Registration No. 333-_____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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IES UTILITIES INC.
(Exact name of registrant as specified in its charter)
Iowa 4931 42-0331370
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization)(classification code number)Identification No.)
Alliant Energy Tower
200 First Street SE
Cedar Rapids, Iowa 52401
(319) 398-4411
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Edward M. Gleason Copies to:
Vice-President Treasurer and Corporate Secretary Benjamin F. Garmer, III, Esq.
IES Utilities Inc. Foley & Lardner
222 West Washington Avenue 777 East Wisconsin Avenue
Madison, Wisconsin 53703 Milwaukee, Wisconsin 53202
(608) 252-3311 (414) 271-2400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
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CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered(1) Per Share(2) Offering Price(2) Fee(2)
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Class A
Preferred Stock,
$50 par value..... 761,381 Shares $50.00 $38,064,050 $9,518
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(1) Represents the maximum number of shares of the registrant's Class A
Preferred Stock, par value $50.00 per share ("Class A Shares"), that could
be issued in connection with the merger described herein upon conversion by
operation of the merger of each share of cumulative preferred stock, par
value $50.00 per share, of Interstate Power Company, a Delaware corporation
("IPC Preferred Stock"), issued and outstanding at the effective time of
the merger into one Class A Share. As of January 12, 2001, there were
(i) 60,455 shares of 4.36% IPC Preferred Stock; (ii) 55,926 shares of 4.68%
IPC Preferred Stock; (iii) 100,000 shares of 7.76% IPC Preferred Stock; and
(iv) 545,000 shares of 6.40% IPC Preferred Stock issued and outstanding.
(2) Calculated pursuant to Rule 457(f) under the Securities Act of 1933, as
amended, based upon the book value of the IPC Preferred Stock as of
January 12, 2001.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PRELIMINARY COPY
[IESU LOGO] [IPC LOGO]
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear IES Utilities Inc. and Interstate Power Company Shareowners:
The boards of directors of IES Utilities Inc. ("IESU") and Interstate
Power Company ("IPC") have approved a merger agreement that will result in IPC
merging with and into IESU. IPC and IESU are both operating subsidiaries of
Alliant Energy Corporation. We believe the merger will allow the combined
company to reduce expenses by integrating corporate and administrative
functions. The merger should also offer shareowners greater financial strength
and flexibility and create the opportunity for more competitive rates over the
long term, helping the combined company to be more competitive.
Under the merger agreement, each share of IPC preferred stock will be
canceled and converted into the right to receive one share of a new class of
IESU Class A preferred stock with substantially identical designations, rights
and preferences as the IPC preferred stock. The IPC preferred stock is not, and
the new IESU Class A preferred stock will not be, listed on any securities
exchange or included in any automated quotation system. IESU preferred
shareowners will continue to own their existing shares after the merger. After
the merger, the name of IESU, the surviving corporation, would be changed to
Interstate Power and Light Company.
We cannot complete the merger without the approval of the merger
agreement by the shareowners of IESU and IPC and the approval by the shareowners
of IESU of an amendment to IESU's amended and restated articles of incorporation
authorizing the new class of IESU Class A preferred stock. We have scheduled
special meetings of the shareowners of IESU and IPC to vote on the merger,
amendments and related matters, as applicable. The accompanying Notices of
Special Meetings of Shareowners show the time and location of each meeting. The
IESU common stock and each class of IESU preferred stock will vote as separate
classes at the IESU special meeting, and the IPC preferred stock will vote
together with the IPC common stock at the IPC special meeting.
IESU Shareowners: Your vote is important. Please take time to vote by
completing the enclosed proxy card and returning it in the envelope provided.
IPC Shareowners: You may vote in person at the special IPC meeting. We
are not asking you for a proxy, and you are requested not to send us a proxy.
The only vote of IPC shareowners required to approve the merger agreement is the
affirmative vote of at least a majority of the outstanding shares of IPC common
stock and IPC preferred stock voting together as one class. Alliant Energy
Corporation, as the sole shareholder of IPC common stock, beneficially owns
92.8% of the aggregate voting power of all IPC shareowners and intends to vote
for approval of the merger agreement. As a result, approval of the merger
agreement by the IPC shareowners at the IPC special meeting is assured.
This proxy statement/prospectus gives you detailed information about
the proposed merger. We encourage you to read it carefully.
We are very enthusiastic about the merger and the strength we expect
from the combined company. We join all of the other members of each company's
board of directors in our strong recommendation that the IESU shareowners vote
in favor of the merger.
Sincerely,
[Signatories]
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the new IESU Class A preferred stock to
be issued in the merger or determined if this proxy statement/prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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This proxy statement/prospectus is dated _________ ____, 2001.
<PAGE>
You should rely only on the information provided in or incorporated by
reference (and not later changed) in this proxy statement/prospectus. Neither
IESU nor IPC has authorized anyone else to provide you with additional or
different information. IESU is not making an offer of any securities in any
state where the offer is not permitted. You should not assume that the
information in this proxy statement/prospectus is accurate as of any date other
than the date on the front of this document.
This proxy statement/prospectus incorporates important business and
financial information about IESU that is not included in or delivered with this
document. That information is available without charge to shareowners by calling
or writing to IESU at the following address:
Edward M. Gleason
Vice President - Treasurer and Corporate Secretary
IES Utilities Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
(608) 252-3311
To obtain timely delivery of this information from IESU, you must
request the information no later than five business days before the date of your
shareholders' meeting. Therefore, you must request this information on or before
________ ____, 2001. The information is also available from the SEC through its
web site at http://www.sec.gov. See "Where You Can Find More Information."
<PAGE>
IES Utilities Inc.
Alliant Energy Tower
200 First Street SE
Cedar Rapids, Iowa 52401
Notice of Special Meeting of Shareowners
Date: _______ ____, 2001
Time: ______ p.m., local time
Place: Alliant Energy Tower
200 First Street SE
Cedar Rapids, Iowa 52401
Purpose of the Meeting:
o To consider a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of March 15, 2000, as amended, providing
for the merger of Interstate Power Company ("IPC") with and into
IES Utilities Inc. ("IESU").
o To consider a proposal to approve and adopt the amendment to
IESU's amended and restated articles of incorporation that will
create the class of new IESU Class A preferred stock we will
issue in the merger in exchange for outstanding shares of IPC
preferred stock.
o To consider a proposal to approve and adopt the amendment to
IESU's amended and restated articles of incorporation that will
change IESU's name to "Interstate Power and Light Company" if we
complete the merger.
o To consider any other matters that may be properly brought before
the special meeting or any adjournment or postponement of the
special meeting.
Only shareowners of record at the close of business on _________ ____,
2001, are entitled to notice of, and to vote at, the special meeting or any
adjournment or postponement of the special meeting.
Under the merger agreement, each share of IPC preferred stock will be
canceled and converted into the right to receive one share of new IESU Class A
preferred stock with substantially identical designations, rights and
preferences. As an IESU preferred shareowner, you will continue to own your
preferred shares after the merger. After the merger, the name of IESU, the
surviving corporation, would be changed to Interstate Power and Light Company.
The board of directors of IESU has approved and adopted the merger
agreement, the amendment to establish the new class of IESU Class A preferred
stock, and the amendment to change IESU's corporate name, and determined that
the merger is in the best interests of IESU and its shareowners. The board
recommends that you vote "for" approval and adoption of each of the proposals.
The terms of the merger agreement and the merger are summarized in the
accompanying proxy statement/prospectus, which we urge you to read carefully. A
copy of the merger agreement is attached as Appendix A.
Your vote is important. Whether or not you expect to attend the
special meeting, please complete, sign and date the enclosed proxy card and
return it promptly in the enclosed postage-paid return envelope. You can revoke
your proxy at any time before it is voted by giving written notice to IESU's
corporate secretary or the acting secretary of the special meeting, by filing
another proxy, or by voting in person at the special meeting. Attendance at the
special meeting, by itself, does not revoke your proxy.
By Order of the Board of Directors
Edward M. Gleason
Vice President-Treasurer and Corporate Secretary
_________ ____, 2001
<PAGE>
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52001
Notice of Special Meeting of Shareowners
Date: _______ ____, 2001
Time: ______ p.m., local time
Place: Interstate Power Company
1000 Main Street
Dubuque, Iowa 52001-4700
Purpose of the Meeting:
o To consider a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of March 15, 2000, as amended, providing
for the merger of Interstate Power Company ("IPC") with and into
IES Utilities Inc. ("IESU").
o To consider any other matters that may be properly brought before
the special meeting or any adjournment or postponement of the
special meeting.
Only shareowners of record at the close of business on ______________,
2001, are entitled to notice of, and to vote at, the special meeting or any
adjournment or postponement of the special meeting.
Under the merger agreement, each share of IPC preferred stock will be
canceled and converted into the right to receive one share of new IESU Class A
preferred stock with substantially identical designations, rights and
preferences. IESU preferred shareowners will continue to own their preferred
shares after the merger. After the merger, the name of IESU, the surviving
corporation, would be changed to Interstate Power and Light Company.
The board of directors of IPC has approved and adopted the merger
agreement and determined that the merger is in the best interests of IPC and its
shareowners. The board recommends that shareowners that attend the special
meeting vote "for" approval and adoption of the merger agreement.
The only vote of our shareowners required to approve the merger
agreement is the affirmative vote of at least a majority of the outstanding
shares of our common stock and our preferred stock voting together as one class.
Alliant Energy Corporation, as the sole shareholder of our common stock,
beneficially owns 92.8% of the aggregate voting power of all IPC shareowners and
intends to vote for approval of the merger agreement at the special meeting.
Therefore, approval of the merger agreement by the IPC shareowners at the
special meeting is assured.
As a result, we are not asking you for a proxy and we request you not
send us a proxy.
The terms of the merger agreement and the merger are summarized in the
accompanying proxy statement/prospectus, which we urge you to read carefully. A
copy of the merger agreement is attached as Appendix A.
By Order of the Board of Directors
Edward M. Gleason
Vice President-Treasurer and Corporate Secretary
_________ ____, 2001
<PAGE>
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.........................................1
FORWARD-LOOKING STATEMENTS.....................................................4
SUMMARY........................................................................5
THE COMPANIES...............................................................5
THE MERGER AND THE MERGER AGREEMENT.........................................6
WHAT IPC SHAREOWNERS WILL RECEIVE...........................................6
REASONS FOR THE MERGER......................................................6
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER......................6
RECOMMENDATIONS TO SHAREOWNERS..............................................6
OTHER INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER.....................6
BOARD OF DIRECTORS OF THE COMBINED COMPANY AFTER THE MERGER.................7
SHAREOWNER VOTES REQUIRED...................................................7
SHARE OWNERSHIP OF MANAGEMENT...............................................7
PAYMENT FOR IPC PREFERRED SHARES............................................7
DISSENTERS' RIGHTS..........................................................7
CONDITIONS TO THE COMPLETION OF THE MERGER..................................8
TERMINATION OF MERGER AGREEMENT.............................................8
REGULATORY APPROVALS........................................................8
ACCOUNTING TREATMENT OF THE MERGER..........................................8
IESU SELECTED CONSOLIDATED FINANCIAL DATA...................................9
IPC SELECTED FINANCIAL DATA................................................10
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA.......................11
THE SPECIAL MEETINGS..........................................................12
IESU SPECIAL MEETING.......................................................12
IPC SPECIAL MEETING........................................................14
THE MERGER AND THE MERGER AGREEMENT...........................................16
GENERAL....................................................................16
BACKGROUND OF THE MERGER...................................................16
REASONS FOR THE MERGER.....................................................17
RECOMMENDATIONS TO SHAREOWNERS.............................................17
OTHER INTERESTS OF CERTAIN PERSONS IN THE MERGER...........................17
BOARD OF DIRECTORS.........................................................17
DISSENTERS' RIGHTS.........................................................18
REPRESENTATIONS AND WARRANTIES.............................................18
COVENANTS..................................................................19
INDEMNIFICATION............................................................20
CONDITIONS TO CLOSING......................................................20
TERMINATION................................................................21
AMENDMENT..................................................................21
DISSENTERS' RIGHTS.........................................................21
REGULATORY APPROVALS.......................................................25
ACCOUNTING FOR THE MERGER..................................................26
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.........................26
<PAGE>
THE COMPANIES.................................................................28
IESU.......................................................................28
IPC........................................................................40
AMENDMENTS TO IESU AMENDED AND RESTATED ARTICLES OF INCORPORATION............53
DESCRIPTION OF NEW IESU PREFERRED STOCK.......................................54
DIVIDEND RIGHTS AND RESTRICTIONS ON COMMON DIVIDENDS.......................54
VOTING RIGHTS..............................................................54
REDEMPTION PROVISIONS......................................................55
LIQUIDATION RIGHTS.........................................................55
PREEMPTION AND SUBSCRIPTION RIGHTS.........................................55
SERIES OF NEW IESU CLASS A PREFERRED STOCK.................................56
CERTAIN EFFECTS ON PREFERRED SHAREOWNERS...................................58
COMPARISON OF RIGHTS OF PREFERRED SHAREOWNERS.................................59
COMPARISON OF IESU CHARTER AND BYLAWS TO IPC CHARTER AND BYLAWS............59
COMPARISON OF IOWA AND DELAWARE LAW........................................62
CERTAIN INFORMATION CONCERNING US.............................................67
CERTAIN ARRANGEMENTS BETWEEN IESU, IPC AND AFFILIATES......................67
DIRECTORS AND EXECUTIVE OFFICERS...........................................68
EXECUTIVE COMPENSATION.....................................................68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................68
LEGAL MATTERS.................................................................68
EXPERTS.......................................................................69
WHERE YOU CAN FIND MORE INFORMATION...........................................70
INTERSTATE POWER AND LIGHT COMPANY UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS..........................................................71
INDEX TO FINANCIAL STATEMENTS................................................F-1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why am I receiving these materials?
A: The boards of directors of IESU and IPC are providing this proxy statement/
prospectus to you starting on or about _______ ___, 2001, in connection
with each company's special meeting of shareowners to approve and adopt the
merger agreement and, in the case of IESU, the related amendments to IESU's
amended and restated articles of incorporation. As a shareowner, you are
invited to attend your company's special meeting and are entitled and
requested to vote on your company's proposals described in this proxy
statement/ prospectus.
Q: What will I receive in the merger?
A: If we complete the merger, each share of IPC preferred stock will be
converted into the right to receive a share of new IESU Class A preferred
stock with rights, designations and preferences that are substantially
identical to the IPC preferred shares currently outstanding. If you are an
IESU preferred shareowner, you will continue to hold the IESU preferred
shares you currently own after the merger. See "The Merger and the Merger
Agreement - General."
Q: When and where are the shareowner meetings?
A: The IESU special meeting will take place on ____________, 2001 at
Alliant Energy Tower, 200 First Street, SE, Cedar Rapids, Iowa. The IPC
special meeting will take place on ____________, 2001 at Interstate Power
Company, 1000 Main Street, Dubuque, Iowa.
Q: What votes are required to approve the merger agreement?
A: For IESU, approval of the merger agreement requires the affirmative vote of
at least:
o a majority of the votes entitled to be cast by the holder of IESU
common stock (the sole shareowner of IESU common stock has indicated
that it intends to vote for approval of the merger agreement, so this
required vote is assured); and
o a majority of the outstanding shares of each class of IESU preferred
stock voting as individual classes.
For IPC, approval of the merger agreement requires the affirmative vote of
at least a majority of the votes entitled to be cast by the holder of IPC
common stock and the holders of IPC preferred stock, all voting together as
a single class. The sole shareowner of IPC common stock, which
beneficially owns an aggregate of 92.8% of the combined voting power of
all IPC shareowners, has indicated that it intends to vote for approval of
the merger agreement at the IPC special meeting, so approval of the merger
agreement by the required vote of IPC shareowners is assured.
Q: What votes are required to approve the amendments to the IESU amended and
restated articles of incorporation?
A: Assuming a quorum is present for each class, approval of the amendments to
the IESU amended and restated articles of incorporation requires the
affirmative vote of at least a majority of the outstanding shares of the
IESU common stock and of each class of IESU preferred stock, voting as
separate classes, in attendance at the IESU special meeting. The sole
shareowner of IESU common stock has indicated that it intends to vote for
approval of the amendments at the IESU special meeting, so approval of the
amendments by the required vote of IESU common shareowners is assured. We
cannot complete the
1
<PAGE>
merger unless we obtain approval of the amendments to the IESU amended and
restated articles of incorporation.
Q: How can I vote my shares?
A: IPC shareowners may vote in person at the IPC special meeting. We are not
asking IPC shareowners for a proxy, and we request you not send us a proxy.
Since the sole shareowner of IPC common stock beneficially owns 92.8% of
the aggregate voting power of all IPC shareowners and intends to vote for
approval of the merger agreement, approval of the merger agreement by the
IPC shareowners at the IPC special meeting is assured.
IESU shareowners may vote either in person at the IESU special meeting or
by granting a proxy. If you, as an IESU shareowner, desire to grant a
proxy, then you may either fax or mail your executed proxy card as
indicated thereon. Please refer to the instructions included on your IESU
proxy card to vote by proxy. Voting a proxy will not affect your right to
vote your shares if you attend the special meeting and desire to vote in
person.
Q: Can I change my vote after I have mailed my IESU proxy card?
A: Yes. You can change your vote at any time before your proxy is voted at the
IESU special meeting. You can do this in one of three ways:
o timely delivery of a valid, later-dated proxy;
o delivery of written notice to IESU's Secretary before the IESU special
meeting stating that you have revoked your proxy; or
o voting by ballot at the IESU special meeting.
If you have instructed a broker to vote your shares, you must follow directions
from your broker to change those instructions.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No, unless you provide your broker with instructions on how to vote your
"street name" shares. You should therefore be sure to provide your broker
with instructions on how to vote your shares. Please check the voting form
used by your broker to see if it offers telephone voting.
Q: Should I send in my stock certificates?
A: No. If the IESU shareowners and the IPC shareowners approve the merger
agreement, and all other conditions to the merger are satisfied or waived,
then after the merger is effective, we will send IPC preferred shareowners
written instructions for turning in their IPC preferred stock certificates.
The IESU preferred shareowners will keep their existing stock certificates.
Q: As a holder of IPC or IESU preferred stock, am I entitled to dissenters
rights?
A: Yes. IESU preferred shareowners have dissenters' appraisal rights under
Iowa law in connection with the merger, and IPC preferred shareowners have
dissenters' appraisal rights under Delaware law in connection with the
merger. Please see "The Merger and the Merger Agreement - Dissenters'
Rights."
Q: Will I recognize a taxable gain or loss as a result of the merger?
A: Generally, no. For IESU and IPC preferred shareowners, the merger generally
will be a tax-free event for United States federal income tax purposes,
except for taxes which may result from the exercise of
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<PAGE>
dissenters' appraisal rights under Iowa or Delaware law in connection with
the merger. However, you should consult your tax advisor for appropriate
advice, which may vary.
Q: What happens to my future dividends?
A: Although future dividends are subject to future approval and declarations
by the combined company's board of directors, IESU and IPC currently plan
to continue to pay dividends as required on preferred stock. After the
merger, dividend payments will be made by the combined company.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger by _______________. However, it is
possible that factors outside our control could require us to complete the
merger at a later time.
Q: Who do I contact if I have questions about the meetings or the merger?
A: Shareowners of either IPC or IESU may call 1-800-356-5343 or
1-608-252-3110.
You may also contact:
Alliant Energy Corporate Services, Inc.
Shareowner Services
222 West Washington Avenue
P.O. Box 2568
Madison, WI 53701-2568
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<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus (including the information we
incorporate by reference) contains forward-looking statements that are not of
historical fact and are statements intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
From time to time, IESU or IPC may make other forward-looking statements within
the meaning of the federal securities laws that involve judgments, assumptions
and other uncertainties beyond our control. These forward-looking statements may
include, among others, statements concerning revenue and cost trends, cost
recovery, cost reduction strategies and anticipated outcomes, pricing
strategies, changes in the utility industry, planned capital expenditures,
financing needs and availability, statements of expectations, beliefs, future
plans and strategies, anticipated events or trends and similar comments
concerning matters that are not historical facts. You are cautioned that these
statements are not a guarantee of future performance and that these
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed in, or implied
by, these statements. Some, but not all, of the risks and uncertainties include:
o weather effects on sales and revenues,
o competitive factors,
o general economic conditions in the relevant service territory,
o federal and state regulatory or government actions, including issues
associated with the deregulation of the utility industry and the
setting of rates,
o unanticipated construction and acquisition expenditures,
o issues related to stranded costs and their recovery,
o the operations of IESU's nuclear facility,
o unanticipated costs associated with certain environmental remediation
efforts being undertaken by IESU and IPC,
o technological developments,
o employee workforce factors, including changes in key executives,
collective bargaining agreements or work stoppages, and
o changes in the rate of inflation.
4
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the terms and conditions of the merger agreement, you should
carefully read this entire document, including appendices, and the documents to
which we refer. See "Where You Can Find More Information."
In this proxy statement/prospectus, "we", "us" and "our" refer to IESU
and IPC.
When we refer to "IESU preferred stock" in this proxy
statement/prospectus, we mean all classes of IESU cumulative preferred stock,
including IESU 4.80% cumulative preferred stock, IESU 4.30% cumulative preferred
stock and IESU cumulative preferred stock (Series 6.10%) and, after the merger
is effective, the new IESU Class A preferred stock. When we refer to "IPC
preferred stock,", we mean all classes of IPC preferred stock, including IPC
4.36% preferred stock, IPC 4.68% preferred stock, IPC 7.76% preferred stock and
IPC 6.40% preferred stock. When we refer to "new IESU Class A preferred stock,"
we mean the new class of IESU's Class A preferred stock that will be established
by the proposed amendment to IESU's amended and restated articles of
incorporation and that will be exchanged for existing IPC preferred stock in the
merger.
The Companies
IES Utilities Inc.
200 First Street, S.E.
Cedar Rapids, Iowa
(319) 398-4411
Internet address: www.alliant-energy.com
IESU is a wholly-owned subsidiary of Alliant Energy Corporation and a
public utility operating company with all operations in the State of Iowa. IESU
supplies electric energy, natural gas and steam services to a service area with
an estimated population of 1,161,000. For the twelve months ended December 31,
1999, IESU derived approximately 78% of its revenues from providing electric
service, approximately 18% from providing natural gas service and approximately
4% from the provision of steam services. At December 31, 1999, IESU supplied
retail electric service to more than 345,000 customers in 525 communities in
Iowa and retail natural gas service to more than 181,000 customers in 212
communities in Iowa, and IESU was providing wholesale electric service to 5
customers. IESU's 1999 system peak demand was 1,990 megawatts. IESU has
installed generating capacity of 1,951 megawatts.
Interstate Power Company
1000 Main Street
Dubuque, Iowa 52001
(319) 582-5421
Internet address: www.alliant-energy.com
IPC, a wholly-owned subsidiary of Alliant Energy, is a public utility
operating company with operations in over 10,000 square miles in the States of
Iowa, Minnesota and Illinois. IPC provides electric service to approximately
167,000 customers in 234 communities in portions of 25 counties in northern and
northeastern Iowa, portions of 22 counties in southern Minnesota and portions of
four counties in northwestern Illinois. IPC also serves 50,000 natural gas
customers in 41 communities, including Albert Lea, Minnesota; Clinton, Mason
City and Clear Lake, Iowa; and Fulton and Savanna, Illinois. In addition, IPC
transports natural gas within Iowa and Minnesota and in interstate commerce. For
the 12 months ended December 31, 1999, IPC derived approximately 86% of its
revenues from providing electric service and approximately 14% from providing
natural gas service. IPC's 1999 system peak demand was 1,015 megawatts (net of
interruptible load). IPC has installed generating capacity of 1,066 megawatts.
5
<PAGE>
The Merger and the Merger Agreement
Under the terms of the proposed merger, IPC will merge with and into
IESU, and IESU will survive the merger. The merger agreement is attached as
Appendix A to this proxy statement/prospectus. We encourage you to read the
merger agreement carefully and fully as it is the legal document that governs
the merger. We incorporate the merger agreement by reference into this proxy
statement/prospectus. See "The Merger and the Merger Agreement - General."
What IPC Shareowners will Receive
After we complete the merger, IPC's preferred shareowners will have
the right to receive one share of new IESU Class A preferred stock for each
share of IPC preferred stock that they held before the merger. The new IESU
Class A preferred stock will have substantially identical rights, designations
and preferences as the IPC preferred stock. See "The Merger and the Merger
Agreement - General."
Reasons for the Merger
The companies expect to reduce corporate and administrative expenses
by reducing systems costs related to redundant reporting requirements. In
addition, the companies expect to realize savings by eliminating certain
redundant maintenance contracts and eliminating some redundant operations
personnel.
Material Federal Income Tax Consequences of the Merger
For IESU and IPC preferred shareowners, the merger generally will be a
tax-free event for United States federal income tax purposes, except for taxes
which may result from the exercise of dissenters' appraisal rights under Iowa or
Delaware law in connection with the merger. See "Certain Federal Income Tax
Consequences of the Merger."
Recommendations to Shareowners
To IESU Shareowners:
IESU's board of directors believes the merger is advisable, fair to
you and in your best interests and recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
IESU's board of directors also recommends that you vote FOR the
proposals to approve and adopt the amendments to the IESU amended and restated
articles of incorporation authorizing the new IESU Class A preferred stock with
rights, designations and preferences that are substantially identical to those
of the IPC preferred stock, and, effective at the effective time of the merger,
changing IESU's name to "Interstate Power and Light Company."
To IPC Shareowners:
IPC's board of directors believes the merger is advisable, fair to you
and in your best interests and recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
Other Interests of Officers and Directors in the Merger
No benefits, such as employment agreements, stock options or other
executive compensation, will accrue to officers or directors of IPC or IESU due
to the merger. Moreover, the performance of the officers of IPC and IESU will be
reviewed in accordance with corporate policy, in light of overall corporate
performance and individual performance and not specifically on whether the
merger occurs.
6
<PAGE>
Board of Directors of the Combined Company After the Merger
The directors of IESU are also the directors of IPC and will comprise
the board of directors of the combined company after the merger.
Shareowner Votes Required
Merger Agreement
For IESU, approval of the merger agreement requires the affirmative
vote of at least:
o a majority of the votes entitled to be cast by the holder of IESU
common stock (the sole shareowner of IESU common stock has indicated
that it intends to vote for approval of the merger agreement, so this
required vote is assured); and
o a majority of the outstanding shares of each class of IESU preferred
stock voting as individual classes.
For IPC, approval of the merger agreement requires the affirmative
vote of at least a majority of the votes entitled to be cast by the holder of
IPC common stock and the holders of IPC preferred stock, all voting together as
a single class. As discussed, the sole shareowner of IPC common stock, who
beneficially owns an aggregate of 92.8% of the combined IPC voting power, has
indicated that it intends to vote for approval of the merger agreement, so
approval of the merger agreement by the required vote of IPC shareowners is
assured.
Amendments to IESU Amended and Restated Articles of Incorporation
Alliant Energy, as IESU's sole common shareowner, intends to vote for
approval of the amendments to the IESU amended and restated articles of
incorporation at the IESU special meeting. Approval of the amendments to the
IESU amended and restated articles of incorporation also requires the
affirmative vote of at least a majority of the outstanding shares of each class
of IESU preferred stock, voting as separate classes, in attendance at the IESU
special meeting (assuming a quorum is present for each class). We cannot
complete the merger unless we obtain approval of the amendments to the IESU
amended and restated articles of incorporation.
Share Ownership of Management.
At the close of business on ________ ___, 2001 (the IESU record date),
directors and executive officers of IESU and IESU's affiliates did not
beneficially own any shares of IESU preferred stock. At the close of business on
________ ___, 2001 (the IPC record date), directors and executive officers of
IPC and their affiliates did not beneficially own any shares of IPC preferred
stock. Alliant Energy is the sole holder of IESU common stock and of IPC common
stock.
Payment for IPC Preferred Shares
Promptly after we complete the merger, we will mail to holders of
shares of IPC preferred stock a letter of transmittal and instructions for use
in surrendering their IPC preferred stock certificates in exchange for
certificates representing shares of new IESU Class A preferred stock as
specified in the merger agreement. When holders of shares of IPC preferred stock
surrender their certificates, together with the executed letter of transmittal,
they will be entitled to a certificate representing the number of shares of new
IESU Class A preferred stock to which they are entitled to receive in respect of
the certificate surrendered.
7
<PAGE>
Dissenters' Rights
IESU preferred shareowners have dissenters' appraisal rights under
Iowa law in connection with the merger, and IPC preferred shareowners have
dissenters' appraisal rights under Delaware law in connection with the merger.
