have the custody of
the funds and securities of the Corporation. Whenever necessary or
proper, the Treasurer shall (1) endorse, on behalf of the Corporation,
checks, notes or other obligations and deposit the same to the credit of
the Corporation in such bank or banks or depositories as the Board of
Directors may designate; (2) sign receipts or vouchers for payments made
to the Corporation which shall also be signed by such other officer as
may be designated by the Board of Directors; (3) disburse the funds of
the Corporation as may be ordered by the Board, taking proper vouchers
for such disbursements; and (4) render to the Board of Directors, the
Executive Committee, the Chairman of the Board and the President at the
regular meetings of the Board or Executive Committee, or whenever any of
them may require it, an account of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond with one or more sureties satisfactory to
the board, for the faithful performance of the duties of this office,
and for the restoration to the Corporation, in case of death, resigna
tion, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in possession or under control
of the Treasurer.
SECTION 4.8. SECRETARY. - The Secretary shall record the votes and
proceedings of the Shareholders, the Board of Directors and the
Executive Committee in a book or books kept for that purpose, and shall
serve notices of and attend all meetings of the Directors, the
Executive Committee and shareholders. In the absence of the Secretary
or an Assistant Secretary from any meeting of the Board of Directors,
the proceedings of such meeting shall be recorded by such other person
as may be appointed for that purpose.
The Secretary shall keep in safe custody the seal of the
Corporation, and duplicates, if any, and when requested by the Board of
Directors, or when any instrument shall have been first signed by the
Chairman of the Board, the President or a Vice President duly
authorized to sign the same, or when necessary to attest any proceedings
of the shareholders or directors, shall affix it to any instrument
requiring the same, and shall attest the same. The Secretary shall,
with the Chairman of the Board or the President, sign certificates of
stock of the Corporation and affix a seal of the Corporation or cause
such seal to be imprinted or engraved thereon, subject, however, to the
provisions providing for the use of facsimile signatures on stock
certificates under certain conditions. The Secretary shall have charge
of such books and papers as properly belong to such office, or as may be
committed to the Secretary's care by the Board of Directors or by the
Executive Committee, and shall perform such other duties as pertain to
such office, or as may be required by the Board of Directors, the
Executive Committee or the Chairman of the Board.
SECTION 4.9. ASSISTANT TREASURERS. - Each Assistant Treasurer (if
one or more Assistant Treasurers be elected or appointed) shall assist
the Treasurer and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Treasurer, any Assistant Treasurer may perform temporarily the duties of
Treasurer in the case of the Treasurer's absence or inability to act.
In the case of the death of the Treasurer, or in the case of absence or
inability to act without having designated an Assistant Treasurer to
perform temporarily the duties of Treasurer, an Assistant Treasurer
shall be designated by the Chairman of the Board or the President to
perform the duties of the Treasurer. Each Assistant Treasurer shall, if
required by the Board of Directors, give the Corporation a bond with
such surety or sureties as may be ordered by the Board of Directors, for
the faithful performance of the duties of such office and for the
restoration to the Corporation, in case of death, resignation,
retirement or removal from office, of all books, papers, vouchers, money
and other property of whatever kind belonging to the Corporation in the
possession or under control of such Assistant Treasurer.
SECTION 4.10. ASSISTANT SECRETARIES. - Each Assistant Secretary
(if one or more Assistant secretaries be elected or appointed) shall
assist the Secretary and shall perform such other duties as the Board of
Directors may from time to time prescribe or the Chairman of the Board
or the President may from time to time delegate. At the request of the
Secretary, any Assistant Secretary may perform temporarily the duties of
Secretary in the case of the Secretary's absence or inability to act.
In the case of the death of the Secretary, or in the case of absence or
inability to act without having designated an Assistant Secretary to
perform temporarily the duties of Secretary, the Assistant Secretary to
perform the duties of the Secretary shall be designated by the Chairman
of the Board or the President.