See "The Merger and the Merger Agreement - Dissenters' Rights."
Conditions to the Completion of the Merger
The completion of the merger depends upon the satisfaction or waiver
of a number of conditions contained in the merger agreement. See "The Merger and
the Merger Agreement - Conditions to Closing." Those conditions generally
include:
o approval and adoption of the merger agreement by the IESU and IPC
shareowners and approval by the IESU shareowners of the amendment to
the IESU amended and restated articles of incorporation authorizing
the new IESU Class A preferred stock;
o all material authorizations, consents, orders or approvals of
governmental agencies shall have been obtained or made;
o absence of any court order or other legal restraint or prohibition
preventing the consummation of the merger;
o receipt of opinions of counsel to IESU and IPC that the merger will
qualify as a tax-free reorganization;
o receipt of all consents or approvals required for the surviving
corporation to succeed to IESU's and IPC's material rights and
interests;
o material truth and correctness, as of closing, of the representations
and warranties made by IESU and IPC;
o the absence of any change in the financial condition, results of
operations or business of IPC that would have a material adverse
effect on IPC; and
o the absence of any change in the financial condition, results of
operations or business of IESU that would have a material adverse
effect on IESU.
Termination of Merger Agreement
IESU and IPC may mutually terminate the merger agreement without
completing the merger.
Regulatory Approvals
Completion of the merger will not occur until receipt of certain
regulatory approvals required for the transaction by the Federal Energy
Regulatory Commission (which we refer to as the "FERC"), the Securities and
Exchange Commission (which we refer to as the "SEC"), and the state public
utility commissions in Iowa, Illinois and Minnesota. See "The Merger and the
Merger Agreement -- Regulatory Approvals."
Accounting Treatment of the Merger
IESU and IPC expect the merger to qualify as a common control merger
for accounting and financial reporting purposes. The accounting for a common
control merger is similar to a pooling of interests. For accounting and
financial reporting purposes, IESU and IPC will be treated as if they had always
been combined.
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<PAGE>
IESU Selected Consolidated Financial Data
We have set forth in the following table selected consolidated
financial information of IESU. We derived this information from the consolidated
financial statements and notes of IESU. The unaudited interim period financial
information, in the opinion of IESU, includes all adjustments, which are normal
and recurring in nature, necessary for a fair presentation for the periods
shown. Unaudited results for the nine months ended September 30, 2000 are not
necessarily indicative of results you can expect for the full fiscal year. The
information set forth below is qualified in its entirety by and should be read
in conjunction with IESU's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the detailed information and
consolidated financial statements, including the notes thereto, that we have
included elsewhere in this proxy statement/prospectus.
<TABLE>
<CAPTION>
At or for the
Nine Months Ended
September 30, At or for the
(unaudited) Year Ended December 31,
-------------------------- ------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.......... $624,999 $608,386 $800,696 $806,930 $813,978 $754,979 $709,826
Earnings available for
common stock ........... 59,331 56,293 65,532 60,996 57,879 62,815 58,364
Cash dividends declared on
common stock............ 43,975 73,292 87,951 18,840 56,000 44,000 43,000
Balance Sheet Data:
Total assets................ 1,756,243 1,740,586 1,755,808 1,788,978 1,768,929 1,765,044 1,697,803
Long-term obligations,
net..................... 580,609 642,130 641,559 677,804 688,719 560,199 517,538
Ratio of Earnings to
Combined Fixed
Charges and
Preferred Dividends 3.37 3.23 2.99 2.75 2.69 3.13 2.95
</TABLE>
9
<PAGE>
IPC Selected Financial Data
We have set forth in the following table selected financial
information of IPC. We derived this information from the financial statements
and notes of IPC. The unaudited interim period financial information, in the
opinion of IPC, includes all adjustments, which are normal and recurring in
nature, necessary for a fair presentation for the periods shown. Unaudited
results for the nine months ended September 30, 2000 are not necessarily
indicative of results you can expect for the full fiscal year. The information
set forth below is qualified in its entirety by and should be read in
conjunction with IPC's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the detailed information and financial
statements, including the notes thereto, that we have included elsewhere in this
proxy statement/prospectus.
<TABLE>
<CAPTION>
At or for the
Nine Months Ended
September 30, At or for the
(unaudited) Year Ended December 31,
-------------------------- ------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues.......... $261,138 $264,904 $342,105 $355,889 $331,847 $326,084 $318,542
Earnings available for
common stock ........... 19,902 23,471 28,364 16,282 26,698 25,860 25,198
Cash dividends declared on
common stock............ 16,280 27,132 32,558 8,772 20,225 19,950 19,941
Balance Sheet Data:
Total assets................ 675,106 650,887 662,184 657,363 643,447 643,898 639,014
Long-term obligations,
net..................... 195,098 194,874 194,927 194,713 195,861 212,892 212,931
Ratio of Earnings to
Combined Fixed
Charges and
Preferred Dividends 3.19 3.61 3.35 2.35 3.13 3.03 2.98
</TABLE>
10
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data
We have set forth in the following table unaudited selected pro forma
combined financial data that combine the historical consolidated balance sheets
and statements of income of IESU and IPC, giving effect to the merger. We
selected or derived the information set forth below from the consolidated
financial statements and related notes of IESU and IPC that we have included
elsewhere in this proxy statement/prospectus. The unaudited pro forma combined
income statement data give effect to the merger as if it had occurred on
January 1, 1999. The unaudited pro forma combined balance sheet data give effect
to the merger as if it had occurred on September 30, 2000.
The unaudited pro forma combined financial data are qualified in their
entirety by reference to, and should be read in conjunction with, the unaudited
pro forma combined financial statements and notes thereto that are included
elsewhere in this proxy statement/prospectus. The unaudited pro forma combined
financial data give effect to the merger applying the common control merger
method of accounting. The pro forma combined financial data are provided for
illustrative purposes only and are not necessarily indicative of the results
that would have occurred if the merger had been in effect during the periods
presented or which may be attained in the future.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Year Ended
September 30, 2000 September 30, 1999 December 31, 1999
---------------------- ------------------------ ----------------------
(in thousands)
Income Statement Data:
<S> <C> <C> <C>
Operating revenues............................. $886,137 $873,290 $1,142,801
Earnings available for common stock............ 79,233 79,764 93,896
Cash dividends declared on common
stock.......................................... 60,255 100,424 120,509
<CAPTION>
As of
September 30, 2000
----------------------
(in thousands)
Balance Sheet Data:
<S> <C>
Total assets................................... $2,431,302
Long-term obligations, net..................... 775,707
</TABLE>
11
<PAGE>
THE SPECIAL MEETINGS
This proxy statement/prospectus is being furnished to IESU shareowners
in connection with the solicitation of proxies by the IESU board of directors
for use at the special meeting of IESU shareowners and to the IPC shareowners in
connection with the IPC special meeting. We are not soliciting IPC shareowners
for a proxy, and IPC shareowners are requested not to send us a proxy.
IESU Special Meeting
Date and Location. The special meeting of IESU shareowners will be
held at __:__ _.m. on ______day, ____________, 2001, at Alliant Energy Tower,
200 First Street, SE, Cedar Rapids, Iowa.
Purpose. At the IESU special meeting, the IESU shareowners will
consider:
o a proposal to approve and adopt the merger agreement, providing for
the merger of IPC with and into IESU;
o a proposal to approve and adopt the amendment to IESU's amended and
restated articles of incorporation that will create the class of new
IESU Class A preferred stock to be issued in the merger;
o a proposal to approve and adopt the amendment to IESU's amended and
restated articles of incorporation that will change IESU's name to
"Interstate Power and Light Company" if we complete the merger; and
o any other matters that may be properly brought before the special
meeting or any adjournment or postponement of the special meeting.
The IESU board has determined that the merger is in the best interests
of IESU and its shareowners and has approved and adopted the merger agreement
and the proposed amendments to its amended and restated articles of
incorporation. The IESU board recommends that its shareowners vote FOR approval
and adoption of the merger agreement and the proposed amendments to its amended
and restated articles of incorporation. See "The Merger and the Merger
Agreement-Reasons for the Merger."
The IESU board is not aware, as of the date of mailing of this proxy
statement/prospectus, of any other matters which may properly come before the
IESU special meeting. If any other matters properly come before the special
meeting, or any adjournment or postponement of the special meeting, the persons
named in the proxy intend to vote the proxies in accordance with their best
judgment.
Under the merger agreement, completion of the merger is conditioned
upon approval by the IESU shareowners of the merger agreement and the proposed
amendments to the IESU amended and restated articles of incorporation.
Record Date; Voting Rights. Only holders of record of IESU common
stock and IESU preferred stock at the close of business on the IESU record date,
____________, 2001, are entitled to receive notice of and to vote at the IESU
special meeting. At the close of business on the IESU record date, there were
146,406 shares of IESU 4.80% cumulative preferred stock, 120,000 shares of IESU
4.30% cumulative preferred stock and 100,000 shares of IESU cumulative preferred
stock (Series 6.10%) outstanding and entitled to vote. Each of these three
classes of IESU preferred stock is entitled to vote as a separate class at the
special meeting. Each share of each class of preferred stock entitles the
registered holder to one vote in the particular class vote.
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<PAGE>
Required Vote. Approval of the merger agreement by the IESU
shareowners at the IESU special meeting requires the affirmative vote of at
least:
o a majority of the votes entitled to be cast by the holder of IESU
common stock; and
o a majority of the outstanding shares of each class of IESU preferred
stock voting as individual classes.
Assuming a quorum is present in each case, approval of the amendments
to IESU's amended and restated articles of incorporation by the IESU shareowners
at the IESU special meeting requires the affirmative vote of at least a majority
of the outstanding shares of IESU common stock and of each class of IESU
preferred stock, all voting as separate classes, in attendance at the IESU
special meeting.
Alliant Energy, IESU's sole common shareholder, has indicated that it
intends to vote for approval of the merger agreement and the amendments to
IESU's amended and restated articles of incorporation at the IESU special
meeting. As a result, approval of the merger agreement and the amendments to
IESU's amended and restated articles of incorporation by the IESU common
shareowners is assured.
Because the merger agreement must be approved by a majority of all
outstanding shares of each class of IESU preferred stock (and not just by a
majority of the shares that are present at the IESU special meeting), an
abstention will have the effect of a vote cast against the merger agreement.
Brokers who hold shares of IESU preferred stock as nominees will not have
discretionary authority to vote those shares on the proposals in the absence of
instructions from the beneficial owners of those shares. Broker non-votes will
have the same effect as a vote against the merger agreement. Abstentions and
broker non-votes will have no effect on the votes on the amendments to IESU's
amended and restated articles of incorporation.
Quorum. For each class of IESU preferred stock, a majority of the
votes entitled to be cast by the shareowners entitled to vote must be
represented in person or by proxy at the IESU special meeting in order for a
quorum to be present. Shares of IESU preferred stock represented by proxies that
are marked "abstain" will be counted as shares present for purposes of
determining the presence of a quorum. If an executed proxy is returned by a
broker holding shares as a nominee, such shares will be considered present at
the meeting for purposes of determining a quorum. In the event that a quorum is
not present for each class of preferred stock at the special meeting, it is
expected that the meeting will be adjourned or postponed to solicit additional
proxies.
Proxies. All shares of IESU preferred stock represented by properly
executed proxies that are received in time for the IESU special meeting and have
not been revoked will be voted in accordance with the instructions indicated in
the proxies. If no instructions are indicated, the persons designated as proxies
on the enclosed proxy card will vote such shares in favor of the merger
agreement and the proposed amendments to the IESU amended and restated articles
of incorporation. In addition, the persons designated as proxies on the enclosed
proxy card will vote on any other matters properly brought before the special
meeting as determined in their best judgment. If IESU proposes to adjourn the
IESU special meeting, the persons designated as proxies on the enclosed proxy
card will vote all shares for which they have voting authority (other than those
that have been voted against the merger agreement) in favor of adjournment.
Any proxy in the enclosed form may be revoked by the shareowner
executing it at any time prior to its exercise by giving written notice to the
corporate secretary of IESU, by signing and returning a later-dated proxy or by
voting in person at the IESU special meeting. However, mere attendance at the
IESU special meeting will not in and of itself have the effect of revoking the
proxy.
Proxies will be received by IESU's agent, Alliant Energy Corporate
Services, Inc., which has been appointed inspector of elections for the IESU
special meeting and any adjournment or postponement thereof and will conduct and
tabulate the results of the voting at the meeting.
If the IESU special meeting is postponed or adjourned for any reason,
at any reconvened meeting all proxies will be voted in the same manner as they
would have been voted at the initial meeting, except for any
13
<PAGE>
proxies that have been revoked or withdrawn, notwithstanding that they may have
been effectively voted on the same or any other matter at a previous meeting.
Solicitation of Proxies. Proxies are being solicited on behalf of the
IESU board. Pursuant to the merger agreement, the cost of proxy solicitation for
the special meeting will be shared by IESU and IPC based upon a ratio of the
assets, revenues and operating expenses of the respective companies.
IESU has engaged Morrow & Co., Inc. to assist it in distributing proxy
materials and contacting record and beneficial holders of IESU preferred stock.
We will pay to Morrow a fee of $12,500 plus the reimbursement of out-of-pocket
expenses for its services. In addition, officers and regular employees of IESU
may solicit proxies by mail, personally or by telephone, facsimile transmission
or otherwise. The officers and regular employees will not be additionally
compensated for soliciting proxies, but may be reimbursed for their
out-of-pocket expenses. If undertaken, the expense of any solicitation by
officers or employees would be nominal. Arrangements will be made with
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of shares of IESU preferred stock held of record
by the custodians, nominees and fiduciaries, and IESU will reimburse the
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses.
Share Ownership of Management. At the close of business on the IESU
record date, directors and executive officers of IESU and IESU's affiliates did
not beneficially own any shares of IESU preferred stock. Alliant Energy is the
sole holder of IESU common stock.
IPC Special Meeting
Date and Location. The special meeting of shareowners of IPC will be
held at __:__ _.m. on ______day, ____________, 2001, at Interstate Power
Company, 1000 Main Street, Dubuque, Iowa.
Purpose. At the IPC special meeting, the shareowners of IPC, voting as
one class, will consider:
o a proposal to approve and adopt the merger agreement providing for the
merger of IPC with and into IESU; and
o any other matters that may be properly brought before the special
meeting or any adjournment or postponement of the special meeting.
The IPC board has determined that the merger is in the best interests
of IPC and its shareowners and has approved and adopted the merger agreement.
The IPC board recommends that the preferred shareowners of IPC vote FOR approval
and adoption of the merger agreement. See "The Merger and the Merger
Agreement-Reasons for the Merger."
The IPC board is not aware, as of the date of mailing of this proxy
statement/prospectus, of any other matters which may properly come before the
IPC special meeting.
Record Date; Voting Rights. Only holders of record of IPC common stock
and IPC preferred stock at the close of business on the IPC record date,
____________, 2001, are entitled to receive notice of and to vote at the IPC
special meeting. At the close of business on the IPC record date, there were
9,777,432 shares of IPC common stock and 761,381 shares of IPC preferred stock
outstanding and entitled to vote. Each share of IPC common stock and IPC
preferred stock entitles the registered holder thereof to one vote.
Required Vote. Approval of the merger agreement by the IPC shareowners
will require the affirmative vote of holders of a majority of the outstanding
shares of the IPC common stock and IPC preferred stock entitled to vote, voting
together as one class. Because the sole shareowner of IPC common stock
beneficially owns an aggregate of 92.8% of IPC's combined voting power and has
indicated that it intends to vote for approval of the merger agreement, approval
of the merger agreement by the IPC shareowners is assured.
14
<PAGE>
Quorum. A majority of the outstanding shares of the combined class of
IPC common stock and IPC preferred stock entitled to vote must be represented in
person or by proxy at the IPC special meeting in order to constitute a quorum
for the transaction of business.
Proxies. We are not asking IPC shareowners for a proxy, and we request
you not send us a proxy.
Because the merger agreement must be approved by a majority of all
outstanding shares of each class of IPC stock (and not just by a majority of the
shares that are present at the IPC meeting), an abstention will have the effect
of a vote cast against the merger agreement. Brokers who hold shares of IPC
preferred stock as nominees will not have discretionary authority to vote such
shares in the absence of instructions from the beneficial owners of the shares.
Broker non-votes will have the same effect as votes cast against the merger
agreement.
Share Ownership of Management. At the close of business on the IPC
record date, directors and executive officers of IPC and their affiliates did
not beneficially own any shares of IPC preferred stock. Alliant Energy is the
sole holder of IPC common stock.
15
<PAGE>
THE MERGER AND THE MERGER AGREEMENT
The discussion of the merger and the merger agreement contained in
this proxy statement/prospectus includes the material terms of the merger
agreement, but, because it is a summary, it may not contain all of the
information that is important to you. You should refer to the merger agreement
itself, a copy of which is attached as Appendix A to this proxy
statement/prospectus and is incorporated by reference herein, for the complete
terms of the merger.
General
Pursuant to the terms of the merger agreement, at the effective time
of the merger, IPC will merge into IESU and the separate existence of IPC will
cease. IESU will be the surviving corporation and, after completion of the
merger, will be renamed Interstate Power and Light Company. The amended and
restated articles of incorporation and bylaws of IESU immediately before the
effective time will be the amended and restated articles of incorporation and
bylaws of the surviving corporation, and the merger will have all the effects
provided by applicable law.
By the terms of the merger agreement, upon completion of the merger:
o each share of IPC common stock issued and outstanding or held in
treasury immediately prior to the effective time will be canceled
without payment;
o each share of IPC preferred stock of each series (including the series
designated as Series 4.36%, Series 4.68%, Series 7.76% and Series
6.40%) will cease to be outstanding and will be converted into and
become the right to receive one share of new Class A preferred stock
of the surviving corporation of the corresponding series (including
the series of new Class A preferred stock to be designated by IESU
prior to the merger as Series 4.36%, Series 4.68%, Series 7.76% and
Series 6.40%);
o each share of IPC preferred stock held in treasury will be canceled
and extinguished without conversion or payment;
o shares of IESU common stock issued and outstanding immediately prior
to the effective time will be unaffected by the merger and, at the
effective time, will remain issued and outstanding as shares of common
stock of the surviving corporation; and
o shares of IESU preferred stock issued and outstanding immediately
prior to the effective time will be unaffected by the merger and, at
the effective time, will remain issued and outstanding as shares of
preferred stock of the surviving corporation.
Background of the Merger
Alliant Energy was formed as a result of a three-way merger involving
WPL Holdings, Inc., IES Industries, Inc. and IPC that was completed in April
1998. As a result of the three-way merger, IESU and IPC became two of the five
primary first tier subsidiaries of Alliant Energy.
The proposed merger of IESU and IPC was formulated as part of the
Alliant Energy merger, which contemplated realizing benefits for IESU's and
IPC's customers, employees and shareowners through a two-step process. The first
step was a reorganization at the holding-company level and the second step at
the operating-company level through a merger of two of Alliant Energy's utility
subsidiaries, IESU and IPC.
Neither IESU nor IPC considered any potential merger candidates other
than each other, or other forms of business combinations, and no third party
advisors were involved in discussions relating to the merger. IESU and IPC have
already completed significant administrative and operational consolidation.
16
<PAGE>
Reasons for the Merger
The companies expect to reduce corporate and administrative expenses
by reducing systems costs related to redundant reporting requirements. In
addition, the companies expect to realize savings by eliminating certain
redundant maintenance contracts and eliminating some redundant operations
personnel.
Recommendations to Shareowners
To IESU Shareowners:
IESU's board of directors believes the merger is advisable, fair to
you and in your best interests and recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
IESU's board of directors also recommends that you vote FOR the
proposals to approve and adopt the amendments to the IESU amended and restated
articles of incorporation authorizing the new IESU Class A preferred stock with
rights, designations and preferences that are substantially identical to those
of the IPC preferred stock, and, effective at the effective time of the merger,
changing IESU's name to "Interstate Power and Light Company."
To IPC Shareowners:
IPC's board of directors believes the merger is advisable, fair to you
and in your best interests and recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
Other Interests of Certain Persons in the Merger
No benefits, such as employment agreements, stock options or other
executive compensation, will accrue to officers or directors of Alliant Energy,
IPC or IESU due to the merger. Moreover, the performance of the officers of
IESU, IPC and Alliant Energy will be reviewed in accordance with corporate
policy, in light of overall corporate performance and individual performance and
not specifically on whether the merger occurs.
Board of Directors
The merger agreement provides that the board of directors of the
surviving corporation will be the same as the current boards of directors of
IESU and IPC and will be composed of the following individuals:
o Lee Liu;
o Alan B. Arends;
o Erroll B. Davis, Jr.;
o Jack B. Evans;
o Rockne G. Flowers;
o Joyce L. Hanes;
o Katharine C. Lyall;
o Arnold M. Nemirow;
o Milton E. Neshek;
17
<PAGE>
o Judith D. Pyle;
o Wayne H. Stoppelmoor;
o Robert W. Schlutz; and
o Anthony R. Weiler.
Dissenters' Rights
The merger agreement further provides that any issued and outstanding
shares of any series of IPC preferred stock or IESU preferred stock held by a
person who does not vote in favor of the merger and complies with all the
provisions of Delaware law (in the case of IPC) or Iowa law (in the case of
IESU) concerning the right of shareowners to require appraisal of their shares
will not be converted as described in the merger agreement, but will instead
become the right to receive the consideration determined pursuant to applicable
law. If, after the effective time, a shareowner withdraws his, her or its demand
for appraisal or fails to perfect or otherwise loses that right of appraisal,
that person's dissenting shares will be deemed to either:
o be converted as of the effective time into the right to receive shares
of new IESU Class A preferred stock as set forth in the merger
agreement, if the shareowner is an IPC shareowner; or
o be unaffected by the merger and remain issued and outstanding, if the
shareowner is an IESU shareowner.
Representations and Warranties
The merger agreement also contains standard representations and
warranties of each party. Specifically, it contains representations and
warranties of IPC and IESU to the effect that:
o each company is duly organized, validly existing and in good standing;
o each company has the respective capital structure set forth in the
merger agreement;
o each company has the power and authority to execute the merger
agreement and to consummate the transactions contemplated in the
merger agreement, and the merger agreement has been duly authorized,
executed and delivered by the respective companies;
o the execution and delivery of the merger agreement and the completion
of the merger will not result in a violation of, default under or
creation of an encumbrance on assets pursuant to:
o the certificate or articles of incorporation or bylaws of either
company,
o any loan or credit agreement or other similar agreement, or
o any judgment or order, decree, statute, law, ordinance, rule or
regulation applicable to either company or its properties or
assets;
o subject to certain enumerated exceptions, no consent of, or
registration or filing with, any court, administrative agency or other
governmental authority is required by or with respect to the companies
in connection with the execution and delivery of the merger agreement
and the completion of the merger;
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o none of the information supplied by either company to be included in
the registration statement or this proxy statement/prospectus will
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein;
o the companies each hold all permits and licenses material to the
operation of their respective businesses and are in compliance with
material laws, ordinances and regulations;
o except as disclosed in financial statements given to the companies, or
except as contemplated by the merger agreement, there has been no
material adverse change in the business or the financial or other
condition of the companies since the date of such financial
statements; and
o the votes required to approve the merger agreement and transactions
contemplated by the merger agreement are as stated in the merger
agreement.
Covenants
The merger agreement also contains various covenants of each party.
Those covenants generally include:
o each party will carry on its business in the ordinary course;
o neither party will amend or propose to amend its certificate or
articles of incorporation or bylaws;
o each party will give the other party copies of all filings made by
that party with any state or federal governmental entity in connection
with the merger agreement;
o both parties will promptly prepare and IESU will promptly file with
the SEC the registration statement, including this proxy
statement/prospectus;
o each party will give to the other access during normal business hours
to its properties, books, contracts, commitments and records, and will
give the other a copy of each report filed or received by it under the
requirements of federal securities laws and all other information
concerning its business, properties and personnel as the other party
may reasonably request;
o each party will take steps to obtain the requisite approvals of the
merger, the amendments to IESU's amended and restated articles of
incorporation and the transactions contemplated by the merger
agreement;
o each party will take all reasonable actions necessary to comply with
all legal requirements which may be imposed on it with respect to the
merger and will cooperate with and furnish information to the other in
connection with such requirements;
o each party will take all reasonable actions necessary to obtain (and
will cooperate with each other in obtaining) any consent,
authorization, order or approval of any governmental entity or other
third party required to be obtained or made in connection with the
merger agreement;
o the parties will share costs and expenses incurred in connection with
the merger agreement and the transactions contemplated thereby based
on a ratio of assets, revenues and operating expenses; and
o the parties will use all reasonable efforts, both before and after the
effective time of the merger, to do those things necessary, proper or
advisable to complete the merger and the transactions contemplated by
the merger agreement.
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Indemnification
Under the terms of the merger agreement, each company (and the
surviving corporation) will indemnify, defend and hold harmless each person who
is, or had been at any time prior to the date of the merger agreement, an
officer, director or employee of the surviving corporation, IPC, IESU or any of
their subsidiaries against:
o all losses, claims, damages, costs, expenses, liabilities or judgments
or amounts that are paid in settlement with the approval of the
indemnifying party of or in connection with any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such a person is or was a
director, officer or employee of such company, whether pertaining to
any matter existing or occurring at or prior to the effective time;
and
o all indemnified liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to the merger agreement or
the transactions contemplated thereby,
in each case to the full extent a corporation is permitted under applicable
law to indemnify its own directors, officers and employees, as the case may
be. Also, each of the surviving corporation, IPC and IESU, as the case may
be, will pay expenses in advance of the final disposition of any such
action or proceeding to each indemnified party to the full extent permitted
by law.
In the event any such claim, action, suit, proceeding, or
investigation is brought against any indemnified party:
o the indemnified parties may retain counsel satisfactory to them;
o IESU, IPC or, after the effective time, the surviving corporation,
will pay all reasonable fees and expenses of such counsel for the
indemnified parties promptly; and
o IESU, IPC or, after the effective time, the surviving corporation,
will use all reasonable efforts to assist in the defense of any such
matter, provided that none of IPC, IESU or the surviving corporation
will be liable for any settlement of any claim effected without its
written consent, which consent won't be unreasonably withheld. The
provisions of the merger agreement regarding this indemnification are
for the benefit of, and are enforceable by, each indemnified party,
and the heirs and representatives of each indemnified party.
Conditions to Closing
The merger agreement also provides that the obligation of each party
to effect the merger is subject to the satisfaction of certain conditions. Those
conditions generally include:
o the shareowners of IESU and IPC must approve the merger agreement, and
the IESU shareowners must approve the amendment to the IESU amended
and restated articles of incorporation authorizing the new IESU Class
A preferred stock, as provided in the merger agreement;
o with one exception, all material authorizations, consents, orders or
approvals of, or declarations or filings with any governmental entity
must be filed, obtained or made;
o no injunction or order issued by any court or other legal restraint or
prohibition preventing the consummation of the merger must be in
effect;
o counsel to IESU and IPC must deliver its opinion to the effect that
the merger will be treated for federal income tax purposes as a tax
free reorganization;
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o IESU and IPC must obtain the consent or approval of each person whose
consent or approval is required to permit the surviving corporation to
succeed to any material obligation, right or interest of IESU or IPC
in the merger;
o the representations and warranties of IESU and IPC in the merger
agreement must be true and correct in all material respects as of the
date of the merger agreement and as of the closing date; and
o the board of directors of IESU must designate the appropriate series
of new IESU Class A preferred stock.
Additionally, it is a condition to the obligation of IESU to effect
the merger that there has not been any material adverse change in the financial
condition, results of operations or business of IPC, and it is a condition to
the obligation of IPC to effect the merger that there has not been any material
adverse change in the financial condition, results of operations or business of
IESU.
Termination
IESU and IPC can terminate the merger agreement at any time before the
effective time, whether before or after approval of the matters presented in
connection with the merger by the shareowners of IESU or IPC, by consent of the
parties.
Amendment
The parties can amend the merger agreement in writing at any time
before or after approval of the matters presented in connection with the merger
by the shareowners of IESU or of IPC. However, after any such approval, the
approval of the shareowners is required for any material amendment.
Dissenters' Rights
IESU
IESU - General. If we complete the merger, IESU preferred shareowners
will be entitled to dissenters' rights with respect to their shares.
Iowa law provides dissenters' rights for IESU preferred shareowners
that object to the merger and meet the statutory requirements contained in
Sections 490.1301 through 490.1331 of the Iowa Business Corporations Act. Under
Iowa law, a shareowner of a corporation participating in a merger that requires
shareowner approval is entitled to dissenters' rights. Because the IESU
preferred shareowners must approve the merger agreement, the IESU preferred
shareowners have dissenters' rights. By exercising dissenters' rights, a
preferred shareowner may receive cash from IESU in the amount of the "fair
value" of his or her shares.
Sections 490.1301 through 490.1331 outline the steps you must take to
exercise your dissenters' rights. The provisions for demanding dissenters'
rights are complex and must be complied with fully. You may lose your
dissenters' rights if you fail in any way to comply with the steps provided by
Sections 490.1301 through 490.1331. If you have a beneficial interest in IESU
preferred stock that is held of record in the name of another person such as a
trustee or nominee, then you must act promptly to cause the record holder to
follow the requirements of Sections 490.1301 through 490.1331 if you wish to
exercise dissenters' rights.
IESU - Exercising Dissenters' Rights. This discussion is only a
summary of applicable Iowa law regarding dissenters' rights and is not a
complete statement of that law. If you wish to exercise your dissenters' rights
as an IESU preferred shareowner, then you should carefully review Sections
490.1301 through 490.1331, copies of which are attached to this proxy
statement/prospectus as Appendix B.
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Under Iowa law, if you, as an IESU shareowner, wish to assert
dissenters' rights, then you must initially do all of the following:
o before the vote on the merger is taken, you must deliver written
notice to IESU of your intent to demand appraisal of your shares of
stock; and
o you must not vote your shares of stock in favor of the merger;
Any demands, notices, certificates or other documents to be delivered
to IESU may be sent to:
Edward M. Gleason
Vice President-Treasurer and Corporate Secretary
IES Utilities Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
If IESU shareowners approve the merger agreement at the IESU special
meeting and you meet the requirements above, then IESU will send you, within 10
days of the approval of the merger agreement, a written dissenters' notice to be
used to demand payment for your shares. The dissenters' notice will:
o state where you must send your payment demand and when and where you
must deposit your certificates for certificated shares;
o if you hold uncertificated shares, inform you to what extent transfer
of those shares will be restricted after your payment demand is
received;
o supply a form for demanding payment that includes the date of the
announcement of the merger agreement and requires that each shareowner
asserting dissenters' rights certify whether or not the shareowner
acquired beneficial ownership of the shares before that date;
o set a date by which IESU must receive your payment demand, which may
not be fewer than 30 nor more than 60 days after IESU delivers the
written dissenters' notice; and
o be accompanied by a copy of Division XIII of the Iowa Business
Corporation Act, which discusses dissenters' rights.
Under Iowa law, if you receive a dissenters' notice and wish to
exercise your dissenters' rights of appraisal:
o when you receive a dissenters' notice from IESU, you must demand
payment and certify that you acquired your shares of IESU preferred
stock before the date required in the dissenters' notice; and
o you must deposit the certificate or certificates representing your
shares of stock in accordance with the terms of the dissenters'
notice.
If you are considering seeking dissenters' rights, you should be aware
that the fair value of your shares as determined under the applicable provisions
of the Iowa law could be greater than, less than or equal to the consideration
you would receive for those shares in the merger.
At the time IESU receives a valid, timely and complete payment demand,
or upon completion of the merger, IESU will pay to each dissenting shareowner
the amount it estimates to be the fair value of the dissenting shareowner's
shares, plus accrued interest, as provided in Section 490.1325 of the Iowa
Business Corporation Act. That payment will be accompanied by:
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o IESU's balance sheet as of the end of a fiscal year ending not more
than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareowners' equity for that year
and the latest available interim financial statements, if any;
o a statement of IESU's estimate of the fair value of the shares;
o an explanation of how the accrued interest was calculated;
o a statement of the shareowners' right to demand payment under Section
490.1328 of the Iowa Business Corporation Act; and
o a copy of Division XIII of the Iowa Business Corporation Act.
Under Section 490.1328 of the Iowa Business Corporation Act, you may
send to IESU your own estimate of the fair value of your shares and the amount
of any interest due, and demand payment of the difference between your estimate
and the amount paid by IESU, if any, in the following cases:
o if you believe that the amount paid by IESU is less than the fair
value of your shares or that the interest due is incorrectly
calculated;
o if IESU fails to make payment within 60 days after the date set in the
dissenters' notice for demanding payment; or
o if the merger is not completed, and IESU does not return the deposited
certificates or release any transfer restrictions imposed on
uncertificated shares within 60 days after the date set in the
dissenters' notice for demand payment.
If you do not demand payment of the difference between your estimate
of the fair value of your shares, plus interest, and the amount paid by IESU
before the date set in the dissenters' notice for demanding payment, then you
will lose your rights to demand payment of any such difference.
Under Section 490.1330 of the Iowa Business Corporation Act, if your
demand for payment of your estimate remains unsettled, IESU will commence a
proceeding in court within 60 days after receipt of your demand for payment and
petition the court to determine the fair value of your shares and accrued
interest. If IESU does not timely commence this proceeding, IESU must pay you
the unsettled amount that you demanded.
If this proceeding takes place, IESU will make all dissenting
shareowners whose demands remain unsettled (even if they are not residents of
Iowa) parties to the proceeding, and all parties will be served with a copy of
the petition. The court may appoint appraisers who will receive evidence and
recommend a decision on the question of fair value. If the court finds that the
amount IESU paid is less than the fair value of a dissenting shareowner's
shares, plus accrued interest, the court will order IESU to pay the difference
to the dissenting shareowner.
The court will determine all costs of the appraisal proceeding,
including the reasonable compensation and expenses of court-appointed
appraisers. IESU generally will pay these costs, but the court may order the
dissenting shareowners to pay some of them, in amounts the court finds
equitable, if the court finds that the shareowners acted arbitrarily,
vexatiously or not in good faith in demanding payment.
If you give notice of your intent to demand dissenters' rights for
your shares under the applicable provisions of the Iowa law but fail to return
the dissenters' notice or withdraw or lose your rights to demand payment, your
shares will be converted into the right to receive the consideration in the
merger.
The foregoing is only a summary of the applicable provisions of the
Iowa Business Corporation Act and is qualified in its entirety by reference to
the full text of such provisions, which is included in Appendix B.
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IPC. If we complete the merger, any holder of shares of IPC preferred
stock who objects to the merger is entitled to dissent from the merger and to
have the fair value of such shares as determined by IESU, or if necessary,
judicially determined, paid to him or her, by complying with the provisions of
Section 262 of the Delaware General Corporation Law. Failure to take any steps
set forth in Section 262 in connection with the exercise of such rights may
result in termination or waiver of those rights.
If you wish to exercise your appraisal rights as an IPC shareowner,
you should carefully review Section 262, the text of which is attached as
Appendix C to this proxy statement/ prospectus.
Under Delaware law, if you, as an IPC shareowner, wish to assert
appraisal rights, you must do all of the following:
o before the vote on the merger is taken, you must deliver a written
demand for appraisal of your IPC preferred stock;
o you must not vote your shares of IPC preferred stock in favor of the
merger; and
o you must continuously hold your shares of IPC preferred stock from the
date of the written demand for appraisal through the effective time of
the merger.
If you fail to take any necessary steps, a termination or waiver of
the rights under such Section 262 will occur. If you have a beneficial interest
in IPC preferred stock that is held of record in the name of another person such
as a trustee or nominee, then you must act promptly to cause the record holder
to follow the requirements of Section 262 in a timely manner if you elect to
demand appraisal of your shares.
Any IPC preferred shareowner who has demanded an appraisal in
compliance with Section 262 will not, after the effective time of the merger, be
entitled to vote the dissenting shares subject to appraisal demand for any
purpose or be entitled to the payment of dividends or other distributions on
those dissenting shares other than those payable or deemed to be payable to
shareowners of record as of a date prior to the effective time.
Any demands, notices, certificates or other documents to be delivered
to IPC prior to the merger may be sent to:
Edward M. Gleason
Vice President - Treasurer and Corporate Secretary
Interstate Power Company
222 West Washington Avenue
Madison, Wisconsin 53703
Within ten days after the effective date of the merger, IPC will give
written notice of the effective time to each IPC preferred shareowner who has
satisfied the requirements of Section 262. Within 120 days after the effective
time, IPC or any IPC dissenting shareowner may file a petition in the court
demanding a determination of the fair value of the shares of IPC preferred stock
of all dissenting shareowners. Any dissenting shareowner desiring the filing of
such petition is advised to file such petition on a timely basis unless the
dissenting shareowner receives notice that such a petition has been filed by IPC
or another dissenting shareowner.
If a petition for appraisal is timely filed, the court will determine
which shareowners are entitled to appraisal rights and will determine the fair
value of the dissenting shareowners' shares, plus accrued interest. In
determining such fair value, the court will take into account all relevant
factors. If you are considering seeking dissenters' rights of appraisal, you
should be aware that the court may determine such fair value to be greater than,
less than or equal to the merger consideration. If a petition for appraisal is
not timely filed, you will lose the right to an appraisal.
The court will determine all costs of the appraisal proceeding. The
court will allocate the costs to IPC and the dissenting shareowners in amounts
the court finds equitable. Upon application of a shareowner, the
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court may order all or a portion of the expenses incurred by a shareowner in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, to be charged
pro rata against the value of all shares entitled to appraisal.
After the effective time of the merger, no dissenting shareowner will
have any rights of a holder of IPC shares with respect to such holder's shares
for any purpose, except to receive payment to which IPC shareowners of record as
of a date prior to the effective time are entitled. If a dissenting shareowner
delivers to IESU a written withdrawal of the demand for an appraisal within 60
days after the effective time of the merger or thereafter with IESU's written
approval, or if no petition for appraisal is filed within 120 days after the
effective time, then the right of such dissenting shareowner to an appraisal
will cease and such dissenting shareowner will be entitled to receive only the
shares of new IESU Class A preferred stock as provided in the merger agreement.
The foregoing is only a summary of the applicable provisions of the
Delaware General Corporation Law and is qualified in its entirety by reference
to the full text of such provisions, which is included in Appendix C.
Any demands, notices, certificates or other documents to be delivered
to IESU after the merger may be sent to:
Edward M. Gleason
Vice President - Treasurer and Corporate Secretary
IES Utilities Inc.
222 West Washington Avenue
Madison, Wisconsin 53703
Regulatory Approvals
Set forth below is a summary of the regulatory approvals that IESU and
IPC have obtained or expect to obtain in connection with the merger.
Public Utility Holding Company Act of 1935. IESU and IPC are required
to obtain SEC approval under various provisions of the Public Utility Holding
Company Act of 1935 (the "1935 Act") in connection with the merger. Among other
things, the SEC must approve the transfer of IPC's assets to IESU, IESU's
assumption of IPC's debt securities and other liabilities, the amendment to
IESU's amended and restated articles of incorporation to authorize the new Class
A preferred stock, and the issuance of the new Class A preferred stock by IESU
in connection with the merger. An application under the 1935 Act for approval of
these related merger transactions will be filed by IESU and IPC at the
appropriate time.
Federal Power Act. Section 203 of the Federal Power Act of 1935, as
amended, provides that no public utility shall sell or otherwise dispose of its
jurisdictional facilities or directly or indirectly merge or consolidate such
facilities with those of any other person or acquire any security of any other
public utility, without first having obtained authorization from the FERC. On
March 31, 2000, IESU and IPC submitted a joint application to the FERC for
approval of the merger under Section 203 and Part 33 of the FERC's regulations.
On July 7, 2000 the FERC issued its order approving the IESU and IPC merger.
Atomic Energy Act. IESU holds an operating license from the Nuclear
Regulatory Commission ("NRC") authorizing IESU to hold an ownership interest in
the Duane Arnold Energy Center and to operate the facility. The Atomic Energy
Act provides that no such NRC license or any rights thereunder may be
transferred or in any manner disposed of, directly or indirectly, through
transfer of control of such license to any person unless the NRC finds that such
transfer is in accordance with the Atomic Energy Act and consents to the
transfer. Pursuant to the Atomic Energy Act, IESU will seek approval from the
NRC to reflect the fact that IESU will change its name to Interstate Power and
Light Company and continue to hold its existing NRC license as operating company
subsidiary of Alliant Energy upon consummation of the merger.
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State Public Utility Regulation. IESU is currently subject to the
jurisdiction of the Iowa Utilities Board with respect to its utility operations
in Iowa. IPC is subject to the jurisdiction of the Iowa Utilities Board, the
Illinois Commerce Commission and the Minnesota Public Utilities Commission with
respect to its utility operations in Iowa, Illinois and Minnesota.
Applications for approval of the merger, including, in the case of
certain commissions, the issuance of securities in connection therewith, have
been filed with the Iowa Utilities Board, the Illinois Commerce Commission and
the Minnesota Public Utilities Commission.
IESU and IPC possess municipal franchise and environmental permits and
licenses that may need to be renewed or replaced as a result of the merger. IESU
and IPC do not anticipate any difficulties in obtaining such renewals or
replacements.
Except as set forth above, no other state or local regulatory body or
agency and no other federal commission or agency has jurisdiction over the
transactions proposed herein.
Accounting for the Merger
We expect to account for the merger as a common control merger in
accordance with generally accepted accounting principles because all of the
outstanding common stock of both IESU and IPC is owned by Alliant Energy. The
accounting for a common control merger is similar to a pooling of interests.
Accordingly, we will carry over the book value of the assets, liabilities and
stockholders' equity of each of IESU and IPC, as reported on IESU's and IPC's
respective consolidated balance sheets, to IESU's consolidated balance sheet
after the merger. After the merger, IESU must include in its consolidated income
the consolidated income of both companies for the entire fiscal year in which
the merger occurs, and prior years will be restated to reflect the combination
of IESU and IPC.
We have prepared the unaudited pro forma financial information
contained in this proxy statement/ prospectus using the pooling of interests
accounting method to account for the merger. See "Unaudited Selected Pro Forma
Combined Financial Data" and "Unaudited Pro Forma Combined Financial
Statements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of certain material federal income tax
consequences of the merger to IESU, IPC and the holders of IESU preferred stock
or IPC preferred stock who are citizens or residents of the United States or
that are domestic corporations. This discussion is for general information only
and does not address all tax consequences of the merger. The summary may not
apply to IPC preferred stockholders in special situations (such as dealers in
securities or currencies, traders in securities, financial institutions,
tax-exempt organizations, persons holding IPC preferred shares in their
individual retirement accounts (IRAs), Keoghs, or other qualified retirement
accounts, insurance companies, persons holding shares of IPC preferred stock as
part of a hedging, "straddle," conversion or other integrated transaction,
non-United States persons, persons whose functional currency is not the United
States dollar or persons who acquired their shares of IPC preferred stock
pursuant to the exercise of employee stock options or warrants, or otherwise as
compensation). The discussion assumes that the shares of IPC preferred stock are
held as capital assets. In addition, no information is provided with respect to
the tax consequences of the merger under applicable foreign, state or local
laws.
The completion of the merger is conditioned upon the receipt of an
opinion from Foley & Lardner that the merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and that IESU and IPC will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. Foley & Lardner
intends to provide its opinion based upon the assumption that it is not more
likely than not that IESU (or a related party) will redeem the new 6.40% Class A
Preferred Stock prior to its obligation to redeem such preferred stock pursuant
to new Article IV of IESU's Amended and Restated Articles of Incorporation
(assuming that the amendments thereto proposed herein are approved by the
shareowners of IESU), either before, or as a result of, the merger, and certain
other customary assumptions and representations of fact, including
representations of fact contained in letters of IPC, IESU and Alliant Energy to
Foley & Lardner,
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all of which must be true, correct and complete in all material respects as of
the effective time of the merger. No ruling will be or has been sought from the
Internal Revenue Service as to the U.S. federal income tax consequences of the
merger. The opinion of Foley & Lardner is not binding upon the Internal Revenue
Service or any court. Accordingly, we cannot assure you that the Internal
Revenue Service will not contest the conclusions expressed in Foley & Lardner's
opinion and, if it does so, that we will successfully defend our position that
the merger qualifies as a reorganization within the meaning of Section 368(a) of
the Code.
The merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. As a result, no gain or loss will
be recognized by IESU or IPC as a result of the merger. Except as set forth
below with respect to holders exercising their dissenter's rights, (i) the
holders of common stock will not recognize gain or loss as a result of the
merger; (ii) the existing holders of IESU preferred stock will also not
recognize gain or loss as a result of the merger; and (iii) (a) the holders of
IPC preferred stock will not recognize gain or loss on the receipt of the shares
of IESU preferred stock received in exchange for their shares of IPC preferred
stock pursuant to the merger, (b) the tax basis of the shares of IESU Class A
preferred stock received in the merger by the holders of IPC preferred stock
will be the same as the tax basis of the shares of IPC preferred stock exchanged
in the merger, and (c) the holding periods of the shares of IESU preferred stock
received will include the holding period of shares of IPC preferred stock
exchanged in the merger.
A holder of preferred stock that receives solely cash in exchange for
the holder's shares of either IESU or IPC preferred stock as a result of the
exercise of dissenter's rights under applicable corporate law generally will
recognize capital gain or loss measured by the difference between the amount of
cash received with respect to each share of preferred stock and the tax basis of
such share of preferred stock, assuming such holder of preferred stock does not
own any common or other equity interest in Alliant Energy. The capital gain or
loss recognized will be long-term or short-term depending on such holder's
holding period of the share.
The preceding discussion is intended only as a summary of certain
federal income tax consequences of the merger. It is not a complete analysis or
discussion of all potential tax effects that may be important to you. Thus, we
urge all shareholders to consult their own tax advisors as to the specific tax
consequences to them of the merger and if they intend to exercise their
dissenter's rights, including tax return reporting requirements, the
applicability and effect of federal, state, local, and other applicable income
and other tax laws and the effect of any proposed changes in any such tax laws.
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THE COMPANIES
IESU
The Business. IESU is a wholly-owned subsidiary of Alliant Energy and
a public utility operating company with all of its operations in the State of
Iowa. IESU supplies electric energy, natural gas and steam services to a service
area with an estimated population of 1,161,000. For the twelve months ended
December 31, 1999, IESU derived approximately 78% of its revenues from providing
electric service, approximately 18% from providing natural gas service and
approximately 4% from the provision of steam services. At December 31, 1999,
IESU supplied retail electric service to more than 345,000 customers in 525
communities in Iowa and retail natural gas service to more than 181,000
customers in 212 communities in Iowa, and IESU was providing wholesale electric
service to 5 customers. IESU's 1999 system peak demand was 1,990 megawatts. IESU
has installed generating capacity of 1,951 megawatts.
See Note 12 of the "IES Utilities Inc. Notes to Consolidated Financial
Statements" for information regarding the segments of IESU's business.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Utility Industry Outlook
General. Electric energy generation, transmission and distribution are
in a period of fundamental change in the manner in which customers obtain, and
energy suppliers provide, energy services. As legislative, regulatory, economic
and technological changes occur, electric utilities are facing increased numbers
of alternative suppliers. Such competitive pressures could result in loss of
customers and an incurrence of stranded costs (i.e., assets and other costs
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.
Across the nation, approximately half of the states have passed
legislation or issued regulatory rulings granting customers the right to choose
their electric energy supplier. Legislation that would allow customers to choose
their electric energy supplier was introduced in Iowa in 2000 but was never
voted upon. At the federal level, a number of proposals to restructure the
electric industry are currently under consideration. However, there continues to
be a lack of consensus over how restructuring should be implemented and how much
control the federal government should have over this process. Until one of the
proposals gains significant bipartisan support, IESU believes there is unlikely
to be final federal action to either facilitate or force states to open
electricity markets to competition.
Alliant Energy is reviewing, with several other utilities, the
viability of developing an Independent Transmission Company for various Midwest
utilities not included in the American Transmission Company, LLC, including
IESU. The present schedule is to develop a business plan and if it is deemed
acceptable by the applicable parties, to make the necessary filings with the
FERC and the various states by mid-2001.
IESU realized 100% of its electric and gas utility retail revenues in
1999 in Iowa. Approximately 95% of the electric revenues in 1999 were regulated
by the Iowa Utilities Board while the other 5% were regulated by the FERC.
Federal Regulation. IESU is subject to regulation by the FERC. The
National Energy Policy Act of 1992 addresses several matters designed to promote
competition in the electric wholesale power generation market. The FERC has
issued final rules (FERC Orders 888/888-A and 889/889-A) requiring electric
utilities to open their transmission lines to other wholesale buyers and sellers
of electricity. In response to FERC Orders 888 and 888-A, Alliant Energy
Corporate Services, Inc., on behalf of IESU, has filed open access transmission
tariffs that comply with the orders. In response to FERC Orders 889 and 889-A,
IESU is participating in a regional open access same-time information system.
28
<PAGE>
FERC Order 888 permits utilities to seek recovery of legitimate,
prudent and verifiable stranded costs associated with providing open access
transmission services. The FERC does not have jurisdiction over retail
distribution and, consequently, the final FERC rules do not provide for the
recovery of stranded costs resulting from retail competition. The various states
retain jurisdiction over the question of whether to permit retail competition,
the terms of such retail competition, and the recovery of any portion of
stranded costs that are ultimately determined to have resulted from retail
competition.
In May 1999, the FERC issued a notice of proposed rulemaking
concerning the development of regional transmission organizations. The proposed
rules outline the requirements for utilities to voluntarily turn over control of
their transmission system to a regional entity either by leasing the system to a
regional transmission organization or by outright divestiture. In December 1999,
the FERC issued Order 2000 which implemented the proposed rules with minor
modifications. The FERC's timeline is to have the regional transmission
organizations in operation by the end of 2001. Alliant Energy is involved with
other utilities and industry groups in reviewing Order 2000 and has submitted a
joint petition to the FERC seeking further clarification of the operating and
ownership limitations that will be imposed on the regional transmission
organizations.
IESU cannot predict the long-term consequences of these rules on its
financial condition or results of operations.
State Regulation. IESU is subject to regulation by the Iowa Utilities
Board. The Iowa Utilities Board has been reviewing all forms of competition in
the electric utility industry for several years. A group comprised of the Iowa
Utilities Board, Alliant Energy, MidAmerican Energy Company, rural electric
cooperatives, municipal utilities and Iowans for Choice in Electricity (a
diverse group of industrial customers, marketers, such as Enron, and a low
income customer representative, among others) endorsed a bill to allow for such
competition that was introduced in the Iowa Legislature in March 1999. The bill
was opposed by the Office of Consumer Advocate, which is charged by Iowa law
with representation of all consumers generally. While the bill did not pass, by
operation of House rules, it was re-referred to the House Commerce Committee and
was again inserted into the legislative process in the Second Regular Session of
the 78th General Assembly (2000). As of March 1, 2000, the bill was approved by
both the Iowa House and Senate Commerce Committees and was to be addressed by
the legislature in full. The bill was never debated on the floor and was not
included in the 2000 legislative session. It is unlikely that this legislation
will be re-introduced in 2001.
The bill would allow choice of electric suppliers for all customers on
October 1, 2002. It would freeze IESU's Iowa regulated prices at January 2000
levels. It would allow, however, for investor-owned utilities to propose
increases due to exogenous factors (for example, environmental compliance costs)
in the generation cost component. Assigned service territories would be
maintained for the delivery function. Delivery prices would be regulated, with
the option available to propose performance based rate making. Prices for
generation and other retail services would not be regulated, except for standard
offer service pricing starting October 2002 for all residential customers and
non-residential customers with annual usage of fewer than 75,000 kilowatt-hours.
Pricing for standard offer service would initially be at levels equivalent to
prices as they exist today and would remain at such levels until at least
December 31, 2005 for standard offer service customers. The Iowa Utilities Board
would be able to terminate standard offer service if it were to determine
several conditions existed, including, most importantly, that effective
competition existed such that regulation was no longer necessary. If the Iowa
Utilities Board continues standard offer service past December 31, 2005, then
prices would be based upon competitive bids. There are no price protections for
non-residential customers with usage greater than 75,000 kilowatt-hours
annually, with the exception of transitional service. Transitional service would
exist for no longer than one year, until October 1, 2003, at prices the Iowa
Utilities Board determines to be "just and reasonable." Currently existing
automatic fuel adjustment clauses for recovery of fuel costs would be eliminated
no later than October 2002. A "nuclear-only" fuel adjustment would be permitted
with increased prices effective if an electric company's nuclear plant is not
operational due to external factors.
Transition or stranded cost is the difference between the revenues
that would have been collected pursuant to an electric company's revenue
requirement existing as of January 1, 2000, and market prices for the period
2002 through 2005. These differences would be afforded 80% recovery in the first
twelve months of choice, with 70%, 60%, and 50% in each subsequent twelve-month
period. Effective October 1, 2006, transition cost
29
<PAGE>
recovery would end. In lieu of accepting this transition cost recovery
mechanism, an electric utility would be entitled under the proposed legislation
to elect to divest itself of its generation assets, including power supply
contracts. In such case, the utility would be given an opportunity to be "made
whole" for recovery of embedded costs with the possibility for shareowners to
retain 50% of the amount realized from the sale of the assets beyond the sum of
depreciated book value and unfunded decommissioning. A divestiture plan would be
filed with the Iowa Utilities Board no later than January 1, 2001, with Iowa
Utilities Board approval or modification by July 1, 2001. The utility would have
until September 30, 2001 to revoke its election.
Costs of start-up, including computer systems and employee transition
costs, would be recoverable over a ten-year period, as approved by the Iowa
Utilities Board. The difference between regulatory assets and liabilities would
be fully recoverable as a delivery charge. Nuclear decommissioning costs would
be fully recoverable. While IESU supports the proposed legislation in its
current form, it is unable to predict if this legislation will be enacted in
2001, what modifications, if any, may be made to the proposed bill or what
actions IESU may take in response to the legislation should it be enacted.
In the first quarter of 1999, the Iowa Utilities Board conducted
workshops concerning the unbundling of natural gas rates for all Iowa customers
as well as allowing choice of the supplier of the natural gas for the small
volume natural gas customers. IESU's natural gas costs are a "flow-through cost
item" in that they are automatically reflected in future billings to customers.
Such collections are reconciled on an annual basis to ensure that they neither
over- nor under-collect their actual gas commodity costs. Consequently, IESU
does not currently realize any margins or income with respect to its provision
of the gas commodity. IESU expects to continue to be made whole for such gas
costs if the gas rates are unbundled. Even if IESU's gas commodity sales were to
decline in a customer choice environment, its margins and income would not be
expected to be impacted by such decreases in commodity sales. The delivery
function of IESU's gas business in Iowa will likely continue to be regulated on
a cost of service basis, as currently is the case. As a result, assuming no
significant change in the regulatory posture, the delivery function would
continue to generate comparable margins and income to that currently generated,
regardless of what entity provides the gas commodity to the customer. On March
3, 2000, the Iowa Utilities Board issued an order indicating that the Iowa
Utilities Board prefers to allow each utility to design a tariff in order to
remove barriers to a competitive option for small volume customers. The Iowa
Utilities Board will also seek comments from the utility companies before
approving any tariff filings.
Accounting Implications
IESU complies with the provisions of Statement of Financial Accounting
Standards ("SFAS") 71, "Accounting for the Effects of Certain Types of
Regulation." SFAS 71 provides that rate-regulated public utilities record
certain costs and credits allowed in the rate making process in different
periods than for non-regulated entities. These are deferred as regulatory assets
or regulatory liabilities and are recognized in the consolidated statements of
income at the time they are reflected in rates. If a portion of IESU's
operations becomes no longer subject to the provisions of SFAS 71 as a result of
competitive restructurings or otherwise, a write-down of related regulatory
assets and possibly other charges would be required, unless some form of
transition cost recovery is established by the appropriate regulatory body that
would meet the requirements under generally accepted accounting principles for
continued accounting as regulatory assets during such recovery period. In
addition, each utility subsidiary would be required to determine any impairment
of other assets and write-down any impaired assets to their fair value. IESU
believes it currently meets the requirements of SFAS 71 and will continue to
monitor and assess this as the various utility industry restructuring
initiatives progress.
IESU Unaudited Results of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999
Overview - Third Quarter Results - IESU's earnings available for
common stock increased $1.9 million for the three months ended September 30,
2000, compared with the same period in 1999, primarily due to reduced other
operation and maintenance expenses, partially offset by a lower electric margin.