SECTION 4.11. GENERAL COUNSEL. - The General Counsel shall be
responsible for the management of the Legal Department in its support of
all other operations of the Corporation including management guidance to
assure responsible decisions, information for all employees concerning
the legal and judicial environment and recommended changes of law as
deemed advisable. In addition, the General Counsel shall be responsible
for the coordination of outside counsel activities in all instances as
well as the prosecution of charges against the Corporation or other
judicial or regulatory activities. This shall include full information
for the management and employees of judicial, regulatory or other
administrative body rulings and their impact on the Corporation. The
duties shall include approval of all legal and contractual documents of
the Corporation, prior to their authorization, and full support to
various departments to assist in the development of these documents.
The General Counsel shall perform such other duties as may be assigned
from time to time by the Board of Directors, the Executive Committee,
the Chairman of the Board or the President.
ARTICLE V
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate
representing shares of the Corporation shall state upon the face (a)
that the Corporation is organized under the laws of the State of Iowa,
(b) the name of the person to whom issued, (c) the number and class of
shares, and the designation of the series, if any, which such
certificate represents, and (d) the par value of each share, if any, and
each such certificate shall otherwise be in such form as shall be
determined by the Board of Directors. Such certificates shall be signed
by the Chairman of the Board or the President and by the Secretary or an
Assistant Secretary and shall be sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate
may be facsimiles. If a certificate is countersigned by a transfer
agent, or registered by a registrar, the signatures of the persons
signing for such transfer agent or registrar also may be facsimiles. In
case any officer or other authorized person who has signed or whose
facsimile signature has been placed upon such certificate for the
Corporation shall have ceased to be such officer or employee or agent
before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were an officer or employee or
agent at the date of its issue. Each certificate for shares shall be
consecutively numbered or otherwise identified.
All certificates surrendered to the Corporation for transfer shall
be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the
Corporation shall be made only on the stock transfer books of the
Corporation by the holder of record thereof or by such person's legal
representative, who shall furnish proper evidence of authority to
transfer, or authorized attorney, by power of attorney duly executed and
filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares.
Subject to the provisions of Section 2.11 of Article II of these
Bylaws, the person in whose name shares stand on the books of the
Corporation shall be treated by the Corporation as the owner thereof for
all purposes, including all rights deriving from such shares, and the
Corporation shall not be bound to recognize any equitable or other claim
to, or interest in, such shares or rights deriving from such shares, on
the part of any other person, including (without limitation) a
purchaser, assignee or transferee of such shares, or rights deriving
from such shares, unless and until such purchaser, assignee, transferee
or other person becomes the record holder of such shares, whether or not
the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person.
Except as provided in said Section 2.11 hereof, no such purchaser,
assignee, transferee or other person shall be entitled to receive notice
of the meetings of shareholders, to vote at such meetings, to examine
the complete record of the shareholders entitled to vote at meetings, or
to own, enjoy or exercise any other property or rights deriving from
such shares against the Corporation, until such purchaser, assignee,
transferee or other person has become the record holder of such shares.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify
its directors, officers, employees and agents to the full extent
permitted by the Iowa Business Corporation Act, as amended from time to
time. The Corporation shall purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any
liability asserted against and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not
the Corporation would have the power to indemnify such person against
such liability under the provisions of this section.
SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation
shall be the calendar year.
SECTION 6.3. SEAL. - The corporate seal shall be circular in form
and shall have inscribed thereon the name of the Corporation and the
words "CORPORATE SEAL IOWA". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - All
contracts, checks, drafts or other orders for the payment of money,
notes or other evidences of indebtedness issued in the name of the
Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors. The Board may
authorize by resolution any officer or officers to enter into and
execute any contract or instrument of indebtedness in the name of the
Corporation; and such authority may be general or confined to specific
instances. All funds of the Corporation not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such
banks or other depositories as the Board of Directors may authorize.
SECTION 6.5. DIVIDENDS. - Subject to the provisions of the
Articles of Incorporation, the Board of Directors may, at any regular or
special meeting, declare dividends upon the capital stock of the
Corporation payable out of surplus (whether earned or paid-in) or
profits as and when they deem expedient. Before declaring any dividend
there may be set apart out of surplus or profits such sum or sums as the
directors from time to time in their discretion deem proper for working
capital or as a reserve fund to meet contingencies or for such other
purposes as the directors shall deem conducive to the interests of the
Corporation.
SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required
to be given to any shareholder or Director of the Corporation under the
provisions of these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the Iowa Business Corporation
Act, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. - Subject
always to the specific directions of the Board of Directors, any share
or shares of stock issued by any other corporation and owned or
controlled by the Corporation may be voted at any shareholders' meeting
of such other corporation by the President of the Corporation if
present, or if absent by any other officer of the Corporation who may be
present. Whenever, in the judgment of the President, or if absent, of
any officer, it is desirable for the Corporation to execute a proxy or
give a shareholders' consent in respect to any share or shares of stock
issued by any other corporation and owned by the Corporation, such proxy
or consent shall be executed in the name of the Corporation by the
President or one of the officers of the Corporation and shall be
attested by the Secretary or an Assistant Secretary of the Corporation
without necessity of any authorization by the Board of Directors. Any
person or persons designated in the manner above stated as the proxy or
proxies of the Corporation shall have full right, power and authority to
vote the share or shares of stock issued by such other corporation and
owned by the Corporation in the same manner as such share or shares
might be voted by the Corporation.
SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted by the Board of Directors at any
regular or special meeting of the Board of Directors.
<TABLE>
EXHIBIT 12
IES UTILITIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Twelve Months
Year Ended December 31, Ended
1991 1992 1993 1994 1995 September 30, 1996
(in thousands, except ratio of earnings to fixed charges)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 47,563 $ 45,291 $ 67,970 $ 61,210 $ 59,278 $ 53,580
Federal and state
income taxes 23,494 20,723 37,963 37,966 41,095 40,382
Net income before
income taxes 71,057 66,014 105,933 99,176 100,373 93,962
Interest on long-term debt 31,171 35,689 34,926 37,942 36,375 35,698
Other interest 5,595 3,939 5,243 3,630 8,085 8,677
Estimated interest
component of rents 6,594 4,567 3,729 3,970 4,637 4,361
Fixed charges as defined 43,360 44,195 43,898 45,542 49,097 48,736
Earnings as defined $ 114,417 $ 110,209 $ 149,831 $ 144,718 $ 149,470 $ 142,698
Ratio of earnings to fixed
charges (unaudited) 2.64 2.49 3.41 3.18 3.04 2.93
For the purposes of computation of these ratios (a) earnings have been
calculated by adding fixed charges and federal and state income taxes to
net income; (b) fixed charges consist of interest (including amortization
of debt expense, premium and discount) on long-term and other debt and
the estimated interest component of rents.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1996 and the Consolidated Statement
of Income and the Consolidated Statement of Cash Flows for the nine months
ended September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,336,705
<OTHER-PROPERTY-AND-INVEST> 64,525
<TOTAL-CURRENT-ASSETS> 94,517
<TOTAL-DEFERRED-CHARGES> 22,213
<OTHER-ASSETS> 212,753
<TOTAL-ASSETS> 1,730,713
<COMMON> 33,427
<CAPITAL-SURPLUS-PAID-IN> 279,042
<RETAINED-EARNINGS> 219,206
<TOTAL-COMMON-STOCKHOLDERS-EQ> 531,675
0
18,320
<LONG-TERM-DEBT-NET> 517,279
<SHORT-TERM-NOTES> 4,230
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 78,000
<LONG-TERM-DEBT-CURRENT-PORT> 8,140
0
<CAPITAL-LEASE-OBLIGATIONS> 23,002
<LEASES-CURRENT> 13,523
<OTHER-ITEMS-CAPITAL-AND-LIAB> 536,544
<TOT-CAPITALIZATION-AND-LIAB> 1,730,713
<GROSS-OPERATING-REVENUE> 553,177
<INCOME-TAX-EXPENSE> 32,799<F1>
<OTHER-OPERATING-EXPENSES> 442,713
<TOTAL-OPERATING-EXPENSES> 442,713<F1>
<OPERATING-INCOME-LOSS> 110,464
<OTHER-INCOME-NET> (2,949)
<INCOME-BEFORE-INTEREST-EXPEN> 107,515
<TOTAL-INTEREST-EXPENSE> 33,346
<NET-INCOME> 41,370
686
<EARNINGS-AVAILABLE-FOR-COMM> 40,684
<COMMON-STOCK-DIVIDENDS> 34,000
<TOTAL-INTEREST-ON-BONDS> 38,677
<CASH-FLOW-OPERATIONS> 136,796
<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>