Electric Utility Operations - Electric margins and megawatt-hour sales
for IESU for the three months ended September 30 were as follows:
30
<PAGE>
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $78,004 $76,739 2% 822 818 --
Commercial 56,326 58,716 (4%) 732 781 (6%)
Industrial 55,517 56,796 (2%) 1,239 1,312 (6%)
--------------- ------------- ------------- ------------
Total from ultimate customers 189,847 192,251 (1%) 2,793 2,911 (4%)
Sales for resale 9,378 10,373 (10%) 247 385 (36%)
Other 3,674 3,524 4% 10 9 11%
--------------- ------------- ------------- ------------
Total revenues/sales 202,899 206,148 (2%) 3,050 3,305 (8%)
============= ============
Electric production fuels expense 22,633 27,442 (18%)
Purchased power expense 28,324 22,057 28%
--------------- -------------
Margin $151,942 $156,649 (3%)
=============== =============
</TABLE>
Electric margins and megawatt-hour sales for IESU for the nine months ended
September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $183,138 $182,318 -- 2,088 2,106 (1%)
Commercial 138,335 136,148 2% 2,008 2,027 (1%)
Industrial 143,743 137,889 4% 3,754 3,786 (1%)
--------------- ------------- ------------- ------------
Total from ultimate customers 465,216 456,355 2% 7,850 7,919 (1%)
Sales for resale 21,875 23,108 (5%) 748 1,068 (30%)
Other 9,843 8,911 10% 30 29 3%
--------------- ------------- ------------- ------------
Total revenues/sales 496,934 488,374 2% 8,628 9,016 (4%)
============= ============
Electric production fuels expense 76,595 58,689 31%
Purchased power expense 59,464 62,349 (5%)
--------------- -------------
Margin $360,875 $367,336 (2%)
=============== =============
</TABLE>
Electric margin decreased $4.7 million, or 3%, and $6.5 million, or
2%, for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999, primarily due to milder weather
conditions in 2000 and a change in estimate recorded in 1999 of IESU's utility
services rendered but unbilled at month-end of approximately $5 million. Also
contributing to the nine-month decrease were reduced recoveries of approximately
$4.8 million in concurrent and previously deferred expenditures for
Iowa-mandated energy efficiency programs. The recovery for energy efficiency
programs in Iowa is in accordance with Iowa Utilities Board orders (a portion of
these recoveries is offset as they are also amortized to expense in other
operation and maintenance expense). Increased sales due to economic growth in
IESU's service territory partially offset the decreased margin each period.
IESU's electric tariffs include energy adjustment clauses that are
designed to currently recover the costs of fuel and the energy portion of
purchased-power billings.
Gas Utility Operations - Gas margins and dekatherm sales for IESU for
the three months ended September 30 were as follows:
31
<PAGE>
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $10,406 $8,913 17% 908 988 (8%)
Commercial 5,788 3,787 53% 744 608 22%
Industrial 3,840 2,988 29% 740 820 (10%)
Transportation/other 859 960 (11%) 2,091 2,250 (7%)
--------------- ------------- ------------- ------------
Total revenues/sales 20,893 16,648 25% 4,483 4,666 (4%)
============= ============
Cost of gas sold 13,253 8,777 51%
--------------- -------------
Margin $7,640 $7,871 (3%)
=============== =============
</TABLE>
Gas margins and dekatherm sales for IESU for the nine months ended September 30
were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $64,262 $61,108 5% 9,011 9,626 (6%)
Commercial 31,107 27,725 12% 5,433 5,643 (4%)
Industrial 9,128 7,824 17% 2,122 2,298 (8%)
Transportation/other 3,270 3,299 (1%) 7,194 7,712 (7%)
--------------- ------------- ------------- ------------
Total revenues/sales 107,767 99,956 8% 23,760 25,279 (6%)
============= ============
Cost of gas sold 68,291 58,313 17%
--------------- -------------
Margin $39,476 $41,643 (5%)
=============== =============
</TABLE>
Gas margin decreased $0.2 million, or 3%, and $2.2 million, or 5%, for
the three and nine months ended September 30, 2000, respectively, compared with
the same periods in 1999. The nine-month decrease was primarily due to reduced
natural gas sales due to milder weather.
IESU's gas tariffs include purchased gas adjustment clauses that are
designed to currently recover the cost of gas sold.
Other Operating Expenses - IESU's other operation and maintenance
expenses decreased $8.2 million and $12.6 million for the three and nine months
ended September 30, 2000, respectively, compared with the same periods in 1999.
The three-month decrease was primarily due to reduced administrative and general
expenses and lower transmission and distribution expenses. The nine-month
decrease was primarily due to a decrease of $4.2 million in energy efficiency
expenses, reduced administrative and general expenses, lower employee benefits
costs and lower transmission and distribution expenses. Partially offsetting the
nine-month decrease were one-time fees related to the transfer from the
Mid-Continent Area Power Pool reliability region to the Mid-America
Interconnected Network, Inc. region. Expenses incurred in 1999 relating to
IESU's Year 2000 readiness program also impacted the comparisons.
IESU's depreciation and amortization expense increased $1.4 million
and $4.1 million for the three and nine months ended September 30, 2000,
respectively, compared with the same periods in 1999, primarily due to property
additions.
Interest Expense and Other - Miscellaneous, net income decreased $0.5
million and increased $2.3 million for the three and nine months ended September
30, 2000, respectively, compared with the same periods in 1999. The nine-month
increase was primarily due to $4.1 million of interest income recognized from a
tax settlement in the first quarter of 2000, partially offset by a decrease in
nuclear decommissioning trust fund earnings.
32
<PAGE>
Income Taxes - IESU's income tax expense increased $0.9 million and
$1.9 million for the three and nine months ended September 30, 2000,
respectively, compared with the same periods last year, primarily due to
increased taxable income. The effective income tax rates were 41.4% and 41.9%
for the three and nine months ended September 30, 2000, respectively, compared
with 41.8% and 42.1%, respectively, for the same periods last year.
IESU Results of Operations for the Years Ended December 31, 1999, 1998
and 1997
Overview - IESU's earnings available for common stock increased $4.5
million and $3.1 million in 1999 and 1998, respectively. The increased earnings
for 1999 were primarily due to $17 million of merger-related expenses in 1998, a
$9 million regulatory asset write-off in 1998, a change in estimate of IESU's
unbilled revenues and reduced maintenance expenses. Such increases were
partially offset by higher depreciation and amortization expense, increased
administrative and general expenses and a higher effective income tax rate. The
increased earnings for 1998 were primarily due to a 2% increase in retail
electric sales volumes, largely due to continued economic growth in IESU's
service territory, lower purchased-power capacity costs, reduced employee
benefits costs and lower costs in 1998 due to merger-related operating
efficiencies. A loss incurred on the disposition of an investment in 1997 also
improved 1998 earnings compared to 1997. Partially offsetting the higher 1998
earnings were merger-related expenses, the regulatory asset write-off described
above, decreased retail natural gas sales resulting from milder weather,
increased depreciation and amortization expenses and increased expenses for Year
2000 readiness efforts.
Electric Utility Operations - Electric margins and megawatt-hour sales
for IESU for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
------------------------------------------------------- -------------------------------------------------
1999 1998 * 1997 ** 1999 1998 * 1997 **
------------ ------------ --------- ------------ ------ --------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $230,422 $232,662 (1%) $227,496 2% 2,685 2,661 1% 2,682 (1%)
Commercial 176,251 168,672 4% 162,626 4% 2,658 2,465 8% 2,378 4%
Industrial 181,740 181,369 -- 177,890 2% 5,072 4,872 4% 4,743 3%
------------ ------------ ------------ --------- ---------- ---------
Total from ultimate
customers 588,413 582,703 1% 568,012 3% 10,415 9,998 4% 9,803 2%
Sales for resale 28,479 45,453 (37%) 25,719 77% 1,392 1,763 (21%) 794 122%
Other 11,058 11,267 (2%) 10,539 7% 40 42 (5%) 43 (2%)
------------ ------------ ------------ --------- ---------- ---------
Total revenues 627,950 639,423 (2%) 604,270 6% 11,847 11,803 -- 10,640 11%
========= ========== =========
Electric production
fuels expense 80,079 99,362 (19%) 92,891 7%
Purchased power
expense 82,402 71,637 15% 74,098 (3%)
------------ ------------ ------------
Margin $465,469 $468,424 (1%) $437,281 7%
============ ============ ============
</TABLE>
* Reflects the % change from 1998 to 1999.
** Reflects the % change from 1997 to 1998.
Electric margin decreased $3.0 million, or 1%, and increased $31.1
million, or 7%, for 1999 and 1998, respectively. The 1999 decrease was primarily
due to reduced recoveries of approximately $4 million in concurrent and
previously deferred expenditures for Iowa-mandated energy efficiency programs
and increased purchased-power capacity costs. The recovery for energy efficiency
programs in Iowa is in accordance with Iowa Utilities Board orders (a portion of
these recoveries is offset as they are also amortized to expense in other
operation expense). Sales for resale decreased significantly in 1999 primarily
due to various resale customers of IESU selecting another utility as their
electricity provider effective in early 1999. The loss of such customers has not
had a material impact on IESU's electric margins. Sales to retail customers
increased primarily due to
33
<PAGE>
continued economic growth in IESU's service territory and more favorable weather
conditions. The 1999 electric margin also benefited from a favorable $5 million
change in estimate of IESU's utility services rendered but unbilled at month-end
based on refinements made to IESU's estimation process in 1999.
The 1998 increase was primarily due to the increased recovery of
approximately $15 million of concurrent and previously deferred expenditures for
Iowa-mandated energy efficiency programs, increases in sales volumes to retail
customers due to economic growth in the service territory and reduced
purchased-power capacity costs. Sales for resale increased significantly for
1998 as a result of the implementation of a merger-related joint sales agreement
during the second quarter of 1998 (off-system sales revenues are passed through
IESU's energy adjustment clause and therefore have no impact on electric
margin). Refer to "Liquidity and Capital Resources - Rates and Regulatory
Matters" for a further discussion.
IESU's electric tariffs include energy adjustment clauses that are
designed to currently recover the costs of fuel and the energy portion of
purchased-power billings.
Gas Utility Operations - Gas margins and dekatherm sales for IESU for
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
------------------------------------------------ ---------------------------------------------------------
1999 1998 * 1997 ** 1999 1998 * 1997 **
------------- ------------ --------- ----------- -------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $88,302 $86,821 2% $110,663 (22%) 13,778 13,803 -- 16,317 (15%)
Commercial 40,459 39,928 1% 54,383 (27%) 8,077 8,272 (2%) 9,602 (14%)
Industrial 11,543 10,422 11% 13,961 (25%) 3,291 3,089 7% 3,318 (7%)
Transportation/other 5,521 4,108 34% 4,510 (9%) 10,236 11,316 (10%) 10,321 10%
------------- ------------ ----------- -------- ---------- ----------
Total revenues 145,825 141,279 3% 183,517 (23%) 35,382 36,480 (3%) 39,558 (8%)
======== ========== ==========
Cost of gas sold 88,308 84,642 4% 126,631 (33%)
------------- ------------ -----------
Margin $57,517 $56,637 2% $56,886 --
============= ============ ===========
</TABLE>
* Reflects the % change from 1998 to 1999.
** Reflects the % change from 1997 to 1998.
Gas margin increased $0.9 million, or 2%, and decreased $0.2 million
for 1999 and 1998, respectively. The 1999 increase was primarily due to
increased retail sales from more favorable weather conditions in 1999. The
decrease in 1998 was primarily from reduced sales as a result of milder weather,
which was substantially offset by the increased recovery of $4.2 million of
concurrent and previously deferred energy efficiency expenditures for
Iowa-mandated energy efficiency program costs in accordance with Iowa Utilities
Board orders (a portion of these recoveries is offset as they are also amortized
to expense in other operation expenses).
IESU's gas tariffs include purchased gas adjustment clauses that are
designed to currently recover the cost of gas sold.
Other Operating Expenses - IESU's other operation expenses decreased
$13.5 million and increased $26.5 million for 1999 and 1998, respectively. The
1999 decrease was primarily due to $10.5 million of merger-related expenses in
1998, a $9 million regulatory asset write-off in 1998, a $4 million decrease in
energy efficiency expenses and merger-related operating efficiencies realized in
1999. The merger-related expenses were primarily for employee retirements,
separations and relocations. The regulatory asset write-off resulted from IESU
assessing in the fourth quarter of 1998 how certain employee benefit costs were
recovered in the rate making process in Iowa. Based on such review, IESU
concluded it could no longer meet the required "probable" standard for SFAS 71.
Such decreases were partially offset by increased costs for employee incentive
compensation and higher employee benefit costs. The 1998 increase was primarily
due to higher merger-related expenses, increased energy efficiency expenses, the
regulatory asset write-off mentioned above and increased Year 2000 readiness
costs. These items were partially offset by lower nuclear operation expenses,
reduced employee pension and benefit costs and lower costs resulting from
merger-related operating efficiencies.
34
<PAGE>
Maintenance expenses decreased $3.5 million and $1.8 million in 1999
and 1998, respectively. The decrease in 1999 was primarily due to reduced
nuclear maintenance expenses and lower transmission and distribution maintenance
expenses, partially offset by increased Year 2000 readiness costs and higher
fossil-fueled maintenance expenses. The decrease in 1998 was due to reduced
fossil-fueled maintenance expenses, which were partially offset by higher
nuclear maintenance expenses.
Depreciation and amortization expenses increased $7.1 million and $4.2
million for 1999 and 1998, respectively, primarily due to property additions and
amortization of software.
Interest Expense and Other - Interest expense decreased $0.5 million
and $0.4 million in 1999 and 1998, respectively. The 1999 decrease was primarily
due to lower average amounts of debt outstanding which was partially offset by
higher nuclear decommissioning trust fund interest expense, which was offset
entirely in "Miscellaneous, net."
The accounting for earnings on the nuclear decommissioning trust funds
results in no net income impact. Miscellaneous, net income increases for
earnings on the trust fund and the corresponding offset is recorded as interest
expense.
Miscellaneous, net income increased $6.4 million and decreased $0.3
million for 1999 and 1998, respectively. The increase in 1999 resulted primarily
from $6.0 million of merger-related expenses in 1998 and higher nuclear
decommissioning trust fund earnings, which were partially offset by a gain on an
asset sale in 1998. The 1998 decrease resulted primarily from merger-related
expenses, which were substantially offset by the loss incurred on disposition of
an investment in 1997 and a gain on an asset sale in 1998.
Income Taxes - The effective income tax rates were 42.6%, 40.1% and
41.8% in 1999, 1998 and 1997, respectively.
Liquidity and Capital Resources
Cash flows from operating activities at IESU increased $25 million for
the nine months ended September 30, 2000, compared with the same period in 1999,
primarily due to changes in working capital. Cash flows used for financing
activities decreased $47 million for the nine months ended September 30, 2000,
compared with the same period in 1999, due to decreased common stock dividends
in 2000. The dividend payment in the first quarter of 1999 was larger than
IESU's historical quarterly payment as no dividend payments were made in the
last three quarters of 1998 due to merger-related tax considerations. Cash flows
used for investing activities increased $19 million for the nine months ended
September 30, 2000, compared with the same period in 1999, due to increased
levels of construction expenditures.
Cash flows from operating activities at IESU decreased $44 million for
the year ended December 31, 1999, compared with the same period in 1998,
primarily due to changes in working capital. Cash flows used for financing
activities increased $71 million for the year ended December 31, 1999, compared
with the same period in 1998, due to increased common stock dividends in 1999 as
no dividend payments were made in the last three quarters of 1998 due to
merger-related tax considerations. As a result, the dividend payment in the
first quarter of 1999 was larger than IESU's historical quarterly payment. Cash
flows used for investing activities decreased $6 million for the year ended
December 31, 1999, compared with the same period in 1998, due to decreased
levels of construction expenditures.
Future Considerations. The capital requirements of IESU are primarily
attributable to its utility construction and acquisition programs and its debt
maturities. It is anticipated that future capital requirements of IESU 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 regulatory recovery of
utility costs. IESU's liquidity and capital resources will be affected by costs
associated with environmental and regulatory issues. Emerging competition in the
utility industry could also impact IESU's liquidity and capital resources, as
discussed previously in the "Utility Industry Outlook" section.
35
<PAGE>
IESU had certain off-balance sheet financial guarantees and
commitments outstanding at December 31, 1999, which generally consisted of
third-party borrowing arrangements and similar transactions. Refer to Note 10(d)
of the "IES Utilities Inc. Notes to Consolidated Financial Statements" for
additional details.
Financing and Capital Structure. Access to the long-term and
short-term capital and credit markets, and costs of external financing, are
dependent on creditworthiness. As of December 31, 1999, IESU's debt ratings by
Moody's and Standard & Poor's for secured long-term debt were A2 and A+,
respectively, and for unsecured long-term debt were A3 and A, respectively.
IESU, Wisconsin Power and Light Company (another operating subsidiary
of Alliant Energy) and IPC participate in a utility money pool that is funded,
as needed, through the issuance of commercial paper by Alliant Energy. Interest
expense and other fees are allocated based on borrowing amounts.
Other than periodic sinking fund requirements, which will not require
additional cash expenditures, as of December 31, 1999, IESU had $137.4 million
of long-term debt that will mature prior to December 31, 2004. Depending upon
market conditions, it is currently anticipated that a majority of the maturing
debt will be refinanced with the issuance of long-term securities.
On December 15, 2000, IESU received authority from the SEC under the
1935 Act to issue $200 million of long-term debt securities. IESU continually
evaluates its future financing needs and will make any necessary regulatory
filings as needed.
Charter provisions authorize and limit the aggregate amount of
additional shares of Cumulative Preferred Stock and Cumulative Preference Stock
that may be issued. At December 31, 1999, IESU could have issued 100,000 shares
of Cumulative Preferred Stock and 700,000 shares of Cumulative Preference Stock.
For interim financing at December 31, 1999, IESU had regulatory
authorization at to issue short-term debt of $150 million and money pool
authorization of $57 million.
IESU anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts and
credit rating services. At December 31, 1999, IESU had no short-term debt
outstanding with external parties.
In December 1999, Alliant Energy, IESU, Wisconsin Power and Light and
IPC filed an application with the SEC for approval of a combined accounts
receivable program whereby each utility will sell their respective receivables
through wholly-owned special purpose entities to an affiliated financing entity,
which in turn will sell the receivables to an outside investor. The new program
would replace the existing program for IESU and would function the same in most
respects. Approvals from the SEC and the necessary state commissions are
expected in late 2001.
Given the above financing flexibility, including IESU's access to both
the debt and equity securities markets, management believes it has the necessary
financing capabilities in place to adequately finance its capital requirements
for the foreseeable future.
Capital Requirements. General - 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, 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.
IESU's construction and acquisition expenditures for the years ended
December 31, 1999 and 1998 were $107 million and $115 million, respectively.
IESU's anticipated construction and acquisition expenditures for 2000 are
estimated to be approximately $115 million, of which 45% is for electric
transmission and distribution, 26% for electric generation, 15% for information
technology and the remaining 14% represents
36
<PAGE>
miscellaneous electric, gas, steam and general expenditures. IESU's levels of
utility construction and acquisition expenditures are projected to be $127
million in 2001, $117 million in 2002, $118 million in 2003 and $123 million in
2004. IESU anticipates financing utility construction expenditures during
2000-2004 through internally generated funds supplemented, when required, by
outside financing.
Nuclear Facilities - IESU owns an interest in the Duane Arnold Energy
Center nuclear facility, a 535 megawatt boiling water reactor plant. The Duane
Arnold Energy Center is operated by IESU, which has a 70% ownership interest in
the plant. The Duane Arnold Energy Center operating license expires in 2014.
In February 1999, Alliant Energy, Northern States Power Company,
Wisconsin Public Service Corporation and Wisconsin Electric Power Company
announced the formation of the Nuclear Management Company, LLC to sustain
long-term safety, optimize reliability and improve the operational performance
of their nuclear generating plants. Combined, the Nuclear Management Company
members operate seven nuclear generating units at five plants. In October 1999,
Alliant Energy received approval from the SEC, under the 1935 Act, to form
Alliant Energy Nuclear LLC, whose purpose is solely to invest in the Nuclear
Management Company. Such investment has been made and Alliant Energy Nuclear LLC
now has a 25% ownership interest in the Nuclear Management Company. In November
1999, Nuclear Management Company members applied to the NRC to allow the Nuclear
Management Company to operate the plants owned or co-owned by the four
utilities. Applications to the Public Service Commission of Wisconsin, the
Minnesota Public Utilities Commission and the SEC to allow the purchase of
operating services were also made at that time. In May 2000, the NRC approved
the transfer of operating authority to the Nuclear Management Company for the
Duane Arnold Energy Center, which was completed in August 2000. IESU will
continue to own its respective plant, be entitled to energy generated at the
plant and retain the financial obligations for its safe operation, maintenance
and decommissioning. In October 2000, the Nuclear Management Company members and
CMS Energy Corporation announced their intention of adding CMS Energy as a fifth
investor in the Nuclear Management Company. This will reduce Alliant Energy
Nuclear LLC's ownership interest in the Nuclear Management Company from 25% to
20%. CMS Energy has also indicated its intention for its utility subsidiary,
Consumers Power Company, to transfer operating authority to and enter into a
service agreement with the Nuclear Management Company for operation of the
Palisades Nuclear Plant, to be effective July 2001.
For additional information related to the Duane Arnold Energy Center,
refer to Notes 1, 3, 10, and 11 of IESU's "Notes to Consolidated Financial
Statements." Refer to the "Other Matters - Environmental" section for a
discussion of various issues impacting IESU's future capital requirements.
Rates and Regulatory Matters. In November 1997, as part of its merger
approval, the FERC accepted a proposal by IESU, Wisconsin Power and Light and
IPC, which provides for a four-year freeze on wholesale electric prices
beginning with the effective date of the merger.
In association with the merger, IESU, Wisconsin Power and Light and
IPC entered into a System Coordination and Operating Agreement which became
effective with the consummation of the merger. The agreement, which has been
approved by the FERC, provides a contractual basis for coordinated planning,
construction, operation and maintenance of the interconnected electric
generation and transmission systems of the three utility companies. In addition,
the agreement allows the interconnected system to be operated as a single
control area with off-system capacity sales and purchases made to market excess
system capability or to meet system capability deficiencies. Such sales and
purchases are allocated among the three utility companies based on procedures
included in the agreement. The procedures were approved by both the FERC and all
state regulatory bodies having jurisdiction over these sales.
In September 1997, IESU agreed with the Iowa Utilities Board to
provide Iowa customers a four-year retail electric and gas price freeze
commencing on the effective date of the merger. The agreement excluded price
changes due to government-mandated programs (such as energy efficiency cost
recovery), the electric fuel adjustment clause and PGA clause and unforeseen
dramatic changes in operations. In addition, the price freeze does not preclude
a review by either the Iowa Utilities Board or Office of Consumer Advocate into
whether IESU is exceeding a reasonable return on common equity. Refer to the
"Utility Industry Outlook" section for a discussion of legislation introduced in
Iowa regarding restructuring the electric utility industry.
37
<PAGE>
In February 2000, the Office of Consumer Advocate requested certain
financial information related to the electric utility operations within the
state of Iowa from IESU. IESU has responded to its data requests including
follow-up requests in May and June 2000. Additionally, in August 2000, the
Office of Consumer Advocate requested similar financial information from IESU
for a non-calendar year period. IESU has responded to this data request. While
IESU cannot predict the outcome of this process, such data requests could lead
to an effort by the Office of Consumer Advocate to seek an electric rate
reduction for IESU in Iowa.
Under provisions of the Iowa Utilities Board rules, IESU is currently
recovering the costs it has incurred for its energy efficiency programs.
Generally, the costs incurred through July 1997 are being recovered over various
four-year periods. Statutory changes implemented by the Iowa Utilities Board in
1997 allowed IESU to begin concurrent recovery of its prospective expenditures
on August 1, 1997. The implementation of these changes will gradually eliminate
the regulatory asset that was created under the prior rate making mechanism as
these costs are recovered.
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes negatively affecting IESU, management does not
expect the merger-related electric and gas price freezes to have a material
adverse effect on its financial condition or results of operations.
Other Matters
Labor Issues. The collective bargaining agreements at IESU cover
approximately 65% of all IESU employees. All agreements that had expired in 1999
and 2000 have been ratified and renewed. There are no other agreements expiring
in 2000.
Market Risk Sensitive Instruments and Positions. Commodity Risk -
Non-trading - IESU is exposed to the impact of market fluctuations in the
commodity price and transportation costs of electricity and natural gas products
it markets. IESU employs established policies and procedures to manage its risks
associated with these market fluctuations including the use of various commodity
derivatives. IESU's exposure to commodity price risks in the utility business is
significantly mitigated by the current rate making structures in place for the
recovery of its electric fuel and purchased energy costs as well as its cost of
natural gas purchased for resale.
Equity Price Risk - IESU maintains trust funds to fund its anticipated
nuclear decommissioning costs. As of December 31, 1999 and 1998, these funds
were invested primarily in domestic equity and debt instruments. IESU's exposure
to fluctuations in equity prices or interest rates will not affect its
consolidated results of operations as such fluctuations are recorded in equally
offsetting amounts of investment income and interest expense when they are
realized.
Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." Alliant Energy adopted SFAS 133 as of July 1, 2000. Refer
to "IES Utilities Inc. Notes to Consolidated Financial Statements (Unaudited)"
for additional information.
Accounting for Obligations Associated with the Retirement of
Long-Lived Assets. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including IESU, regarding
the recognition, measurement and classification of decommissioning costs for
nuclear generating stations in financial statements of electric utilities. In
response to these questions, the FASB has a project on its agenda to review the
accounting for obligations associated with the retirement of long-lived assets,
including decommissioning of nuclear power plants. If current electric utility
industry accounting practices for nuclear power plant decommissioning are
changed, the annual provision for decommissioning could increase relative to
1999, and the estimated cost for decommissioning could be recorded as a
liability (rather than as accumulated depreciation), with recognition of an
increase in the cost of the related nuclear power plant. Assuming no significant
change in regulatory treatment, IESU does not believe that such changes, if
required, would have an adverse effect on its financial condition or results of
operations due to its ability to recover decommissioning costs through rates.
38
<PAGE>
Inflation. IESU does not expect the effects of inflation at current
levels to have a significant effect on its financial condition or results of
operations.
Environmental. The pollution abatement programs of IESU are subject to
continuing review and are revised from time to time due to changes in
environmental regulations, changes in construction plans and escalation of
construction costs. While management cannot precisely forecast the effect of
future environmental regulations on IESU's operations, it has taken steps to
anticipate the future while also meeting the requirements of current
environmental regulations.
The Clean Air Act Amendments of 1990 require emission reductions of
sulfur dioxide, nitrogen oxides and other air pollutants to achieve reductions
of atmospheric chemicals believed to cause acid rain. IESU has met the
provisions of Phase I of the act and Phase II of the act. The act also governs
sulfur dioxide allowances, which are defined as an authorization for an owner to
emit one ton of sulfur dioxide into the atmosphere. IESU is reviewing its
options to ensure it will have sufficient allowances to offset its emissions in
the future and believes that the potential costs of complying with these
provisions of Title IV of the act will not have a material adverse impact on its
financial condition or results of operations.
The Clean Air Act and other federal laws also require the United
States Environmental Protection Agency to study and regulate, if necessary,
additional issues that potentially affect the electric utility industry,
including emissions relating to ozone transport, mercury and particulate control
as well as modifications to the polychlorinated biphenyl, or PCB, rules. In July
1997, the EPA issued final rules that would tighten the National Ambient Air
Quality Standards for ozone and particulate matter emissions and in June 1998,
the EPA modified the PCB rules. IESU cannot predict the long-term consequences
of these rules on its financial condition or results of operations.
On February 28, 1998, the EPA issued the final report to Congress on
the Study of Hazardous Air Pollutant Emissions from Electric Utility Steam
Generating Units regarding hazardous air pollutant emissions from electric
utilities. The report concluded that mercury emissions from coal-fired
generating plants were a concern. However, the EPA does not believe it has
sufficient information regarding such emissions. To remedy this lack of
information, the EPA required IESU and all other applicable electric utilities
in the United States to start collecting information regarding the types and
amount of mercury emitted as of January 1, 1999. Although the control of mercury
emissions from generating plants is uncertain at this time, IESU believes that
the capital investments and/or modifications required to control mercury
emissions could be significant.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. In November 1998, the United
States signed the treaty and agreed with the other countries to resolve all
remaining issues by the end of 2000. That deadline has not been met and
significant differences remain between the United States and other countries. At
this time, management is unable to predict whether the United States Congress
will ratify the treaty. Given the uncertainty of the treaty ratification and the
ultimate terms of the final regulations, management cannot currently estimate
the impact the implementation of the treaty would have on IESU's operations.
The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandates
that each state must take responsibility for the storage of low-level
radioactive waste produced within its borders. The State of Iowa is a member of
the six-state Midwest Interstate Low-Level Radioactive Waste Compact which is
responsible for development of any new disposal capability within the compact
member states. In June 1997, the compact commissioners voted to discontinue work
on a proposed waste disposal facility in the State of Ohio because the expected
cost of such a facility was comparably higher than other options currently
available. Dwindling waste volumes and continued access to existing disposal
facilities were also reasons cited for the decision. A disposal facility located
near Barnwell, South Carolina continues to accept the low-level waste and IESU
currently ships the waste it produces to such site, thereby minimizing the
amount of low-level waste stored on-site. Given technological advances, waste
compaction and the reduction in the amount of waste generated, the Duane Arnold
Energy Center has on-site storage capability sufficient to store low-level waste
expected to be generated over at least the next ten years. While IESU is unable
to predict how long the Barnwell facility will continue to accept its waste,
continuing access to this facility expands IESU's on-site storage capability
indefinitely.
39
<PAGE>
Power Supply. Alliant Energy transferred its IESU regional reliability
membership from the Mid-Continent Area Power Pool reliability region to the
Mid-America Interconnected Network, Inc. region effective in May 2000. Because
Wisconsin Power and Light is already a member of the Mid-America Interconnected
Network, this transfer should provide Alliant Energy additional operating
flexibility to eliminate duplicate reporting requirements. Alliant Energy will
continue to participate in the Mid-Continent Area Power Pool Regional
Transmission Committee and Power and Energy Market Committee.
IES Utilities Inc. Supplemental Financial Information
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- --------------- ---------------- --------------
(in thousands)
2000
<S> <C> <C> <C>
Operating revenues $212,124 $181,957 $230,918 n/a
Operating income 35,498 22,435 75,889 n/a
Earnings available for common stock 15,882 6,316 37,133 n/a
1999
Operating revenues $209,265 $170,793 $228,328 $192,310
Operating income 36,173 24,055 72,127 29,144
Earnings available for common stock 14,230 6,815 35,249 9,238
1998
Operating revenues $208,278 $174,733 $222,190 $201,729
Operating income 34,289 21,756 69,940 29,011
Earnings available for common stock 11,431 2,732 30,408 16,425
</TABLE>
IPC
The Business. IPC, a wholly-owned subsidiary of Alliant Energy, is a
public utility operating company with operations in over 10,000 square miles in
the States of Iowa, Minnesota and Illinois. IPC provides electric service to
approximately 167,000 customers in 234 communities in portions of 25 counties in
northern and northeastern Iowa, portions of 22 counties in southern Minnesota
and portions of four counties in northwestern Illinois. IPC also serves 50,000
natural gas customers in 41 communities, including Albert Lea, Minnesota;
Clinton, Mason City and Clear Lake, Iowa; and Fulton and Savanna, Illinois. In
addition, IPC transports natural gas within Iowa and Minnesota and in interstate
commerce. For the 12 months ended December 31, 1999, IPC derived approximately
86% of its revenues from providing electric service and approximately 14% from
providing natural gas service. IPC's 1999 system peak demand was 1,015 megawatts
(net of interruptible load). IPC has installed generating capacity of 1,066 MW.
See Note 12 of the "Interstate Power Company Notes to Financial
Statements" for information regarding the segments of IPC's business.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Utility Industry Outlook
General. Electric energy generation, transmission and distribution are
in a period of fundamental change in the manner in which customers obtain, and
energy suppliers provide, energy services. As legislative, regulatory, economic
and technological changes occur, electric utilities are facing increased numbers
of alternative suppliers. Such competitive pressures could result in loss of
customers and an incurrence of stranded costs (i.e.,
40
<PAGE>
assets and other costs 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.
Across the nation, approximately half of the states (including
Illinois) have passed legislation or issued regulatory rulings granting
customers the right to choose their electric energy supplier. Legislation that
would allow customers to choose their electric energy supplier was introduced in
Iowa in 2000 but was never voted upon. At the federal level, a number of
proposals to restructure the electric industry are currently under
consideration. However, there continues to be a lack of consensus over how
restructuring should be implemented and how much control the federal government
should have over this process. Until one of the proposals gains significant
bipartisan support, IPC believes there is unlikely to be final federal action to
either facilitate or force states to open electricity markets to competition.
Alliant Energy is reviewing, with several other utilities, the
viability of developing an independent transmission company for various Midwest
utilities not included in the American Transmission Company, LLC, including IPC.
The present schedule is to develop a business plan and if it is deemed
acceptable by the applicable parties, to make the necessary filings with the
FERC and the various states by mid-2001.
IPC realized 75% of its electric utility retail revenues in 1999 in
Iowa, 19% in Minnesota and 6% in Illinois. IPC realized 69% of its gas utility
retail revenues in 1999 in Iowa, 23% in Minnesota and 8% in Illinois.
Approximately 92% of the electric revenues in 1999 were regulated by the Iowa
Utilities Board, the Minnesota Public Utilities Commission or the Illinois
Commerce Commission while the other 8% were regulated by the FERC.
Federal Regulation. IPC is subject to regulation by the FERC. The
National Energy Policy Act of 1992 addresses several matters designed to promote
competition in the electric wholesale power generation market. FERC has issued
final rules (FERC Orders 888/888-A and 889/889-A) requiring electric utilities
to open their transmission lines to other wholesale buyers and sellers of
electricity. In response to FERC Orders 888 and 888-A, Alliant Energy Corporate
Services, Inc., on behalf of IPC, has filed open access transmission tariffs
that comply with the orders. In response to FERC Orders 889 and 889-A, IPC is
participating in a regional open access same-time information system.
FERC Order 888 permits utilities to seek recovery of legitimate,
prudent and verifiable stranded costs associated with providing open access
transmission services. The FERC does not have jurisdiction over retail
distribution and, consequently, the final FERC rules do not provide for the
recovery of stranded costs resulting from retail competition. The various states
retain jurisdiction over the question of whether to permit retail competition,
the terms of such retail competition, and the recovery of any portion of
stranded costs that are ultimately determined to have resulted from retail
competition.
In May 1999, the FERC issued a notice of proposed rulemaking
concerning the development of regional transmission organizations. The proposed
rules outline the requirements for utilities to voluntarily turn over control of
their transmission system to a regional entity either by leasing the system to a
regional transmission organization or by outright divestiture. In December 1999,
the FERC issued Order 2000 which implemented the proposed rules with minor
modifications. FERC's timeline is to have the regional transmission
organizations in operation by the end of 2001. IPC is involved with other
utilities and industry groups in reviewing Order 2000 and has submitted a joint
petition to the FERC seeking further clarification of the operating and
ownership limitations that will be imposed on the regional transmission
organizations.
IPC cannot predict the long-term consequences of these rules on its
financial condition or results of operations.
State Regulation. IPC is subject to regulation by the Iowa Utilities
Board. The Iowa Utilities Board has been reviewing all forms of competition in
the electric utility industry for several years. A group comprised of the Iowa
Utilities Board, Alliant Energy, MidAmerican Energy Company, rural electric
cooperatives, municipal utilities and Iowans for Choice in Electricity (a
diverse group of industrial customers, marketers, such as Enron, and a low
income customer representative, among others) endorsed a bill to allow for such
competition that
41
<PAGE>
was introduced in the Iowa Legislature in March 1999. The bill was opposed by
the Office of Consumer Advocate, which is charged by Iowa law with
representation of all consumers generally. While the bill did not pass, by
operation of House rules, it was re-referred to the House Commerce Committee and
was again inserted into the legislative process in the Second Regular Session of
the 78th General Assembly (2000). As of March 1, 2000, the bill was approved by
both the Iowa House and Senate Commerce Committees and was addressed by the
legislature in full. The bill was never debated on the floor and was not
included in the 2000 legislative session. It is unlikely that this legislation
will be re-introduced in 2001.
The bill would allow choice of electric suppliers for all customers on
October 1, 2002. It would freeze IPC's Iowa regulated prices at January 2000
levels. It would allow, however, for investor-owned utilities to propose
increases due to exogenous factors (for example, environmental compliance costs)
in the generation cost component. Assigned service territories would be
maintained for the delivery function. Delivery prices would be regulated, with
the option available to propose performance based rate making. Prices for
generation and other retail services would not be regulated, except for standard
offer service pricing starting October 2002 for all residential customers and
non-residential customers with annual usage of fewer than 75,000 kilowatt-hours.
Pricing for standard offer service would initially be at levels equivalent to
prices as they exist today and would remain at such levels until at least
December 31, 2005 for standard offer service customers. The Iowa Utilities Board
would be able to terminate standard offer service if it were to determine
several conditions existed, including, most importantly, that effective
competition existed such that regulation was no longer necessary. If the Iowa
Utilities Board continues standard offer service past December 31, 2005, then
prices would be based upon competitive bids. There are no price protections for
non-residential customers with usage greater than 75,000 kilowatt-hours
annually, with the exception of transitional service. Transitional service would
exist for no longer than one year, until October 1, 2003, at prices the Iowa
Utilities Board determines to be "just and reasonable." Currently existing
automatic fuel adjustment clauses for recovery of fuel costs would be eliminated
no later than October 2002.
Transition or stranded cost is the difference between the revenues
that would have been collected pursuant to an electric company's revenue
requirement existing as of January 1, 2000, and market prices for the period
2002 through 2005. These differences would be afforded 80% recovery in the first
twelve months of choice, with 70%, 60%, and 50% in each subsequent twelve-month
period. Effective October 1, 2006, transition cost recovery would end. In lieu
of accepting this transition cost recovery mechanism, an electric utility would
be entitled under the proposed legislation to elect to divest itself of its
generation assets, including power supply contracts. In such case, the utility
would be given an opportunity to be "made whole" for recovery of embedded costs
with the possibility for shareowners to retain 50% of the amount realized from
the sale of the assets beyond the sum of depreciated book value and unfunded
decommissioning. A divestiture plan would be filed with the Iowa Utilities Board
no later than January 1, 2001, with Iowa Utilities Board approval or
modification by July 1, 2001. The utility would have until September 30, 2001 to
revoke its election.
Costs of start-up, including computer systems and employee transition
costs, would be recoverable over a ten-year period, as approved by the Iowa
Utilities Board. The difference between regulatory assets and liabilities would
be fully recoverable as a delivery charge. While IPC supports the proposed
legislation in its current form, it is unable to predict if this legislation
will be enacted in 2001, what modifications, if any, may be made to the proposed
bill or what actions IPC may take in response to the legislation should it be
enacted.
In the first quarter of 1999, the Iowa Utilities Board conducted
workshops concerning the unbundling of natural gas rates for all Iowa customers
as well as allowing choice of the supplier of the natural gas for the small
volume natural gas customers. IPC's natural gas costs are a "flow-through cost
item" in that they are automatically reflected in future billings to customers.
Such collections are reconciled on an annual basis to ensure that they neither
over- nor under-collect their actual gas commodity costs. Consequently, IPC does
not currently realize any margins or income with respect to its provision of the
gas commodity. IPC expects to continue to be made whole for such gas costs if
the gas rates are unbundled. Even if IPC's gas commodity sales were to decline
in a customer choice environment, its margins and income would not be expected
to be impacted by such decreases in commodity sales. The delivery function of
IPC's gas business in Iowa will likely continue to be regulated on a cost of
service basis, as currently is the case. As a result, assuming no significant
change in the regulatory posture, the delivery function would continue to
generate comparable margins and income to that currently generated, regardless
of what entity provides the gas commodity to the customer. On March 3, 2000, the
Iowa Utilities Board
42
<PAGE>
issued an order indicating that the Iowa Utilities Board prefers to allow each
utility to design a tariff in order to remove barriers to a competitive option
for small volume customers. The Iowa Utilities Board will also seek comments
from the utility companies before approving any tariff filings.
IPC is subject to regulation by the Minnesota Public Utilities
Commission. The Commission established an Electric Competition Working Group in
April 1995. On October 28, 1997, the working group issued a report and
recommendations on retail competition. The Commission reviewed the report and
directed its staff to develop an electric utility restructuring plan and
timeline. The Commission has recently solicited comments on restructuring
principles from stakeholders in the process. It does not appear that any
comprehensive restructuring legislation will be passed in 2000. The Commission
is investigating the appropriate classification of transmission assets in
Minnesota.
IPC is also subject to regulation by the Illinois Commerce Commission.
In December 1997, the State of Illinois passed electric deregulation legislation
requiring customer choice of electric suppliers for non-residential customers
with loads of four megawatts or larger and for approximately one-third of all
other non-residential customers starting October 1, 1999. All remaining
non-residential customers will be eligible for customer choice beginning
December 31, 2000 and all residential customers will be eligible for customer
choice beginning May 1, 2002. The new legislation is not expected to have a
significant impact on IPC's financial condition or results of operations given
the relatively small size of its Illinois operations. As of December 31, 1999,
no eligible IPC customers had selected another electric supplier.
Accounting Implications
IPC complies with the provisions of SFAS 71, "Accounting for the
Effects of Certain Types of Regulation." SFAS 71 provides that rate-regulated
public utilities record certain costs and credits allowed in the rate making
process in different periods than for non-regulated entities. These are deferred
as regulatory assets or regulatory liabilities and are recognized in the
statements of income at the time they are reflected in rates. If a portion of
IPC's operations becomes no longer subject to the provisions of SFAS 71 as a
result of competitive restructurings or otherwise, a write-down of related
regulatory assets and possibly other charges would be required, unless some form
of transition cost recovery is established by the appropriate regulatory body
that would meet the requirements under generally accepted accounting principles
for continued accounting as regulatory assets during such recovery period. In
addition, IPC would be required to determine any impairment of other assets and
write-down any impaired assets to their fair value. IPC believes it currently
meets the requirements of SFAS 71 and will continue to monitor and assess this
as the various utility industry restructuring initiatives progress.
IPC Unaudited Results of Operations for the Three and Nine Months
Ended September 30, 2000 and 1999
Overview - Third Quarter Results - IPC's earnings available for common
stock increased $0.3 million for the three months ended September 30, 2000,
compared with the same period in 1999. The increase was primarily due to reduced
other operation and maintenance expenses and increased income from non-utility
marketing programs, partially offset by increased income tax expense and a
decrease in electric margin.
Electric Utility Operations - Electric margins and megawatt-hour sales
for IPC for the three months ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
----------------------------- ----------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $31,340 $32,369 (3%) 365 373 (2%)
Commercial 12,151 12,367 (2%) 171 186 (8%)
Industrial 36,329 38,456 (6%) 881 937 (6%)
--------------- ------------- -------------- ------------
Total from ultimate customers 79,820 83,192 (4%) 1,417 1,496 (5%)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
----------------------------- ----------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Sales for resale 10,990 8,016 37% 168 235 (29%)
Other 3,966 4,506 (12%) 17 19 (11%)
--------------- ------------- -------------- ------------
Total revenues/sales 94,776 95,714 (1%) 1,602 1,750 (8%)
============== ============
Electric production fuels expense 20,601 18,192 13%
Purchased power expense 15,930 18,041 (12%)
--------------- -------------
Margin $58,245 $59,481 (2%)
=============== =============
</TABLE>
Electric margins and megawatt-hour sales for IPC for the nine months
ended September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Megawatt-Hours Sold
(in thousands) (in thousands)
----------------------------- ----------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $77,037 $76,900 -- 949 952 --
Commercial 29,731 28,031 6% 466 476 (2%)
Industrial 93,523 95,265 (2%) 2,521 2,576 (2%)
--------------- ------------- -------------- ------------
Total from ultimate customers 200,291 200,196 -- 3,936 4,004 (2%)
Sales for resale 22,086 19,993 10% 470 663 (29%)
Other 10,342 10,334 -- 51 49 4%
--------------- ------------- -------------- ------------
Total revenues/sales 232,719 230,523 1% 4,457 4,716 (5%)
============== ============
Electric production fuels expense 41,851 44,702 (6%)
Purchased power expense 50,107 49,830 1%
--------------- -------------
Margin $140,761 $135,991 4%
=============== =============
</TABLE>
Electric margin decreased $1.2 million, or 2%, and increased $4.8
million, or 4%, for the three and nine months ended September 30, 2000,
respectively, compared with the same periods in 1999. The three-month decrease
was primarily due to a change in estimate recorded in 1999 of IPC's utility
services rendered but unbilled at month-end of approximately $4 million, milder
weather conditions in 2000 and higher capacity costs, partially offset by
increased capacity sales and increased sales from economic growth in IPC's
service territory. The nine-month increase was primarily due to increased
capacity sales, increased recoveries of approximately $4.8 million in concurrent
and previously deferred expenditures for state-mandated energy efficiency
programs and increased sales from economic growth in the service territory,
partially offset by the change in estimate recorded in 1999 of IPC's utility
services rendered but unbilled at month-end of approximately $4 million, milder
weather conditions in 2000 and higher capacity costs. The recovery for energy
efficiency programs in Iowa is in accordance with Iowa Utilities Board orders (a
portion of these recoveries is offset as they are also amortized to expense in
other operation and maintenance expense).
IPC's electric tariffs include energy adjustment clauses that are
designed to currently recover the costs of fuel and the energy portion of
purchased-power billings.
Gas Utility Operations - Gas margins and dekatherm sales for IPC for
the three months ended September 30 were as follows:
44
<PAGE>
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $2,944 $2,402 23% 306 338 (9%)
Commercial 1,120 973 15% 163 205 (20%)
Industrial 561 844 (34%) 125 237 (47%)
Transportation/other 682 737 (7%) 4,546 5,138 (12%)
--------------- ------------- ------------- ------------
Total revenues/sales 5,307 4,956 7% 5,140 5,918 (13%)
============= ============
Cost of gas sold 2,976 3,045 (2%)
--------------- -------------
Margin $2,331 $1,911 22%
=============== =============
</TABLE>
Gas margins and dekatherm sales for IPC for the nine months ended
September 30 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs Dekatherms Sold
(in thousands) (in thousands)
----------------------------- ---------------------------
2000 1999 Change 2000 1999 Change
--------------- ------------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Residential $16,813 $19,318 (13%) 2,643 3,178 (17%)
Commercial 7,611 9,299 (18%) 1,440 1,777 (19%)
Industrial 2,185 3,258 (33%) 550 879 (37%)
Transportation/other 1,810 2,506 (28%) 14,604 18,381 (21%)
--------------- ------------- ------------- ------------
Total revenues/sales 28,419 34,381 (17%) 19,237 24,215 (21%)
============= ============
Cost of gas sold 16,953 20,541 (17%)
--------------- -------------
Margin $11,466 $13,840 (17%)
=============== =============
</TABLE>
Gas margin increased $0.4 million, or 22%, and decreased $2.4 million,
or 17%, for the three and nine months ended September 30, 2000, respectively,
compared with the same periods in 1999. The nine-month decrease was primarily
due to adjustments to purchased gas adjustment clauses in 1999 and milder
weather in 2000.
IPC's gas tariffs include purchased gas adjustment clauses that are
designed to currently recover the cost of utility gas sold.
Other Operation and Maintenance Expenses - IPC's other operation and
maintenance expenses decreased $1.8 million and increased $6.2 million for the
three and nine months ended September 30, 2000, respectively, compared with the
same periods in 1999. The three-month decrease was primarily due to lower
transmission and distribution expenses and reduced injuries and damages
expenses. The nine-month increase was primarily due to increased energy
efficiency expenses of $5.2 million, increased transmission and distribution
maintenance expenses and one-time fees related to the transfer from the
Mid-Continent Area Power Pool reliability region to the Mid-America
Interconnected Network, Inc. region. Such increases were partially offset by
expenses incurred in 1999 relating to IPC's Year 2000 readiness program and
reduced employee benefit costs.
Interest Expense and Other - Interest expense and other decreased $1.0
million and increased $1.2 million for the three and nine months ended September
30, 2000, respectively, compared with the same periods in 1999. The three-month
decrease was primarily due to increased income from non-utility marketing
programs and the nine-month increase was primarily due to 1999 gains on property
sales.
Income Taxes - IPC's income tax expense increased $2.3 million and
decreased $0.2 million for the three and nine months ended September 30, 2000,
respectively, compared with the same periods last year, primarily due to changes
in taxable income. Contributing to the three-month increase and partially
offsetting the nine-month decrease were increased effective income tax rates.
The effective income tax rates were 43.6% and 42.2% for the three and nine
months ended September 30, 2000, respectively, compared with 38.9% for the same
45
<PAGE>
periods last year. The increase in 2000 related to depreciation adjustments
which, due to Iowa utility rate making, result in current federal and state
income tax expense, but no deferred income taxes. Deferred income taxes
typically offset current income tax expense, reducing the effective rate.
IPC Results of Operations for the years ended December 31, 1999, 1998
and 1997
Overview - IPC's earnings available for common stock increased $12.1
million and decreased $10.4 million in 1999 and 1998, respectively. The
increased earnings for 1999 were primarily due to $15 million of merger-related
expenses in 1998, reduced transmission and distribution expenses and a change in
estimate of IPC's unbilled revenues. Such increases were partially offset by
increased administrative and general expenses and a higher effective income tax
rate. The decreased earnings for 1998 were primarily due to merger-related
expenses and reduced miscellaneous, net income, partially offset by a higher
electric margin.
Electric Utility Operations - Electric margins and megawatt-hour sales
for IPC for 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Revenues and Costs (in thousands) Megawatt-Hours Sold (in thousands)
----------------------------------------------------- ----------------------------------------------
1999 1998 * 1997 ** 1999 1998 * 1997 **
---- ---- ------- ---- ------ ---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $ 97,796 $101,244 (3%) $ 94,445 7% 1,227 1,201 2% 1,195 1%
Commercial 36,289 40,308 (10%) 38,183 6% 623 580 7% 588 (1%)
Industrial 123,282 133,101 (7%) 125,949 6% 3,394 3,353 1% 3,321 1%
--------- --------- --------- ------ ------ ------
Total from ultimate
customers 257,367 274,653 (6%) 258,577 6% 5,244 5,134 2% 5,104 1%
Sales for resale 24,571 25,139 (2%) 5,710 340% 891 934 (5%) 150 523%
Other 12,443 13,523 (8%) 13,053 4% 68 57 19% 58 (2%)
--------- --------- --------- ------ ------ ------
Total revenues/sales 294,381 313,315 (6%) 277,340 13% 6,203 6,125 1% 5,312 15%
====== ====== ======
Electric production
fuels expense 56,537 64,019 (12%) 55,402 16%
Purchased power
expense 65,446 69,759 (6%) 56,770 23%
--------- --------- ---------
Margin $172,398 $179,537 (4%) $165,168 9%
========= ========= =========
</TABLE>
* Reflects the % change from 1999 to 1998.
** Reflects the % change from 1998 to 1997.
Electric margin decreased $7.1 million, or 4%, and increased $14.4
million, or 9%, for 1999 and 1998, respectively. The 1999 decrease was primarily
due to reduced recoveries of approximately $10 million in concurrent and
previously deferred expenditures for Iowa-mandated energy efficiency programs.
The recovery for energy efficiency programs in Iowa is in accordance with Iowa
Utilities Board orders (a portion of these recoveries is offset as they are also
amortized to expense in other operation expense). The 1999 electric margin
benefited from a favorable $4 million change in estimate of IPC's utility
services rendered but unbilled at month-end based on refinements made to IPC's
estimation process in 1999.
The 1998 increase was primarily due to the increased recovery of
approximately $11 million of concurrent and previously deferred expenditures for
Iowa-mandated energy efficiency programs. Sales for resale increased
significantly for 1998 as a result of the implementation of a merger-related
joint sales agreement during the second quarter of 1998 (off-system sales
revenues are passed through IPC's energy adjustment clause and therefore have no
impact on electric margin).
IPC's electric tariffs include energy adjustment clauses that are
designed to currently recover the costs of fuel and the energy portion of
purchased-power billings.
Gas Utility Operations - Gas margins and dekatherm sales for IPC for
1999, 1998 and 1997 were as follows:
46
<PAGE>
<TABLE>
<CAPTION>
Revenues and Costs (in thousands) Dekatherms Sold (in thousands)
------------------------------------------------------ ----------------------------------------------
1999 1998 * 1997 ** 1999 1998 * 1997 **
---- ---- ------- ---- ------ ---- ---- ------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential $27,126 $23,609 15% $30,366 (22%) 4,461 3,639 23% 4,807 (24%)
Commercial 13,089 12,016 9% 16,019 (25%) 2,501 2,203 14% 2,948 (25%)
Industrial 4,280 3,886 10% 5,054 (23%) 1,152 996 16% 1,185 (16%)
Transportation/other 3,229 3,063 5% 3,068 -- 23,481 28,125 (17%) 28,803 (2%)
-------- -------- -------- ------ ------ ------
Total revenues/sales 47,724 42,574 12% 54,507 (22%) 31,595 34,963 (10%) 37,743 (7%)
====== ====== ======
Cost of gas sold 28,138 20,402 38% 33,324 (39%)
-------- -------- --------
Margin $19,586 $22,172 (12%) $21,183 5%
======== ======== ========
</TABLE>
* Reflects the % change from 1999 to 1998.
** Reflects the % change from 1998 to 1997.
Gas margin decreased $2.6 million, or 12%, and increased $1.0 million,
or 5%, for 1999 and 1998, respectively. The 1999 decrease was primarily due to a
reduction of $2.3 million in concurrent and previously deferred energy
efficiency expenditures for Iowa-mandated energy efficiency program costs in
accordance with Iowa Utilities Board orders (a portion of these recoveries is
offset as they are also amortized to expense in other operation expenses).
The 1998 increase in gas margin was primarily due to a $2 million
increase in concurrent and previously deferred energy efficiency expenditures
which was partially offset by reduced sales as a result of milder weather.
IPC's gas tariffs include purchased gas adjustment clauses that are
designed to currently recover the cost of utility gas sold.
Other Operation and Maintenance Expenses - IPC's other operation and
maintenance expenses decreased $24.5 million and increased $23.9 million for
1999 and 1998, respectively. The 1999 decrease was primarily due to $12 million
of merger-related expenses in 1998, an $11 million decrease in energy efficiency
expenses and reduced transmission and distribution expenses. The merger-related
expenses were primarily for employee retirements, separations and relocations.
Such decreases were partially offset by increased costs for employee incentive
compensation and higher Year 2000 readiness costs. The 1998 increase was
primarily due to higher merger-related expenses, increased energy efficiency
expenses and higher insurance-related expenses.
Interest Expense and Other - Interest expense and other decreased $5.0
million and increased $7.0 million in 1999 and 1998, respectively. The 1999
decrease was primarily due to merger-related expenses in 1998 and a gain on an
asset sale in 1999. The increase in 1998 was primarily due to expenses related
to manufactured gas plant remediation settlement.
Income Taxes - Income tax expense increased $8.8 million and decreased
$6.6 million for 1999 and 1998, respectively, primarily due to changes in
taxable income. The effective income tax rates were 39.2%, 37.2% and 37.7% in
1999, 1998 and 1997, respectively.
Liquidity and Capital Resources
Cash flows from operating activities at IPC decreased $7 million for
the nine months ended September 30, 2000, primarily due to changes in working
capital and changes in net income. Cash flows used
47
<PAGE>
for financing activities decreased $19 million for the nine months ended
September 30, 2000, primarily due to a decrease in common stock dividends and
changes in short term borrowings. The dividend payment in the first quarter of
1999 was larger than IPC's historical quarterly payment due to the 1998 decrease
of common stock dividends declared due to merger-related tax considerations.
Cash flows used for investing activities increased $10 million for the nine
months ended September 30, 2000, primarily due to higher utility construction
expenditures and proceeds from the disposition of assets in 1999.
Cash flows from operating activities at IPC increased $3 million and
decreased $9 million for the years ended December 31, 1999 and 1998,
respectively, primarily due to changes in net income. Cash flows used for
financing activities decreased $5 million and $10 million for the years ended
December 31, 1999 and 1998, respectively. The 1999 change was primarily due to
changes in short term borrowings partially offset by an increase in common stock
dividends. The change for 1998 was primarily due to the 1998 decrease of common
stock dividends declared due to merger-related tax considerations. As a result,
the dividend payment in the first quarter of 1999 was larger than IPC's
historical quarterly payment. Cash flows used for investing activities increased
$14 million and decreased $3 million for the years ended December 31, 1999 and
1998, respectively. The 1999 increase was primarily due to higher utility
construction expenditures and the 1998 decrease was primarily due to 1997
funding of a supplemental retirement benefits trust.
Future Considerations. It is anticipated that future capital
requirements of IPC 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 regulatory recovery of utility costs. IPC's liquidity and capital
resources will be affected by costs associated with environmental and regulatory
issues. Emerging competition in the utility industry could also impact IPC's
liquidity and capital resources, as discussed previously in the "Utility
Industry Outlook" section.
Financing and Capital Structure. Access to the long-term and
short-term capital and credit markets, and costs of external financing, are
dependent on creditworthiness. As of December 31, 1999, IPC's secured long-term
debt was rated A1 by Moody's and A+ by Standard & Poor's.
IPC participates in a utility money pool that is funded, as needed,
through the issuance of commercial paper by Alliant Energy. Interest expense and
other fees are allocated among the three participating utilities based on
borrowing amounts.
As of December 31, 1999, other than periodic sinking fund
requirements, which will not require additional cash expenditures, IPC had $1.0
million of long-term debt maturing prior to December 31, 2004.
On December 15, 2000, IPC received authority from the SEC under the
1935 Act to issue $80 million of long-term debt securities. IPC continues to
evaluate its future financing needs and will make any necessary regulatory
filings as needed.
Various charter provisions authorize and limit the aggregate amount of
additional shares of IPC preferred stock and IPC cumulative preference stock
that may be issued. At December 31, 1999, IPC could have issued 1,238,619 shares
of its preferred stock and 2,000,000 shares of cumulative preference stock.
For interim financing at December 31, 1999, IPC had regulatory
authorization at to issue short-term debt of $50 million and money pool
authorization of $39 million.
IPC anticipates that short-term debt will continue to be available at
reasonable costs due to current ratings by independent utility analysts and
credit rating services. At December 31, 1999 there was no short-term debt
outstanding with external parties at IPC.
In December 1999, Alliant Energy, IESU, IPC and Wisconsin Power and
Light Company, another operating subsidiary of Alliant Energy, filed an
application with the SEC for approval of a combined accounts receivable program
whereby each utility will sell their respective receivables through wholly-owned
special purpose entities to an affiliated financing entity, which in turn will
sell the receivables to an outside investor. Approvals from the SEC and the
necessary state commissions are expected in late 2001.
Given the above financing flexibility, including Alliant Energy's
access to both the debt and equity securities markets, management believes it
has the necessary financing capabilities in place to adequately finance IPC's
capital requirements for the foreseeable future.
Capital Requirements. 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
48
<PAGE>
compared to forecasts, requirements of environmental and other regulatory
authorities, 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.
IPC's construction and acquisition expenditures for the years ended
December 31, 1999 and 1998 were $45 million and $37 million, respectively. IPC's
anticipated construction and acquisition expenditures for 2000 are estimated to
be approximately $61 million, of which 48% is for electric transmission and
distribution, 13% for electric generation, 25% for information technology and
the remaining 14% represents miscellaneous electric, gas and general
expenditures. IPC's levels of utility construction and acquisition expenditures
are projected to be $61 million in 2001, $56 million in 2002, $54 million in
2003 and $57 million in 2004.
IPC anticipates financing utility construction expenditures during
2000-2004 through internally generated funds supplemented, when required, by
outside financing.
Rates and Regulatory Matters - FERC. - In November 1997, as part of
its merger approval, the FERC accepted a proposal by IESU, Wisconsin Power and
Light and IPC, which provides for a four-year freeze on wholesale electric
prices beginning with the effective date of the merger.
In association with the merger, IESU, Wisconsin Power and Light and
IPC entered into a system coordination and operating agreement which became
effective with the consummation of the merger. The agreement, which has been
approved by the FERC, provides a contractual basis for coordinated planning,
construction, operation and maintenance of the interconnected electric
generation and transmission systems of the three utility companies. In addition,
the agreement allows the interconnected system to be operated as a single
control area with off-system capacity sales and purchases made to market excess
system capability or to meet system capability deficiencies. Such sales and
purchases are allocated among the three utility companies based on procedures
included in the agreement. The procedures were approved by both the FERC and all
state regulatory bodies having jurisdiction over these sales.
Rates and Regulatory Matters - IPC. In September 1997, IPC agreed with
the Iowa Utilities Board to provide Iowa customers a four-year retail electric
and gas price freeze commencing on the effective date of the merger. The
agreement excluded price changes due to government-mandated programs (such as
energy efficiency cost recovery), the electric fuel adjustment clause and
purchased gas adjustment clause and unforeseen dramatic changes in operations.
In addition, the price freeze does not preclude a review by either the Iowa
Utilities Board or Office of Consumer Advocate into whether IPC is exceeding a
reasonable return on common equity. IPC also agreed with the Minnesota Public
Utilities Commission and the Illinois Commerce Commission to four-year and
three-year rate freezes, respectively, commencing on the effective date of the
merger. Refer to the "Utility Industry Outlook" section for a discussion of
legislation introduced in Iowa regarding restructuring the electric utility
industry.
Under provisions of the Iowa Utilities Board rules, IPC is currently
recovering the costs it has incurred for its energy efficiency programs over
various four-year periods. The Iowa Utilities Board allowed IPC to begin
concurrent recovery of its prospective expenditures in October 1997. The
implementation of these changes will gradually eliminate the regulatory asset
that was created under the prior rate making mechanism as these costs are
recovered.
Assuming capture of the merger-related synergies and no significant
legislative or regulatory changes negatively affecting IPC, IPC does not expect
the merger-related electric and gas price freezes to have a material adverse
effect on its financial condition or results of operations.
In April 2000, the Office of Consumer Advocate requested certain
financial information related to the electric utility operations within the
state of Iowa from IPC. IPC has responded to its data requests including
follow-up requests in May and June 2000. Additionally, in August 2000, the
Office of Consumer Advocate requested similar financial information from IPC for
a non-calendar year period. IPC is expected to finalize its response in November
2000. While IPC cannot predict the outcome of this process, such data requests
could lead to an effort by the Office of Consumer Advocate to seek an electric
rate reduction for IPC in Iowa.
49
<PAGE>
Other Matters
Labor Issues. The collective bargaining agreements at IPC cover
approximately 86% of all IPC employees. All agreements that had expired in 1999
and 2000 have been ratified and renewed. There are no other agreements expiring
in 2000.
Market Risk Sensitive Instruments and Positions - Commodity Risk -
Non-trading. IPC is exposed to the impact of market fluctuations in the
commodity price and transportation costs of electricity, natural gas and oil
products it markets. IPC employs established policies and procedures to manage
its risks associated with these market fluctuations including the use of various
commodity derivatives. IPC's exposure to commodity price risks in the utility
business is significantly mitigated by the current rate making structures in
place for the recovery of its electric fuel and purchased energy costs as well
as its cost of natural gas purchased for resale.
Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities." Alliant Energy adopted SFAS 133 as of July 1, 2000. Refer
to "Interstate Power Company Notes to Financial Statements (Unaudited)" for
additional information.
Inflation. IPC does not expect the effects of inflation at current
levels to have a significant effect on its financial condition or results of
operations.
Environmental. The pollution abatement program at IPC is subject to
continuing review and is revised from time to time due to changes in
environmental regulations, changes in construction plans and escalation of
construction costs. While management cannot precisely forecast the effect of
future environmental regulations on IPC's operations, it has taken steps to
anticipate the future while also meeting the requirements of current
environmental regulations.
The Clean Air Act Amendments of 1990 require emission reductions of
sulfur dioxide, nitrogen oxides and other air pollutants to achieve reductions
of atmospheric chemicals believed to cause acid rain. IPC has met the provisions
of Phase I and Phase II of the act. The act also governs sulfur dioxide
allowances, which are defined as an authorization for an owner to emit one ton
of sulfur dioxide into the atmosphere. IPC is reviewing its options to ensure it
will have sufficient allowances to offset its emissions in the future and
believes that the potential costs of complying with these provisions of Title IV
of the act will not have a material adverse impact on its financial condition or
results of operations.
The Clean Air Act and other federal laws also require the United
States Environmental Protection Agency to study and regulate, if necessary,
additional issues that potentially affect the electric utility industry,
including emissions relating to ozone transport, mercury and particulate control
as well as modifications to the polychlorinated biphenyl, or PCB, rules. In July
1997, the EPA issued final rules that would tighten the national ambient air
quality standards for ozone and particulate matter emissions and in June 1998,
the EPA modified the PCB rules. IPC cannot predict the long-term consequences of
these rules on its financial condition or results of operations.
In October 1998, the EPA issued a final rule requiring 22 states, to
modify their state implementation plans to address the ozone transport issue.
However, on May 25, 1999, a federal appeals court delayed indefinitely the
implementation of the rule. On March 3, 2000, the federal appeals court affirmed
EPA's nitrogen oxides rule for the affected states.
On February 28, 1998, the EPA issued the final report to Congress on
the Study of Hazardous Air Pollutant Emissions from Electric Utility Steam
Generating Units regarding hazardous air pollutant emissions from electric
utilities. The report concluded that mercury emissions from coal-fired
generating plants were a concern. However, the EPA does not believe it has
sufficient information regarding such emissions. To remedy this lack of
information, the EPA required IPC and all other applicable electric utilities in
the United States to start collecting information regarding the types and amount
of mercury emitted as of January 1, 1999. Although the control of
50
<PAGE>
mercury emissions from generating plants is uncertain at this time, IPC believes
that the capital investments and/or modifications required to control mercury
emissions could be significant.
Pursuant to an internal review of operations in 1998, IPC discovered
that Unit No. 6 at its generating facility in Dubuque, Iowa required a Clean Air
Act acid rain permit and continuous emission monitoring system. IPC informed
environmental regulatory agencies, installed the monitoring system and obtained
the associated required permit. Pursuant to its internal review, IPC also
identified and disclosed to regulators a potentially similar situation at its
Lansing, Iowa generating facility. In the second quarter of 1999, the United
States Environmental Protection Agency determined that Lansing units 1 and 2
were affected units. Therefore, in the third quarter of 1999, IPC installed the
monitoring system at both of these facilities and in December 1999, IPC
submitted its certification to the EPA for the Lansing facility. IPC received a
settlement offer from the EPA, dated December 3, 1999, to settle the matter for
$550,000. IPC responded with a counteroffer, and the parties reached an
agreement in principle which contemplated a civil penalty payment and the
performance of a supplemental environmental project with a combined value of
approximately $400,000. In September 2000, a consent order was signed, and in
October 2000, the civil penalty was paid and the supplemental environmental
project was completed.
IPC has been notified by the EPA that it is a potentially responsible
party, or PRP, with respect to environmental impacts identified at the Missouri
Electric Works, Inc. site in Cape Girardeau, Missouri. IPC has been served with
a complaint filed by the Missouri Electric Works Site Trust Fund, the PRP group
involved in investigating and remediating the site, for response costs incurred
by the PRP group. IPC believes that it is not liable as a PRP for this site
because it did not arrange for the disposal of any waste materials at the site.
IPC has filed an answer to the complaint, discovery is ongoing and settlement
discussions continue.
A global treaty has been negotiated that could require reductions of
greenhouse gas emissions from utility plants. In November 1998, the United
States signed the treaty and agreed with the other countries to resolve all
remaining issues by the end of 2000. That deadline has not been met and
significant differences remain between the United States and other countries. At
this time, management is unable to predict whether the United States Congress
will ratify the treaty. Given the uncertainty of the treaty ratification and the
ultimate terms of the final regulations, management cannot currently estimate
the impact the implementation of the treaty would have on IPC's operations.
Power Supply. Alliant Energy transferred its IPC regional reliability
membership from the Mid-Continent Area Power Pool reliability region to the
Mid-America Interconnected Network, Inc. region effective in May 2000. Because
Wisconsin Power and Light is already a member of the Mid-America Interconnected
Network, this transfer should provide Alliant Energy additional operating
flexibility to eliminate duplicate reporting requirements. Alliant Energy will
continue to participate in the Mid-Continent Area Power Pool Regional
Transmission Committee and Power and Energy Market Committee.
51
<PAGE>
<TABLE>
Interstate Power Company Supplemental Financial Information
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------------------------------------------------------------------
(in thousands)
2000
<S> <C> <C> <C> <C>
Operating revenues $80,957 $80,098 $100,083 n/a
Operating income 8,475 9,468 29,835 n/a
Earnings available for common stock 2,143 3,258 14,501 n/a
1999
Operating revenues $81,971 $82,263 $100,670 $77,201
Operating income 12,345 9,701 28,237 11,080
Earnings available for common stock 5,078 4,198 14,195 4,893
1998
Operating revenues $85,124 $85,863 $98,942 $85,960
Operating income 12,103 164 23,336 9,887
Earnings available for common stock 4,976 (3,696) 10,719 4,283
</TABLE>
52
<PAGE>
AMENDMENTS TO IESU AMENDED AND RESTATED
ARTICLES OF INCORPORATION
At the IESU special meeting, we will ask the IESU shareowners to
approve two amendments to the IESU amended and restated articles of
incorporation. The first amendment, if approved, would authorize a new class of
IESU preferred stock, designated Class A Preferred Stock (or, as we refer to it
in this document, the "new IESU Class A preferred stock"), that would have
designations, rights and preferences substantially identical to those of the
current IPC preferred stock for which the new IESU Class A preferred stock will
be exchanged in the merger. This amendment is necessary to allow for the
exchange of the existing IPC preferred stock for substantially identical
preferred stock of new IESU Class A preferred stock. This amendment, if
approved, would only authorize enough shares of new IESU Class A preferred stock
to exchange each share of existing IPC preferred stock for one share of new IESU
Class A preferred stock, as provided in the merger agreement. Under the merger
agreement, IESU is required to call a meeting of its shareowners to, among other
things, obtain their approval of this amendment. In addition, neither IPC nor
IESU is required to complete the merger if IESU's shareowners do not approve
this amendment. The full text of this amendment is attached as Appendix D and is
incorporated by reference herein.
The second amendment, if approved, would change IESU's name to
"Interstate Power and Light Company" after the merger is completed. This
amendment is proposed because management desired a new name for the combined
entity. Under the merger agreement, IESU is required to call a meeting of its
shareowners to, among other things, obtain their approval of this amendment. The
full text of this amendment is attached as Appendix E and is incorporated by
reference herein.
A description of the material designations, rights, preferences and
conditions of the new IESU Class A preferred stock, as set forth in the
amendment to the IESU amended and restated articles of incorporation, can be
found at "Description of New IESU Class A Preferred Stock."
Additionally, the IESU board of directors has approved and adopted an
amendment to the IESU amended and restated articles of incorporation that would
establish the relative rights, designations and preferences of the various
series of the new IESU Class A preferred stock that will be issued in exchange
for shares of IPC preferred stock outstanding at the effective time of the
merger. That amendment is not subject to shareowner approval.
The IESU board of directors has approved the amendment to establish
the class of new IESU Class A preferred stock and the amendment to change IESU's
corporate name, and recommends that you vote "for" approval and adoption of both
amendments.
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DESCRIPTION OF NEW IESU PREFERRED STOCK
The rights, designations and preferences of the shares of the new IESU
Class A preferred stock to be issued pursuant to the merger agreement will, if
approved, be substantially identical to the rights, designations and preferences
of the IPC preferred stock. This discussion in only a summary of the new IESU
Class A preferred stock. The full legal description of the new IESU Class A
preferred stock is set forth in the proposed amendment to IESU's articles of
incorporation set forth as Appendix D to the proxy statement/prospectus and is
incorporated by reference herein. IESU's new Class A preferred stock and the
current IPC preferred stock will differ due to differences in the respective
articles of incorporation and bylaws of IESU and IPC as well as the laws of the
states of Iowa and Delaware. See "Comparison of Shareowner Rights - Comparison
of Iowa and Delaware Law."
Dividend Rights and Restrictions on Common Dividends
The holders of the new IESU Class A preferred stock will be entitled
to receive all accumulated and unpaid dividends for past dividend periods at the
respective rates and at and for the respective times provided for the shares of
the respective series. Before any dividends may be paid on IESU common stock,
the holders of each class and series of IESU preferred stock, including the new
IESU Class A preferred stock, are entitled pari passu to receive all accumulated
and unpaid dividends for past dividend periods at the respective rates provided
for the shares of the respective series and classes.
Voting Rights
The holders of new IESU Class A preferred stock will have the right to
cast one vote per share, voting with the holders of IESU common stock, on all
matters submitted to a vote of IESU's shareowners, including the election of
directors. If and whenever full cumulative dividends on the IESU preferred
stock, including the new IESU Class A preferred stock, have not been paid for
four quarterly dividend periods, holders of IESU preferred stock voting as one
class will be entitled to elect a majority of the IESU board as then
constituted, with holders of IESU common stock being entitled to elect the
remaining directors. The right of the holders of IESU preferred stock to elect
directors in such cases will cease when full cumulative dividends on all series
of IESU preferred stock have been paid, or declared and set aside for payment.
The affirmative vote or consent of the holders of a majority of all
series of the new IESU Class A preferred stock, considered as a class without
regard to series, will be required for IESU to:
o merge or consolidate with any other corporation or sell substantially
all of the assets of IESU, unless such transaction is approved by the
SEC or other regulatory authority of the federal government or unless
such transaction is undertaken with a subsidiary of IESU;
o increase the total authorized amount of new IESU Class A preferred
stock or authorize any other preferred stock on a parity therewith
with respect to dividends or liquidation rights;
o issue any additional shares of preferred stock on a parity with the
then outstanding IESU Class A preferred stock with respect to payment
of dividends or liquidation rights unless:
o IESU's consolidated gross income for 12 consecutive calendar
months within a period of 15 calendar months immediately
preceding such issuance is equal to at least 150% of IESU's
aggregate consolidated interest charges and the annual dividend
charges of all IESU preferred stock that will be outstanding
immediately after such issuance; and
o the stated capital of the junior stock of IESU plus any surplus
of IESU is at least equal to the aggregate liquidation
preferences of the IESU preferred stock and any other stock
ranking prior to or on a parity with the IESU preferred stock
after giving effect to the proposed issuance of preferred stock;
or
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o issue or assume any unsecured debt for any purpose other than to
refund existing unsecured debt, redeem or retire any indebtedness
pursuant to authorization by state or federal regulatory authority, or
redeem or retire any outstanding shares of IESU preferred stock, if
after such transaction IESU's aggregate unsecured debt exceeds 20% of
IESU's then outstanding secured debt and total equity.
The affirmative vote or consent of the holders of two-thirds of all series of
the new IESU Class A preferred stock, considered as a class without regard to
series, will be required to:
o authorize any class of stock ranking prior to the new IESU Class A
preferred stock as to dividends or liquidation rights; or
o change adversely the express terms and provisions of the new IESU
Class A preferred stock.
Redemption Provisions
IESU's Board of Directors can redeem the new IESU Class A preferred
stock of all series, or of any series, or any part of any series, at its
election at any time upon thirty days notice, whether or not dividends on those
shares are in arrears. The redemption price would be the price fixed by the
Board of Directors when establishing the particular series to be redeemed, plus
full cumulative dividends up to the redemption date. If less than all the
outstanding shares of any series are to be redeemed, the redemption may be made
either by lot or pro rata in such manner as may the Board of Directors may
determine.
After the redemption date (unless IESU defaults in making payment of
the redemption price), all dividends on the new IESU Class A preferred stock
called for redemption will stop accruing, those shares will no longer be deemed
to be outstanding and all rights of the holders as shareowners of IESU with
respect to those shares will cease (except the right to receive the redemption
price and any conversion or exchange rights not already expired, which generally
will cease on the redemption date). Holders of new IESU Class A preferred stock
to be redeemed will generally be entitled to receive the redemption price upon
actual delivery to IESU of certificates for the shares to be redeemed.
Liquidation Rights
In the event of an involuntary liquidation, holders of all series of
the new IESU Class A preferred stock will be entitled to receive, in preference
to the IESU common stock and pari passu with additional classes of IESU
preferred stock, $50 per share plus an amount equal to all accumulated and
unpaid dividends. In the event of voluntary liquidation, holders of all series
of the new IESU Class A preferred stock will be entitled to receive, in
preference to the IESU common stock and pari passu with additional classes of
preferred stock, the price fixed by the Board of Directors applicable in such
event, plus an amount equal to all accumulated and unpaid dividends. Following
distributions to holders of the new IESU Class A preferred stock and all other
holders of IESU preferred stock, the holders of IESU common stock will be
entitled to the remaining assets. If upon any such liquidation the assets
distributable among the holders of IESU preferred stock, of all classes and
series, are insufficient to pay in full the amounts to which such holders are
entitled, the amount distributable to the holders of IESU preferred stock, of
all classes and series, will be apportioned among them ratably in proportion to
the amounts to which they are respectively then entitled. Neither a merger or
consolidation of IESU nor a sale of all or part of the assets of IESU will be
deemed to be a liquidation.
Preemption and Subscription Rights
No holder of IESU common stock or IESU preferred stock has the
preemptive right to purchase or subscribe for any additional capital stock of
IESU.
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Series of New IESU Class A Preferred Stock
The IESU board of directors has approved and adopted an amendment to
the IESU amended and restated articles of incorporation that would establish the
relative rights, designations and preferences of the various series of the new
IESU Class A preferred stock that will be issued in exchange for shares of IPC
preferred stock outstanding at the effective time of the merger. We sometimes
refer to that amendment as the "series amendment." The series amendment is in
addition to the proposed amendment that the shareowners of IESU will vote on at
the IESU special meeting, which we sometimes call the "class amendment." The
class amendment allows the IESU board of directors to establish the relative
rights, designations and preferences of the various series of the new IESU Class
A preferred stock by resolution without further shareowner approval. So, if the
shareowners of IESU approve the class amendment (and the shareowners of IPC and
IESU approve the merger agreement), then the IESU board of directors will file
the series amendment with the Secretary of State of the State of Iowa, thus
establishing the relative rights, designations and preferences of the various
series of the new IESU Class A preferred stock that will be issued in exchange
for shares of IPC preferred stock outstanding at the effective time of the
merger. Those rights, designations and preferences as set forth in the series
amendment are substantially identical to those of the existing series of IPC
preferred stock. A summary of the series of new IESU Class A preferred stock,
and their respective rights, designations and preferences, follows below. This
is only a summary. Please read the full text of the series amendment, which is
set forth as Appendix F to this proxy statement/prospectus and is incorporated
by reference herein, for a complete description of the rights, designations and
preferences of these series.
o 4.36% Class A Preferred Stock
o par value of $50 per share;
o dividend rate of 4.36% per share per annum on the par value
payable quarterly on the first days of January, April, July and
October in each year;
o redemption price of $52.30 per share plus an amount equal to full
cumulative dividends thereon to the redemption date; and
o payment upon voluntary liquidation, dissolution or winding of an
amount equal to the redemption price (exclusive of dividends)
above plus an amount equal to full cumulative dividends thereon
to the date of final distribution to the holders.
o 4.68% Class A Preferred Stock
o par value of $50 per share;
o dividend rate of 4.68% per share per annum on the par value
payable quarterly on the first days of January, April, July and
October in each year;
o redemption price of $51.62 per share plus an amount equal to full
cumulative dividends thereon to the redemption date; and
o payment upon voluntary liquidation, dissolution or winding of an
amount equal to the redemption price (exclusive of dividends)
above plus an amount equal to full cumulative dividends thereon
to the date of final distribution to the holders.
o 7.76% Class A Preferred Stock
o par value of $50 per share;
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o dividend rate of 7.76% per share per annum on the par value
payable quarterly on the first days of January, April, July and
October in each year;
o redemption price of $52.03 per share plus an amount equal to full
cumulative dividends thereon to the redemption date; and
o payment upon voluntary liquidation, dissolution or winding of an
amount equal to the redemption price (exclusive of dividends)
above plus an amount equal to full cumulative dividends thereon
to the date of final distribution to the holders.
o 6.40% Class A Preferred Stock
o par value of $50 per share;
o dividend rate of 6.40% per share per annum on the par value
payable quarterly on the first days of January, April, July and
October in each year;
o other than pursuant to the sinking fund provisions discussed
below, optional redemption price of $53.20 per share, if redeemed
on or before May 1, 2003; $51.60 per share if redeemed thereafter
and on or before May 1, 2009; $50.80 per share if redeemed
thereafter and on or before May 1, 2014; and $50 per share if
redeemed after May 1, 2014, plus an amount equal to full
cumulative dividends thereon to the redemption date;
o however, prior to May 1, 2003, none of the shares may be
redeemed if such redemption is for the purpose of refunding
any shares through the use of funds borrowed by IESU or
derived through the issuance by IESU of stock ranking prior
to or on a parity with the 6.40% Class A Preferred Stock as
to dividends or assets, if such borrowed funds have an
interest rate or an effective interest cost to IESU or such
stock has a dividend rate or cost of less than 6.40% per
annum.
o The holders of shares of 6.40% Class A Preferred Stock are
entitled to the benefit of a sinking fund as follows:
o on May 1, 2003 and on each May 1 (except that the final
redemption shall be on May 1, 2022) thereafter, IESU will
redeem out of funds legally available therefor 27,250 shares
of this series (or the number of shares then outstanding if
less than 27,250) at a sinking fund redemption price equal
to $50 per share plus accrued and unpaid dividends to the
redemption date;
o on May 1, 2008, and on each May 1 thereafter, IESU will have
the noncumulative option to redeem up to an additional
27,250 shares of this series at a sinking fund redemption
price equal to $50 per share plus accrued and unpaid
dividends to the redemption date;
o all shares IESU redeems under the sinking fund provisions
will be canceled;
o if IESU is at any time in default in the performance of
its obligations under the sinking fund provisions, no
dividends (other than dividends payable in IESU common
stock) shall be paid or any other distribution of assets
made, by purchase of shares of otherwise, on common stock or
any other stock of IESU over which the new IESU Class A
preferred stock has preference as to the payment of
dividends or as to assets.
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o payment upon voluntary liquidation, dissolution or winding of an
amount equal to the redemption price (exclusive of dividends)
then in effect plus an amount equal to full cumulative dividends
thereon to the date of final distribution to the holders.
Certain Effects on Preferred Shareowners
When we complete the merger, we will issue the new IESU Class A
preferred stock, in the series designated above, to the shareowners of IPC
preferred stock in accordance with the merger agreement. As discussed, the
holders of the new IESU Class A preferred stock will then be entitled to vote
with the holders of IESU common stock on all matters submitted to a vote of
IESU's shareowners, including the election of directors. While the IESU amended
and restated articles of incorporation provide certain voting rights to the
currently authorized IESU preferred stock in the event of certain potential
corporate actions, none of these classes of IESU preferred stock has the right
to vote with the holders of IESU common stock on all matters submitted to a vote
of IESU's shareowners, nor will any such class of IESU preferred stock other
than the new IESU Class A preferred stock acquire such a right as a result of
the merger.
After we complete the merger, there will be approximately 761,381 new
IESU Class A preferred shares issued and outstanding, each entitled to one vote,
and 13,370,788 shares of IESU common stock outstanding, each entitled to one
vote. As a result, after we complete the merger, the holders of new IESU Class A
preferred stock will hold approximately 5.4% of the aggregate voting power of
the IESU shareowners and the holders of IESU common stock will hold
approximately 94.6% of the aggregate voting power of the IESU shareowners.
As of the date of this proxy statement/prospectus, there were 761,381
shares of IPC preferred stock issued and outstanding with an aggregate par value
of $38,069,050, and 366,406 shares of IESU preferred stock issued and
outstanding with an aggregate par value of $18,320,300. Before the merger, the
IPC preferred stock ranks superior to all other authorized capital stock of IPC
with respect to dividend and liquidation rights, and the IESU preferred stock
ranks superior to all other authorized capital stock of IESU with respect to
dividend and liquidation rights. However, after the merger, the IPC preferred
stock will become new IESU Class A preferred stock and will share its superior
rank in the combined company pari passu with the rest of the IESU preferred
stock. Similarly, the rest of the IESU preferred stock will share its superior
rank in the combined company pari passu with the new IESU Class A preferred
stock.
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COMPARISON OF RIGHTS OF PREFERRED SHAREOWNERS
If we complete the merger, the holders of IESU preferred stock
immediately before the merger will remain holders of IESU preferred stock
immediately after the merger, and their rights will be governed by the IESU
amended and restated articles of incorporation (as amended by the amendments
which are being submitted for IESU shareowner approval), the IESU bylaws and the
Iowa Business Corporation Act. See "Amendments to IESU Amended and Restated
Articles of Incorporation."
The holders of IPC preferred stock, upon consummation of the merger,
will become holders of new IESU Class A preferred stock, and their rights will
be governed by the IESU amended and restated articles of incorporation (as
amended by the amendments which are being submitted for IESU shareowner
approval), the IESU bylaws and the Iowa Business Corporation Act. IESU's amended
and restated articles of incorporation and bylaws are different in certain
respects from the IPC restated certificate of incorporation and bylaws. In
addition, certain differences exist between Iowa law and Delaware law with
respect to shareowners' rights. While it is impracticable to compare all these
differences, material differences between the IESU amended and restated articles
of incorporation and bylaws, on the one hand, and the IPC restated certificate
of incorporation and bylaws, on the other hand, are summarized below under " -
Comparison of IESU Charter and Bylaws to IPC Charter and Bylaws," and material
similarities and differences between Iowa and Delaware law with respect to
shareowner rights are summarized below under " - Comparison of Iowa and Delaware
Law."
The following discussion is not intended to be complete and is
qualified in its entirety by reference to the IESU amended and restated articles
of incorporation and bylaws which are filed as exhibits to the registration
statement and are incorporated by reference herein, the Iowa Business
Corporation Act and Delaware General Corporation Law and the IPC restated
certificate of incorporation and bylaws.
Comparison of IESU Charter and Bylaws to IPC Charter and Bylaws
Board of Directors. The IESU amended and restated articles of
incorporation provide that the IESU board will be comprised of not less than
five members. The IESU bylaws provide that the IESU board will consist of at
least nine directors but not more than thirteen directors. The IESU board
currently consists of thirteen directors. The IPC restated certificate of
incorporation provides that the number of directors on the IPC board will be
fixed by the IPC bylaws. The IPC bylaws provide that the IPC board will consist
of at least nine directors but not more than thirteen directors. The IPC board
currently consists of thirteen directors. The IESU board, like the IPC board, is
classified into three classes.
Certain Share Acquisitions and Business Combinations. IPC's restated
certificate of incorporation contains provisions that have the effect of
discouraging persons form acquiring large blocks of IPC stock or delaying or
preventing a change in control of IPC. Under certain circumstances, these
provisions could have the effect of, among other things (i) prohibiting a 5%
shareowner from engaging in a business combination with IPC unless certain
requirements are satisfied, (ii) prohibiting the payment of a market premium
(i.e., greenmail) to a 5% shareowner, and (iii) prohibiting a potential tender
offeror from engaging in an unequal two-tier tender offer. Delaware law, in
addition, contains certain provisions that have the effect of discouraging
persons from acquiring large blocks of IPC stock or delaying or preventing a
change in control of IPC. Under certain circumstances, these provisions could
have the effect of, among other things, prohibiting a 10% shareowner from
engaging in a business combination with IPC for three years following the date
such 10% interest was acquired. See "--Comparison of Iowa and Delaware Law"
below for a more complete discussion of such provisions, including the
circumstances under which such provisions are triggered.
The IESU amended and restated articles of incorporation contain
certain provisions that have the effect of discouraging persons from acquiring
large blocks of IES stock or delaying or preventing a change in control of IESU.
Under certain circumstances, these provisions could have the effect of, among
other things, (i) prohibiting a 5% shareowner from engaging in a business
combination with IESU unless certain requirements are satisfied, (ii)
prohibiting the payment of a market premium (i.e., greenmail) to a 5% shareowner
and (iii) prohibiting a potential tender offeror from engaging in an unequal
two-tier tender offer. Iowa law is silent with regard to certain share
acquisitions and business combinations.
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Removal of Directors. The IESU amended and restated articles of
incorporation and bylaws are silent as to the removal of directors except that a
director must offer his or her resignation from the IESU board of directors if
the director reaches age seventy or the director's occupation or primary
business affiliation changes. The IPC restated certificate of incorporation
provides that directors may be removed by the IPC shareowners only for cause.
However, in certain situations involving the non-payment of dividends on the IPC
preferred stock the holders of IPC preferred stock have the right to elect a
majority of the directors.
Vacancies on the Board of Directors. The IESU bylaws provide that
vacancies caused by an increase in the size of the board or by any other cause
may be filled by a majority vote of the directors then in office, even though
they may be less than a quorum. Directors filling such vacancies will serve for
the unexpired term of the vacant directorship or the full term of the new
directorship.
The IPC restated certificate of incorporation and bylaws provide that
vacancies on the IPC board and newly created directorships resulting from an
increase in the authorized number of directors may be filled by a majority vote
of the directors then in office, even though they may be less than a quorum.
However, if at the time of filling any vacancy or newly created directorship,
the directors then in office constitute less than a majority of the whole board,
then any shareowner or shareowner group holding at least ten percent of the
total number of shares entitled to vote for directors may petition the Delaware
Court of Chancery to order an election to fill such vacancies or newly created
directorships or to replace the directors chosen by the directors then in
office. Such directors will serve until the next election of the class for which
they were selected.
Amendments to Articles/Certificate of Incorporation. The IESU amended
and restated articles of incorporation provide that the articles may be amended
at an annual or special meeting of IESU shareowners upon the affirmative vote of
the holders of a majority of the IESU common stock then outstanding.
Additionally, under the terms of IESU's amended and restated articles
of incorporation, any amendments to IESU's amended and restated articles of
incorporation that would have either of the following effects is subject to the
affirmative vote of two-thirds of the outstanding shares of each class of IESU
preferred stock (including, after the merger, the new IESU Class A preferred
stock):
o authorizing any stock ranking prior to the IESU preferred stock;
or
o making a change in the terms of provisions of the IESU preferred
stock that would adversely affect the rights and preferences of
its holders.
The IPC restated certificate of incorporation provides that amendments
to the certificate be made in the manner prescribed by statute. See
"--Comparison of Iowa and Delaware Law-Amendment of Articles."
Additionally, under the terms of IPC's restated certificate of
incorporation, any amendments to IPC's restated certificate of incorporation
that would have either of the following effects is subject to the affirmative
vote of two-thirds of the outstanding shares of IPC preferred stock of all
series voting as a class:
o authorizing any stock ranking prior to the IPC preferred stock
with respect to dividend or liquidation rights; or
o changing the express terms and provisions of the IPC preferred
stock of any series so as to adversely affect that series.
Any amendment that would have the effect of increasing the amount of
IPC preferred stock or authorizing any other preferred stock on a parity
therewith with respect to dividend or liquidation rights would be subject to the
affirmative vote of a majority of the IPC preferred stock of all series voting
as a class.
Amendment to Bylaws. The IESU amended and restated articles of
incorporation provide that the IESU board may alter, amend or repeal the IESU
bylaws or adopt new bylaws. The IPC restated certificate of
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incorporation provides that the IPC board may make, amend or repeal the IPC
bylaws without any action on the part of the IPC shareowners, subject to the
rights of the IPC shareowners to make, amend or repeal bylaws made by directors.
The IPC bylaws provide that the IPC bylaws may be amended and new bylaws made at
any annual, regular or special meeting of shareowners by the affirmative vote of
a majority in interest of the stock issued, outstanding and entitled to vote.
Voting/Cumulative Voting. If the amendment to the IESU amended and
restated articles of incorporation that authorizes the new IESU Class A
preferred stock is approved, the holders of new IESU Class A preferred stock
will have the right to cast one vote per share, voting with the IESU common
shareowners, on all matters submitted to a vote of IESU's shareowners, including
the election of directors. In addition:
o all of IESU's preferred shareowners (including holders of new
IESU Class A preferred stock), voting as a combined class, may
elect a majority of IESU's directors if IESU is four or more
quarters in arrears in paying its preferred dividends;
o the affirmative vote or consent of the holders of a majority of
all series of the new IESU Class A preferred Stock considered as
a class without regard to series, will be required to:
o merge or consolidate with any other corporation or sell substantially
all of the assets of IESU, unless such transaction is approved by the
SEC or other regulatory authority of the federal government or unless
such transaction is undertaken with a subsidiary of IESU;
o increase the total authorized amount of new IESU Class A preferred
stock or authorize any other preferred stock on a parity therewith
with respect to dividends or liquidation rights;
o issue any additional shares of preferred stock on a parity with the
then outstanding IESU Class A preferred stock with respect to payment
of dividends or liquidation rights unless:
o IESU's consolidated gross income for 12 consecutive calendar
months within a period of 15 calendar months immediately
preceding such issuance is equal to at least 150% of IESU's
aggregate consolidated interest charges and the annual dividend
charges of all IESU preferred stock that will be outstanding
immediately after such issuance; and
o the stated capital of the junior stock of IESU plus any surplus
of IESU is at least equal to the aggregate liquidation
preferences of the IESU preferred stock and any other stock
ranking prior to or on a parity with the IESU preferred stock
after giving effect to the proposed issuance of preferred stock;
or
o issue or assume any unsecured debt for any purpose other than to
refund existing unsecured debt, redeem or retire any indebtedness
pursuant to authorization by state or federal regulatory authority, or
redeem or retire any outstanding shares of IESU preferred stock, if
after such transaction IESU's aggregate unsecured debt exceeds 20% of
IESU's then outstanding secured debt and total equity; and
o the affirmative vote or consent of the holders of two-thirds of
all series of the new IESU Class A preferred stock, considered as
a class without regard to series, will be required to:
o authorize any class of stock ranking prior to the new IESU Class A
preferred stock as to dividends or liquidation rights; or
o change adversely the express terms and provisions of the new IESU
Class A preferred stock.
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The voting rights of IPC's preferred shareowners set forth in IPC's
restated certificate of incorporation are substantially identical to those
described above, except that the additional voting rights are not shared with
other classes of preferred stock because IPC has only one class of preferred
stock.
Special Meetings of Shareowners; Shareowner Action by Written Consent.
The IESU bylaws provide that special meetings of IESU shareowners may be called
by the IESU board or its chief executive officer. IESU will also call a special
meeting if requested by the holders of at least 10% of all the shares entitled
to vote at the meeting. The IPC bylaws provide that special meetings of IPC
shareowners may be called by the IPC board, the chairman of the IPC board, the
president, a vice-president or the holders of at least 25% of the shares issued
and outstanding and entitled to vote.
Under the IPC restated certificate of incorporation, a special meeting
of shareowners will generally be held between 60 and 90 days after the holders
of IPC preferred stock have acquired the right (as a result of non-payment of
dividends - see "Description of New IESU Class A Preferred Stock - Voting
Rights") to elect a majority of the directors.
The IESU bylaws are silent as to whether shareowners may take action
by written consent without a meeting. Iowa law authorizes shareowners to take
action without a meeting by written consents signed by the holders of not less
than 90% of the votes entitled to be cast. The IPC bylaws are also silent as to
whether shareowners may take action by written consent in lieu of a meeting.
Delaware Law allows shareowners to take action in lieu of a meeting by written
consent signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize such action at a meeting.
Indemnification/Limitation of Liability. The IESU amended and restated
articles of incorporation provide that IESU must indemnify any director,
officer, employee or agent to the fullest extent permitted under Iowa law. The
IESU amended and restated articles of incorporation further authorize IESU to
purchase and maintain insurance for any such person or any person serving at the
request of IESU as a director, officer, employee or agent of another enterprise
against any liability incurred as a result of the person serving in such
official capacity. The IESU amended and restated articles of incorporation also
limit the personal liability of directors for monetary damages for breach of
their fiduciary duties, except for liability relating to (i) any breach of the
director's duty of loyalty to the corporation or its shareowners, (ii) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) unlawful distributions.
The IPC bylaws provide that IPC will indemnify any person who is a
party or threatened to be made a party to any legal proceeding by reason of the
fact that such person is or was a director, officer, employee or attorney of
IPC, or is or was serving at the request of IPC as a director, officer, employee
or attorney of another enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person. This right of indemnity includes the advancement of expenses
upon receipt of an undertaking to repay upon specified conditions. The right to
indemnification does not extend to matters in which the person seeking
indemnification is found liable to the corporation by a court of competent
jurisdiction, by a majority of the directors who are not seeking indemnification
or by independent counsel appointed by the IPC board unless and only to the
extent that a court determines such person is fairly and reasonably entitled to
indemnification despite a final determination of liability. The IPC restated
certificate of incorporation limits the personal liability of directors for any
acts or omissions in the performance of their duties as directors to the full
extent permitted under Delaware law.
Comparison of Iowa and Delaware Law
As described below, Iowa and Delaware law generally provide
shareowners with similar rights and protections. A comparison of Delaware law as
it applies to IPC and Iowa law as it applies to IESU (and will apply to IESU as
the surviving corporation in the merger) is set forth below:
Classified Board of Directors; Removal of Directors; Vacancies.
Delaware and Iowa law both allow a company's board of directors to be divided
into classes. Under Delaware law, directors serving on a
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classified board of directors may be removed only for cause unless the
certificate of incorporation provides otherwise. Under Iowa law, absent a
provision to the contrary contained in the corporation's articles of
incorporation or bylaws, a director can be removed with or without cause by the
affirmative vote of the holders of the proportion of the voting power of the
shares of the classes or series such director represents sufficient to elect
such director.
Delaware law provides that vacancies on the board of directors will be
filled as the certificate of incorporation or the bylaws provide, and that in
the absence of any such certificate of incorporation or bylaw provision,
vacancies will be filled by the board of directors. Iowa law provides that
unless the articles of incorporation otherwise provide, vacancies may be filled
by the shareowners or by the affirmative vote of a majority of the directors,
even if the directors remaining in the office constitute less than a quorum.
Iowa law also provides that if the vacant office was held by a director elected
by a voting group of shareowners, only the shareowners of that voting group may
vote to fill the vacancy if filled by shareowners, and only the remaining
directors elected by that voting group may vote to fill the vacancy if filled by
the directors.
Interested Director Transactions. Delaware and Iowa law both provide
that contracts or transactions in which one or more of the corporation's
directors have an interest are not void or voidable solely because of such
interest or because such director was present at the directors' or shareowners'
meeting where such contracts or transactions were approved, provided certain
conditions are met. Interested contracts or transactions may be approved by a
majority vote of the disinterested directors or by vote of disinterested
shareowners if the material facts of the contracts or transactions and the
director's interest in such contracts or transactions are fully disclosed and a
vote is taken in good faith. Furthermore, interested contracts or transactions
may be approved if such contracts or transactions are shown to be fair and
reasonable to the corporation at the time they are authorized, approved or
ratified by the board of directors or shareowners and separate disinterested
shareowner or disinterested director approval is not required.
Indemnification of Directors and Officers. Iowa law provides that a
corporation will indemnify a director or officer, made party to a proceeding
because of his or her status as such, who was wholly successful on the merits or
otherwise in the defense of such proceeding. Under Iowa law, the corporation may
indemnify a director or officer against liability incurred in a proceeding
provided the director or officer: (a) acted in good faith; (b) reasonably
believed that his or her conduct was in the corporation's best interests (in the
case of conduct in such person's official capacity) or not opposed to the
corporation's best interests (in all other cases); (c) in the case of any
criminal proceeding, he or she had no reasonable cause to believe that the
conduct was unlawful; (d) was not adjudged liable to the corporation; and (e)
did not receive an improper personal benefit. Iowa law provides that a
corporation's articles of incorporation may limit its obligation to indemnify
directors and officers.
Delaware law provides that a director or officer must be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred to
the extent such director or officer has been successful on the merits or
otherwise in any action brought against such director or officer because of his
or her status as such. With respect to a third-party action, Delaware law
provides that a corporation may indemnify a director or officer against
liability if such director or officer (a) acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interest of the
corporation and (b) with respect to any criminal actions, had no reasonable
cause to believe his or her conduct was unlawful. With respect to claims brought
against a director or officer by or in the right of the corporation, such
director or officer may be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him or her except that no
indemnification will be made in respect to any claim as to which such director
or officer was adjudged to be liable to the corporation unless and only to the
extent that the Delaware Chancery Court determines otherwise.
Limited Liability of Directors. Delaware and Iowa law both provide for
the limitation or elimination of the personal liability of a company's directors
to the company or its shareowners for monetary damages for a breach of a
director's fiduciary duty. This immunity must be provided for in the certificate
or articles of incorporation. Directors cannot be immunized in certain instances
including: (i) breach of the duty of loyalty; (ii) acts or omissions not in good
faith that involve intentional misconduct or a knowing violation of law; (iii)
unlawful distributions; and (iv) transactions in which the director received an
improper personal benefit. Other limitations specific to each state also exist.
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Amendment of Articles. Delaware and Iowa law both provide that the
board of directors may propose amendments to a corporation's certificate or
articles of incorporation, respectively. Under Delaware law, proposed amendments
must be approved by the affirmative vote of the holders of a majority of the
voting power of the shares entitled to vote. Under Iowa law, unless the articles
of incorporation, bylaws adopted under authority granted in the articles, the
board (if board is proposing the amendment), or Iowa law requires a greater vote
or vote by voting groups, a proposed amendment is adopted if approved by a
majority of the votes cast by every voting group entitled to vote on the
amendment. In addition, both Delaware and Iowa law require that certain
amendments must be approved by a separate vote of a class or series of stock if,
among other things, the amendment would adversely affect the rights or
preferences of such shares.
Amendment of Bylaws. Under Delaware law, the power to adopt, amend or
repeal the bylaws is vested in the stockholders entitled to vote, unless the
certificate of incorporation confers the power to adopt, amend or repeal the
bylaws upon the directors. Under Iowa law, unless reserved by the articles of
incorporation to the shareholders, the power to adopt, amend or repeal the
bylaws is generally vested in the directors, subject to the power of the
shareholders to adopt, amend, or repeal bylaws adopted, amended or repealed by
the directors.
Vote Required for Certain Mergers, Consolidations or Dissolutions.
Delaware and Iowa law both require shareowner approval (except as indicated
below and for certain mergers between a parent company and its 90% owned
subsidiary) by the holders of the stock of each corporation that is party to a
plan of merger and the selling corporation for the sale by the corporation of
substantially all its assets if not in the usual or regular course of business.
(Delaware law does not refer to the usual or regular course of business). Iowa
law further provides for a shareholder vote of the corporation whose shares will
be acquired in a statutory share exchange. Both Delaware and Iowa law require a
vote of the holders of the corporation's stock to approve the dissolution of a
corporation.
Delaware law provides that the vote required to approve a plan of
merger, sale of substantially all the assets or dissolution is a majority of the
outstanding stock of the corporation entitled to vote thereon. Under Iowa law,
unless a higher voting requirement is imposed by the articles of incorporation,
or by the board of directors requiring a higher vote as a condition to its
submission of the plan to the holders of corporation's stock, the vote required
to approve a plan of merger, statutory share exchange, sale of substantially all
assets not in the ordinary course of business or dissolution is a majority of
the voting power of all shares entitled to vote of each corporation whose
holders have a right to vote; approval of a plan of merger or statutory share
exchange also may require the affirmative vote of one or more classes or series
of stock.
Iowa law does not require the vote of the shareholders of a surviving
corporation in a merger if (i) the corporation's articles of incorporation will
not be amended in the transaction, (ii) shareowners of the corporation
immediately before the effective date of the transaction will hold the same
number of shares with identical rights immediately after the effective date,
(iii) the number of shares entitled to vote immediately after the merger (plus
shares issuable upon certain conversions or pursuant to certain rights) does not
exceed by more than 20% the number of shares entitled to vote immediately before
the transaction, and (iv) the number of participating shares of the corporation
(outstanding shares of the corporation that entitle their holders to
participate, without limitation, in distributions by the corporation)
immediately after the merger, plus the number of participating shares of the
corporation issuable on the conversion of, or on the exercise of rights to
purchase, securities issued in the transaction, will not exceed by more than 20%
the number of participating shares of the corporation immediately before the
transaction. Delaware law similarly does not require a vote of the stockholders
of a surviving corporation to a merger if (i) the agreement of merger does not
amend in any respect the surviving corporation's certificate, (ii) each share of
stock outstanding immediately prior to the merger is identical to outstanding or
treasury shares following the merger, and (iii) no shares of stock (and no
securities convertible into shares of stock) are to be issued pursuant to the
merger or the number of shares issued (or the securities convertible into shares
of stock) does not exceed 20% of the number of shares outstanding immediately
prior to the merger.
Class Vote for Certain Reorganizations. Iowa law provides, with
certain exceptions, that a class or series of shares of a corporation is
entitled to vote on a plan of merger or statutory share exchange as a class or
series if any provision of the plan would, if contained in a proposed amendment
to the articles of incorporation, entitle the class or series of shares to vote
as a class or series and, in the case of an exchange, if the class or series
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is included in the plan of exchange. Delaware law does not contain similar
provisions. In addition to the voting requirements discussed above,
anti-takeover legislation adopted in Delaware imposes additional restrictions on
mergers and other business combinations between certain stockholders and the
corporation. See "--Anti-Takeover Statutes."
Shareowner Action by Consent. Delaware and Iowa law each permit
holders of a corporation's stock to take action without a meeting by written
consent. However, both allow corporations to opt out of such written consent
provisions by so stating in their certificate or articles of incorporation,
respectively. To approve an action in lieu of meeting by written consent,
Delaware law requires each written consent to be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to approve such action at a meeting where all shares entitled to vote
thereon were present and voted. Iowa law requires written consents to be signed
by the holders of 90% of the votes entitled to be cast for shareowner action to
be approved.
Distributions. Iowa law provides that the board of directors may
authorize and the corporation may make, subject to any restriction by the
articles of incorporation, distributions to its shareowners unless after such
distribution the corporation would not be able to pay its debts as they become
due or its total assets after the distribution would be less than the sum of its
total liabilities, plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution.
Delaware law provides that, subject to any restrictions contained in a
corporation's certificate of incorporation, the directors may declare and pay
dividends either
o out of the corporation's surplus; or
o if there is no surplus, out of the corporation's net profits for
the fiscal year in which the dividend is declared and/or the
preceding fiscal year, unless the corporation's capital is
diminished by depreciation to an amount less than the aggregate
capital represented by the corporation's issued and outstanding
stock having a distribution preference.
Special Meetings of Shareowners. Under Delaware and Iowa law, the
board of directors or any person authorized by the certificate or articles of
incorporation or bylaws of a corporation may call a special meeting of such
corporation. Iowa law further provides that a corporation must call a special
meeting if it receives a written demand of the holders of at least 10% of the
votes entitled to be cast at such a meeting.
Dissenters' Rights. Delaware and Iowa law both entitle the holders of
a corporation's stock to dissent from and obtain fair value for their shares in
the event of certain corporate actions. Subject to certain exceptions,
limitations and conditions, shareholders and stockholders of corporations
incorporated in Iowa or Delaware may dissent from a plan of merger. Iowa law
also provides that shareholders may dissent from a statutory share exchange or a
sale of all or substantially all of the assets of the corporation. Iowa law also
provides that dissenters' rights are available to shareholders in the event of
any amendment to the articles of incorporation that materially and adversely
affects the rights or preferences of the dissenting shareholders' shares in
certain specified ways. Delaware and Iowa law provide that a corporation may
create additional dissenters' rights in its certificate of articles of
incorporation. Iowa law also allows corporations to create additional
dissenters' rights in their bylaws or by board resolution
Delaware law provides that the dissenters' rights are not available to
holders of shares listed on a national securities exchange or quoted on the
Nasdaq National Market. In addition, Delaware law provides that dissenters'
rights are not available to holders of shares that are held of record by more
than 2,000 holders. Delaware law provides that such shares do not carry
dissenters' rights unless the holders thereof are required to accept in
consideration of their shares anything other than listed securities or cash in
lieu of fractional shares.
Director and Officer Discretion. Iowa law provides that, in
discharging the duties of the position of director, a director may, in
considering the best interest of the corporation, consider the interests of the
corporation's employees, customers, suppliers, and creditors, the economy of the
state and nation, community and
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societal considerations, and the long-term as well as short-term interest of the
corporation and its shareholders including the possibility that these interests
may be best served by the continued independence of the corporation. Delaware
judicial doctrine allows directors to consider similar factors.
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CERTAIN INFORMATION CONCERNING US
Certain Arrangements Between IESU, IPC and Affiliates
Alliant Energy was formed as a result of a three-way merger in April
1998 between Alliant Energy (then known as WPL Holdings, Inc.), the holding
company of IESU (called IES Industries, Inc.) and IPC. As a result, IESU and IPC
both became operating subsidiaries of Alliant Energy. In addition to IESU and
IPC, Alliant Energy has a utility subsidiary based in Madison, Wisconsin called
Wisconsin Power and Light Company.
Following the three-way merger, IESU, IPC and Wisconsin Power and
Light entered into a system coordination and operating agreement. The agreement,
which has been approved by the FERC, provides a contractual basis for
coordinated planning, construction, operation and maintenance of the
interconnected electric generation and transmission systems of the three utility
companies to allow for economies (consistent with reliable electric service),
reasonable utilization of natural resources, and environmental requirements. The
agreement also allows the interconnected systems to be operated as a single
entity with off-system capacity sales and purchases made to market excess system
capability or to meet system capability deficiencies. Those sales and purchases
are allocated among the three utility companies based on procedures included in
the agreement. The sales amounts allocated to IESU were $11.0 million, $18.1
million and $18.0 million for the nine months ended September 30, 2000, for the
year ended 1999 and for the year ended 1998, respectively. The purchases
allocated to IESU were $49.4 million, $71.3 million and $56.0 million for the
nine months ended September 30, 2000, for the year ended 1999 and for the year
ended 1998, respectively. The sales amounts allocated to IPC were $21.9 million,
$21.3 million and $18.0 million for the nine months ended September 30, 2000,
for the year ended 1999 and for the year ended 1998, respectively. The purchases
allocated to IPC were $49.9 million, $65.5 million and $53.3 million for the
nine months ended September 30, 2000, for the year ended 1999 and for the year
ended 1998, respectively. The procedures were approved by both the FERC and the
state regulatory bodies having jurisdiction over these sales. Under the
agreement, IESU, Wisconsin Power and Light and IPC are fully reimbursed for any
generation expense incurred to support the sale to an affiliate or to a
non-affiliate. Any margins on sales to non-affiliates are distributed to the
three utilities in proportion to each utility's share of electric production at
the time of sale. The pro forma combined statements of income for all periods
presented that are included within this proxy statement/prospectus do not
reflect what the allocated purchases and sales would have been on a combined
basis to IESU and IPC. The historical data was not available to compute that pro
forma item. There would have been no impact on pro forma gross margin had this
pro forma item been included.
Pursuant to a service agreement approved by the SEC under the 1935
Act, IESU and IPC receive various administrative and general services from
another subsidiary of Alliant Energy called Alliant Energy Corporate Services,
Inc. These services are billed to IESU and IPC at cost based on payroll and
other expenses incurred by Corporate Services for the benefit of IESU and IPC
and consist primarily of employee compensation, benefits and fees associated
with various professional services. IESU's costs totaled $67.3 million, $93.9
million and $59.3 million for the nine months ended September 30, 2000, for the
year ended 1999 and for the year ended 1998, respectively. IPC's costs totaled
$33.4 million, $42.9 million and $23.7 million for the nine months ended
September 30, 2000, for the year ended 1999 and for the year ended 1998,
respectively. Corporate Services began operations in May 1998 upon the
consummation of the three-way merger. At September 30, 2000, December 31, 1999
and December 31, 1998, IESU had an intercompany payable to Corporate Services of
$22.8 million, $16.4 million and $20.9 million, respectively. At September 30,
2000, December 31, 1999 and December 31, 1998, IPC had an intercompany payable
to Corporate Services of $10.3 million, $10.1 million and $7.3 million,
respectively.
Corporate Services has entered into purchased-power capacity contracts
as agent for IESU, Wisconsin Power and Light and IPC. Based on the system
coordination and operating agreement, Alliant Energy annually allocates
purchased-power contracts to the individual utilities. Such process considers
factors such as resource mix, load growth and resource availability and as a
result of that process, IESU was not allocated any of the purchased-power
contracts for 2000 to 2004. IESU has entered into a contract for the purchase of
$9.3 million of capacity in 2000 from IPC. In addition, Corporate Services has
entered into various coal contracts as agent for IESU, Wisconsin Power and Light
and IPC. Contract quantities are allocated to specific plants at the individual
utilities based on various factors including projected heat input requirements,
combustion compatibility and efficiency. However, in 2000 and 2001, system-wide
contracts of $24.6 million (6.5 million tons) and $12.5
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million (3.6 million tons), respectively, have not yet been allocated to the
individual utilities due to the need for additional analysis of combustion
compatibility and efficiency.
IESU also participates in a utility money pool with Wisconsin Power
and Light and IPC that is funded, as needed, through the issuance of commercial
paper by Alliant Energy. Interest expense and other fees are allocated based on
borrowing amounts. As of September 30, 2000, IESU had approximately $77 million
and IPC had approximately $47 million in borrowings under the money pool. As of
December 31, 1999, IESU had approximately $57 million and IPC had approximately
$39 million in borrowings under the money pool. The level of borrowings
fluctuates based on seasonal corporate needs, the timing of long-term financing
and capital market conditions.
In December 1999, Alliant Energy, IESU, IPC and Wisconsin Power and
Light filed an application with the SEC for approval of a combined accounts
receivable program whereby each utility will sell their respective receivables
through wholly-owned special purpose entities to an affiliated financing entity,
which in turn will sell the receivables to an outside investor. We expect to
receive approvals from the SEC and the necessary state commissions in late 2001.
Directors and Executive Officers
The surviving corporation's directors and executive officers will be
the same as IESU's current directors and executive officers. As a result, we are
incorporating by reference information regarding IESU's directors and executive
officers included under the heading "Item 10. Directors and Executive Officers
of the Registrants - IESU" of IESU's Annual Report on Form 10-K for the year
ended December 31, 1999 (which incorporates portions of Alliant Energy's proxy
statement (File No. 1-9894)).
Executive Compensation
The surviving corporation's directors and executive officers will be
the same as IESU's current directors and executive officers. As a result, we are
incorporating by reference information regarding IESU's executive officers
included under the heading "Item 11. Directors and Executive Officers of the
Registrants - IESU" of IESU's Annual Report on Form 10-K for the year ended
December 31, 1999 (which incorporates portions of Wisconsin Power and Light's
proxy statement (File No. 0-337)):
Security Ownership of Certain Beneficial Owners and Management
IESU To IESU's knowledge, no shareowner beneficially owned five
percent or more of any class of IESU preferred stock as of ____________________.
None of the directors or officers owned any shares of IESU preferred stock as of
___________________. Alliant Energy is the sole holder of IESU common stock.
IPC To IPC's knowledge, no shareowner beneficially owned five percent
or more of any class of IPC preferred stock as of ____________________. None of
the directors or officers own any shares of IPC preferred stock as of
_____________________. Alliant Energy is the sole holder of IPC common stock.
Certain Relationships and Related Transactions
The surviving corporation's directors and executive officers will be
the same as IESU's current directors and executive officers. As a result, we are
incorporating by reference information regarding IESU's directors and executive
officers included under the heading "Item 13. Certain Relationships and Related
Transactions - IESU" of IESU's Annual Report on Form 10-K for the year ended
December 31, 1999 (which incorporates portions of Alliant Energy's proxy
statement (File No. 1-9894)).
LEGAL MATTERS
The validity of the shares of IESU preferred stock offered by this
proxy statement/ prospectus will be passed upon for IESU by Foley & Lardner,
Milwaukee, Wisconsin.
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EXPERTS
The audited financial statements and schedules of IESU as of and for
the years ended December 31, 1999, 1998 and 1997 and of IPC as of and for the
years ended December 31, 1999 and 1998 included in this proxy statement/
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in its reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports. The audited financial statements
and schedules of IPC for the year ended December 31, 1997 included in this proxy
statement/ prospectus and elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, independent public auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
IESU files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document which IESU
files at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington
D.C., and at regional SEC offices in Chicago, Illinois and New York, New York.
You can call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. You can also find IESU's public filings with the
SEC on the internet at a website maintained by the SEC located at
http://www.sec.gov.
We are "incorporating by reference" specified documents that IESU
files with the SEC, which contain important business and financial information
not included in or delivered with this proxy statement/ prospectus.
"Incorporating by reference" means:
o incorporated documents are considered part of this proxy statement/
prospectus;
o we are disclosing important information to you by referring you to
those documents; and
o information IESU files with the SEC will automatically update and
supersede information contained in this proxy statement/prospectus.
We incorporate by reference the documents listed below and any future
filings IESU makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this proxy statement/
prospectus and before the completion of the merger:
o IESU's Annual Report on Form 10-K for the year ended December 31,
1999; and
o IESU's Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000.
You may request a copy of any of these filings (including exhibits),
at no cost, by writing to Edward M. Gleason, Vice President-Treasurer and
Corporate Secretary, IES Utilities Inc., 222 West Washington Avenue, Madison,
Wisconsin 53703, or by calling Mr. Gleason at (608) 252-3311. To obtain timely
delivery of any of this information, you must make your request at least five
business days prior to the expiration of the exchange offer. The date by which
you must make your request is ____________, 2001.
You should rely only on the information contained or incorporated by
reference in this document or to which we have referred you. We have not
authorized any other person to provide you with different information. This
proxy statement/ prospectus may only be used where it is legal to sell these
securities. You should assume that the information contained or incorporated by
reference in this document is accurate as of the date on the front cover of the
proxy statement/ prospectus only. IESU's and IPC's business, financial
condition, results of operations and prospects may have changed since that date.
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INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements for the
surviving company, Interstate Power and Light Company, combine the historical
consolidated balance sheets and statements of income of IESU and IPC as adjusted
by various balance sheet pro forma adjustments identified in Note 1. Pro forma
income statement adjustments were not required. We have included all material
adjustments known to us at this time which impact the reporting periods shown.
These pro forma combined financial statements set forth the restated
combined financial data that will be presented for future comparative financial
data for the merged company. These statements are prepared on the basis of
accounting for the merger as a common control merger and are based on the
assumptions set forth in the notes hereto.
The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the merger
been consummated on the date, or at the beginning of the periods, for which the
merger is being given effect nor is it necessarily indicative of future
operating results or financial position.
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<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 2000
(In thousands)
<CAPTION>
Pro Forma
Adjustments Pro Forma
IESU IPC (See Note 1) Combined
--------------- ---------------- ----------------- --------------
ASSETS
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C> <C> <C>
Electric $ 2,234,056 $ 932,885 $ - $ 3,166,941
Gas 217,774 76,537 - 294,311
Steam 59,988 - - 59,988
Common 141,221 5,610 - 146,831
--------------- ---------------- ----------------- --------------
2,653,039 1,015,032 - 3,668,071
Less - Accumulated depreciation 1,379,402 518,475 - 1,897,877
--------------- ---------------- ----------------- --------------
1,273,637 496,557 - 1,770,194
Construction work in progress 62,508 21,994 - 84,502
Leased nuclear fuel, net 29,341 - - 29,341
--------------- ---------------- ----------------- --------------
1,365,486 518,551 - 1,884,037
Other property, plant and equipment,
net 5,625 252 - 5,877
--------------- ---------------- ----------------- --------------
1,371,111 518,803 - 1,889,914
--------------- ---------------- ----------------- --------------
Current assets:
Cash and temporary cash investments 6,615 1,459 - 8,074
Accounts receivable:
Customer, net 23,514 36,103 - 59,617
Associated companies 2,581 1,352 (47) 3,886
Other, net 10,217 647 - 10,864
Production fuel, at average cost 12,803 24,092 - 36,895
Materials and supplies, at average cost 24,812 6,161 - 30,973
Gas stored underground, at average
cost 23,819 5,501 - 29,320
Adjustment clause balances 9,561 1,041 - 10,602
Regulatory assets 17,100 10,363 - 27,463
Prepayments and other 2,814 1,452 - 4,266
--------------- ---------------- ----------------- --------------
133,836 88,171 (47) 221,960
--------------- ---------------- ----------------- --------------
Investments:
Nuclear decommissioning trust funds 114,848 - - 114,848
Other 6,104 6,681 - 12,785
--------------- ---------------- ----------------- --------------
120,952 6,681 - 127,633
--------------- ---------------- ----------------- --------------
Other assets:
Regulatory assets 117,236 55,587 - 172,823
Deferred charges and other 13,108 5,864 - 18,972
--------------- ---------------- ----------------- --------------
130,344 61,451 - 191,795
--------------- ---------------- ----------------- --------------
Total assets $ 1,756,243 $ 675,106 $ (47) $ 2,431,302
=============== ================ ================= ==============
The accompanying Notes to Unaudited Pro Forma Combined Balance Sheet are an integral part
of this statement.
</TABLE>
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<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 2000
(In thousands)
<CAPTION>
Pro Forma
Adjustments Pro Forma
IESU IPC (See Note 1) Combined
--------------- ---------------- ----------------- --------------
CAPITALIZATION AND
LIABILITIES
Capitalization:
<S> <C> <C> <C> <C>
Common stock $ 33,427 $ 34,221 $ (34,221) $ 33,427
Additional paid-in capital 279,042 108,705 34,221 421,968
Retained earnings 268,309 85,171 - 353,480
Accumulated other comprehensive
income 8 - - 8
--------------- ---------------- ----------------- --------------
Total common equity 580,786 228,097 - 808,883
Cumulative preferred stock, not
mandatorily redeemable 18,320 10,819 - 29,139
Cumulative preferred stock,
mandatorily redeemable - 24,650 - 24,650
Long-term debt (excluding current
portion) 469,708 170,378 - 640,086
--------------- ---------------- ----------------- --------------
1,068,814 433,944 - 1,502,758
--------------- ---------------- ----------------- --------------
Current liabilities:
Current maturities and sinking funds 81,560 - - 81,560
Capital lease obligations 12,057 13 - 12,070
Notes payable to associated companies 77,004 47,397 - 124,401
Accounts payable 38,875 14,742 - 53,617
Accounts payable to associated
companies 24,086 10,295 (47) 34,334
Accrued payroll and vacations 7,332 1,579 - 8,911
Accrued interest 12,928 3,535 - 16,463
Accrued taxes 63,452 21,323 - 84,775
Accumulated refueling outage
provision 8,826 - - 8,826
Environmental liabilities 5,530 1,112 - 6,642
Other 5,731 4,872 - 10,603
--------------- ---------------- ----------------- --------------
337,381 104,868 (47) 442,202
--------------- ---------------- ----------------- --------------
Other long-term liabilities and
deferred credits:
Accumulated deferred income taxes 220,524 89,122 - 309,646
Accumulated deferred investment tax
credits 25,699 13,088 - 38,787
Environmental liabilities 30,186 14,572 - 44,758
Pension and other benefit obligations 26,183 7,941 - 34,124
Capital lease obligations 17,284 57 - 17,341
Other 30,172 11,514 - 41,686
--------------- ---------------- ----------------- --------------
350,048 136,294 - 486,342
--------------- ---------------- ----------------- --------------
Total capitalization and liabilities $ 1,756,243 $ 675,106 $ (47) $ 2,431,302
=============== ================ ================= ==============
The accompanying Notes to Unaudited Pro Forma Combined Balance Sheet are an integral part
of this statement.
</TABLE>
73
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<CAPTION>
1. Pro Forma Adjustments
Merged Company
Common Stock Inter-Company Total
Adjustment Transactions Pro Forma
(Note 1 (a)) (Note 1(b)) Adjustments
-------------------------------------------------------------------
(data in thousands)
ASSETS
Current assets:
<S> <C> <C> <C>
Accounts receivable from associated
companies $ - $ (47) $ (47)
-------------------- ------------------- --------------------
Total current assets - (47) (47)
-------------------- ------------------- --------------------
Total assets $ - $ (47) $ (47)
==================== =================== ====================
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Equity:
Common Stock $ (34,221) $ - $ (34,221)
Additional paid-in capital 34,221 - 34,221
-------------------- ------------------- --------------------
Total common equity - - -
-------------------- ------------------- --------------------
Current liabilities:
Accounts payable to associated companies - (47) (47)
-------------------- ------------------- --------------------
Total current liabilities - (47) (47)
-------------------- ------------------- --------------------
Total capitalization and liabilities $ - $ (47) $ (47)
==================== =================== ====================
(a) Merged Company Common Stock Adjustment
As provided in the Merger Agreement, all issued and outstanding shares of IPC common stock will be dissolved upon
consummation of the merger. The pro forma adjustment to common equity restates the common stock account to equal the
$2.50 par value of IESU's 13,370,788 shares of common stock and reclassifies the excess to additional paid-in capital.
(b) Intercompany Transactions
At September 30, 2000, intercompany receivables and payables between IESU and IPC during the period presented were
eliminated from the pro forma balance sheet.
</TABLE>
74
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(In thousands)
<CAPTION>
Pro Forma
IESU IPC Combined
----------------------- -------------------- ---------------------
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 496,934 $ 232,719 $ 729,653
Gas utility 107,767 28,419 136,186
Steam and other 20,298 - 20,298
----------------------- -------------------- ---------------------
624,999 261,138 886,137
----------------------- -------------------- ---------------------
Operating expenses:
Electric and steam production fuels 88,440 41,851 130,291
Purchased power 59,464 50,107 109,571
Cost of gas sold 68,291 16,953 85,244
Other operation and maintenance 158,865 66,594 225,459
Depreciation and amortization 80,555 26,060 106,615
Taxes other than income taxes 35,562 11,795 47,357
----------------------- -------------------- ---------------------
491,177 213,360 704,537
----------------------- -------------------- ---------------------
Operating income 133,822 47,778 181,600
----------------------- -------------------- ---------------------
Interest expense and other:
Interest expense 38,208 11,996 50,204
Allowance for funds used during
construction (1,827) (694) (2,521)
Miscellaneous, net (5,861) (1,202) (7,063)
----------------------- -------------------- ---------------------
30,520 10,100 40,620
----------------------- -------------------- ---------------------
Income before income taxes 103,302 37,678 140,980
----------------------- -------------------- ---------------------
Income taxes 43,285 15,910 59,195
----------------------- -------------------- ---------------------
Net income 60,017 21,768 81,785
----------------------- -------------------- ---------------------
Preferred dividend requirements 686 1,866 2,552
----------------------- -------------------- ---------------------
Earnings available for common stock $ 59,331 $ 19,902 $ 79,233
======================= ==================== =====================
</TABLE>
75
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(In thousands)
<CAPTION>
Pro Forma
IESU IPC Combined
----------------------- -------------------- ---------------------
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 488,374 $ 230,523 $ 718,897
Gas utility 99,956 34,381 134,337
Steam and other 20,056 - 20,056
----------------------- -------------------- ---------------------
608,386 264,904 873,290
----------------------- -------------------- ---------------------
Operating expenses:
Electric and steam production fuels 69,937 44,702 114,639
Purchased power 62,349 49,830 112,179
Cost of gas sold 58,313 20,541 78,854
Other operation and maintenance 171,453 60,416 231,869
Depreciation and amortization 76,444 26,143 102,587
Taxes other than income taxes 37,535 12,989 50,524
----------------------- -------------------- ---------------------
476,031 214,621 690,652
----------------------- -------------------- ---------------------
Operating income 132,355 50,283 182,638
----------------------- -------------------- ---------------------
Interest expense and other:
Interest expense 39,403 11,202 50,605
Allowance for funds used during
construction (1,808) (264) (2,072)
Miscellaneous, net (3,568) (2,080) (5,648)
----------------------- -------------------- ---------------------
34,027 8,858 42,885
----------------------- -------------------- ---------------------
Income before income taxes 98,328 41,425 139,753
----------------------- -------------------- ---------------------
Income taxes 41,349 16,094 57,443
----------------------- -------------------- ---------------------
Net income 56,979 25,331 82,310
----------------------- -------------------- ---------------------
Preferred dividend requirements 686 1,860 2,546
----------------------- -------------------- ---------------------
Earnings available for common stock $ 56,293 $ 23,471 $ 79,764
======================= ==================== =====================
</TABLE>
76
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands)
<CAPTION>
Pro Forma
IESU IPC Combined
----------------------- -------------------- ---------------------
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 627,950 $ 294,381 $ 922,331
Gas utility 145,825 47,724 193,549
Steam and other 26,921 - 26,921
----------------------- -------------------- ---------------------
800,696 342,105 1,142,801
----------------------- -------------------- ---------------------
Operating expenses:
Electric and steam production fuels 95,247 56,537 151,784
Purchased power 82,402 65,446 147,848
Cost of gas sold 88,308 28,138 116,446
Other operation and maintenance 222,921 81,878 304,799
Depreciation and amortization 101,053 33,259 134,312
Taxes other than income taxes 49,266 15,484 64,750
----------------------- -------------------- ---------------------
639,197 280,742 919,939
----------------------- -------------------- ---------------------
Operating income 161,499 61,363 222,862
----------------------- -------------------- ---------------------
Interest expense and other:
Interest expense 51,852 15,121 66,973
Allowance for funds used during
construction (2,366) (415) (2,781)
Miscellaneous, net (3,818) (4,095) (7,913)
----------------------- -------------------- ---------------------
45,668 10,611 56,279
----------------------- -------------------- ---------------------
Income before income taxes 115,831 50,752 166,583
----------------------- -------------------- ---------------------
Income taxes 49,385 19,906 69,291
----------------------- -------------------- ---------------------
Net income 66,446 30,846 97,292
----------------------- -------------------- ---------------------
Preferred dividend requirements 914 2,482 3,396
----------------------- -------------------- ---------------------
Earnings available for common stock $ 65,532 $ 28,364 $ 93,896
======================= ==================== =====================
</TABLE>
77
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<CAPTION>
Pro Forma
IESU IPC Combined
----------------------- -------------------- ---------------------
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 639,423 $ 313,315 $ 952,738
Gas utility 141,279 42,574 183,853
Steam and other 26,228 - 26,228
----------------------- -------------------- ---------------------
806,930 355,889 1,162,819
----------------------- -------------------- ---------------------
Operating expenses:
Electric and steam production fuels 113,181 64,019 177,200
Purchased power 71,637 69,759 141,396
Cost of gas sold 84,642 20,402 105,044
Other operation and maintenance 239,972 106,339 346,311
Depreciation and amortization 93,965 32,484 126,449
Taxes other than income taxes 48,537 17,396 65,933
----------------------- -------------------- ---------------------
651,934 310,399 962,333
----------------------- -------------------- ---------------------
Operating income 154,996 45,490 200,486
----------------------- -------------------- ---------------------
Interest expense and other:
Interest expense 52,354 14,826 67,180
Allowance for funds used during
construction (3,351) (412) (3,763)
Miscellaneous, net 2,589 1,226 3,815
----------------------- -------------------- ---------------------
51,592 15,640 67,232
----------------------- -------------------- ---------------------
Income before income taxes 103,404 29,850 133,254
----------------------- -------------------- ---------------------
Income taxes 41,494 11,093 52,587
----------------------- -------------------- ---------------------
Net income 61,910 18,757 80,667
----------------------- -------------------- ---------------------
Preferred dividend requirements 914 2,475 3,389
----------------------- -------------------- ---------------------
Earnings available for common stock $ 60,996 $ 16,282 $ 77,278
======================= ==================== =====================
</TABLE>
78
<PAGE>
<TABLE>
INTERSTATE POWER AND LIGHT COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<CAPTION>
Pro Forma
IESU IPC Combined
----------------------- -------------------- ---------------------
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 604,270 $ 277,340 $ 881,610
Gas utility 183,517 54,507 238,024
Steam and other 26,191 - 26,191
----------------------- -------------------- ---------------------
813,978 331,847 1,145,825
----------------------- -------------------- ---------------------
Operating expenses:
Electric and steam production fuels 108,344 55,402 163,746
Purchased power 74,098 56,770 130,868
Cost of gas sold 126,631 33,324 159,955
Other operation and maintenance 215,251 82,467 297,718
Depreciation and amortization 89,754 31,676 121,430
Taxes other than income taxes 46,130 16,708 62,838
----------------------- -------------------- ---------------------
660,208 276,347 936,555
----------------------- -------------------- ---------------------
Operating income
153,770 55,500 209,270
----------------------- -------------------- ---------------------
Interest expense and other:
Interest expense 52,791 15,610 68,401
Allowance for funds used during
construction (2,309) (190) (2,499)
Miscellaneous, net 2,279 (6,772) (4,493)
----------------------- -------------------- ---------------------
52,761 8,648 61,409
----------------------- -------------------- ---------------------
Income before income taxes 101,009 46,852 147,861
----------------------- -------------------- ---------------------
Income taxes 42,216 17,685 59,901
----------------------- -------------------- ---------------------
Net income 58,793 29,167 87,960
----------------------- -------------------- ---------------------
Preferred dividend requirements 914 2,469 3,383
----------------------- -------------------- ---------------------
Earnings available for common stock $ 57,879 $ 26,698 $ 84,577
======================= ==================== =====================
</TABLE>
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
IESU
Page
Report of Independent Public Accountants.................................... F-2
Consolidated Statements of Income and Retained Earnings for the years
ended December 31, 1999, 1998 and 1997.................................... F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998................ F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................................... F-6
Consolidated Statements of Capitalization as of December 31, 1999 and 1998.. F-7
Notes to Consolidated Financial Statements.................................. F-8
Consolidated Statements of Income (Unaudited) for the three
and nine months ended September 30, 2000 and 1999.........................F-23
Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000
(unaudited)...............................................................F-24
Consolidated Statements of Cash Flows (Unaudited) for the nine
months ended September 30, 2000 and 1999..................................F-26
Notes to Consolidated Financial Statements (Unaudited)......................F-27
IPC
Report of Independent Public Accountants....................................F-30
Independent Auditors' Report................................................F-31
Statements of Income for the years ended December 31, 1999, 1998 and 1997...F-32
Balance Sheets as of December 31, 1999 and 1998.............................F-33
Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997..................................................................F-35
Statements of Capitalization as of December 31, 1999 and 1998...............F-36
Statements of Changes in Common Equity for the years ended
December 31, 1999, 1998 and 1997..........................................F-37
Notes to Financial Statements...............................................F-38
Statements of Income (Unaudited) for the three and nine months ended
September 30, 2000 and 1999...............................................F-50
Balance Sheets as of December 31, 1999 and September 30, 2000 (unaudited)...F-51
Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 2000 and 1999...............................................F-53
Notes to Financial Statements (Unaudited) for the nine months ended
September 30, 2000........................................................F-54
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareowners of IES Utilities Inc.:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of IES Utilities Inc. (an Iowa Corporation) and subsidiaries (the
"Company") as of December 31, 1999 and 1998, and the related consolidated
statements of income, retained earnings and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1999 and 1998, and the consolidated results of its operations and
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2000, except for Note 15,
as to which the date is November 29, 2000
F-2
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- ------------------ -------------------
(in thousands)
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 627,950 $ 639,423 $ 604,270
Gas utility 145,825 141,279 183,517
Steam and other 26,921 26,228 26,191
-------------------- ------------------ -------------------
800,696 806,930 813,978
-------------------- ------------------ -------------------
Operating expenses:
Electric and steam production fuels 95,247 113,181 108,344
Purchased power 82,402 71,637 74,098
Cost of gas sold 88,308 84,642 126,631
Other operation 174,417 187,932 161,418
Maintenance 48,504 52,040 53,833
Depreciation and amortization 101,053 93,965 89,754
Taxes other than income taxes 49,266 48,537 46,130
-------------------- ------------------ -------------------
639,197 651,934 660,208
-------------------- ------------------ -------------------
Operating income 161,499 154,996 153,770
-------------------- ------------------ -------------------
Interest expense and other:
Interest expense 51,852 52,354 52,791
Allowance for funds used during construction (2,366) (3,351) (2,309)
Miscellaneous, net (3,818) 2,589 2,279
-------------------- ------------------ -------------------
45,668 51,592 52,761
-------------------- ------------------ -------------------
Income before income taxes 115,831 103,404 101,009
-------------------- ------------------ -------------------
Income taxes 49,385 41,494 42,216
-------------------- ------------------ -------------------
Net income 66,446 61,910 58,793
-------------------- ------------------ -------------------
Preferred dividend requirements 914 914 914
-------------------- ------------------ -------------------
Earnings available for common stock $ 65,532 $ 60,996 $ 57,879
==================== ================== ===================
</TABLE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1999 1998 1997
-------------------- ------------------ -------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 275,372 $ 233,216 $ 231,337
Net income 66,446 61,910 58,793
Cash dividends declared on common stock (87,951) (18,840) (56,000)
Cash dividends declared on preferred stock (914) (914) (914)
-------------------- ------------------ -------------------
Balance at end of year $ 252,953 $ 275,372 $ 233,216
==================== ================== ===================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-3
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
---------------------------------------
ASSETS 1999 1998
------------------- ----------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $2,196,895 $2,140,322
Gas 207,769 198,488
Steam 59,929 55,797
Common 147,845 106,940
------------------- ----------------
2,612,438 2,501,547
Less - Accumulated depreciation 1,311,996 1,209,204
------------------- ----------------
1,300,442 1,292,343
Construction work in progress 37,572 48,991
Leased nuclear fuel, net of amortization 39,284 25,644
------------------- ----------------
1,377,298 1,366,978
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,094 and $1,948,
respectively 5,481 5,623
------------------- ----------------
1,382,779 1,372,601
------------------- ----------------
Current assets:
Cash and temporary cash investments 5,720 4,175
Temporary cash investments with associated companies - 53,729
Accounts receivable:
Customer, less allowance for doubtful accounts of $824
and $1,058, respectively 14,130 16,703
Associated companies 5,696 2,662
Other, less allowance for doubtful accounts of $817 and $357,
respectively 12,864 10,346
Income tax refunds receivable 6,007 1,754
Production fuel, at average cost 12,312 11,863
Materials and supplies, at average cost 24,722 25,591
Gas stored underground, at average cost 11,462 12,284
Adjustment clause balances 11,099 -
Regulatory assets 18,569 23,487
Prepayments and other 2,921 2,431
------------------- ----------------
125,502 165,025
------------------- ----------------
Investments:
Nuclear decommissioning trust funds 105,056 91,691
Other 6,119 6,019
------------------- ----------------
111,175 97,710
------------------- ----------------
Other assets:
Regulatory assets 123,031 137,908
Deferred charges and other 13,321 15,734
------------------- ----------------
136,352 153,642
------------------- ----------------
Total assets $1,755,808 $1,788,978
=================== ================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-4
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
December 31,
---------------------------------------
CAPITALIZATION AND LIABILITIES 1999 1998
------------------- ----------------
(in thousands)
Capitalization (See Consolidated Statements of Capitalization):
<S> <C> <C>
Common stock $33,427 $33,427
Additional paid-in capital 279,042 279,042
Retained earnings 252,953 275,372
------------------- ----------------
Total common equity 565,422 587,841
Cumulative preferred stock, not mandatorily redeemable 18,320 18,320
Long-term debt (excluding current portion) 551,079 602,020
------------------- ----------------
1,134,821 1,208,181
------------------- ----------------
Current liabilities:
Current maturities and sinking funds 51,196 50,140
Capital lease obligations 13,307 11,965
Notes payable to associated companies 56,946 -
Accounts payable 41,273 43,953
Accounts payable to associated companies 17,438 22,487
Accrued payroll and vacations 7,816 6,365
Accrued interest 10,833 12,045
Accrued taxes 44,259 55,295
Accumulated refueling outage provision 1,455 6,605
Environmental liabilities 5,530 5,660
Other 8,817 17,617
------------------- ----------------
258,870 232,132
------------------- ----------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 225,961 224,510
Accumulated deferred investment tax credits 26,682 29,243
Environmental liabilities 26,292 29,195
Pension and other benefit obligations 27,734 25,655
Capital lease obligations 25,977 13,679
Other 29,471 26,383
------------------- ----------------
362,117 348,665
------------------- ----------------
Commitments and contingencies (Note 10)
Total capitalization and liabilities $1,755,808 $1,788,978
=================== ================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-5
<PAGE>
<TABLE>
IES UTILITIES INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998 1997
---------------- -------------- ---------------
Cash flows from operating activities: (in thousands)
<S> <C> <C> <C>
Net income $ 66,446 $ 61,910 $ 58,793
Adjustments to reconcile net income to net cash flows
from operating
activities:
Depreciation and amortization 101,053 93,965 89,754
Amortization of leased nuclear fuel 11,400 12,513 14,774
Amortization of deferred energy efficiency expenditures 16,000 18,707 10,987
Deferred taxes and investment tax credits (6,399) (17,921) (16,059)
Refueling outage provision (5,150) (4,001) 9,290
Impairment of regulatory assets - 8,969 -
Other 1,355 (346) 3,952
Other changes in assets and liabilities:
Accounts receivable (2,979) 9,690 (5,670)
Gas stored underground 822 4,908 (3,740)
Accounts payable (7,729) 3,158 (11,198)
Accrued taxes (11,036) (3,701) 18,043
Adjustment clause balances (14,530) 8,829 5,354
Benefit obligations and other 12,450 9,433 16,020
---------------- -------------- ---------------
Net cash flows from operating activities 161,703 206,113 190,300
---------------- -------------- ---------------
Cash flows used for financing activities:
Common stock dividends declared (87,951) (18,840) (56,000)
Dividends payable (4,840) 4,840 -
Preferred stock dividends (914) (914) (914)
Proceeds from issuance of long-term debt - 10,000 190,000
Reductions in long-term debt (50,140) (10,140) (63,140)
Net change in short-term borrowings 56,946 - (135,000)
Principal payments under capital lease obligations (12,887) (13,250) (12,964)
Other (20) (137) (871)
---------------- -------------- ---------------
Net cash flows used for financing activities (99,806) (28,441) (78,889)
---------------- -------------- ---------------
Cash flows used for investing activities:
Utility construction expenditures (107,342) (115,371) (108,966)
Deferred energy efficiency expenditures - - (8,450)
Nuclear decommissioning trust funds (6,008) (6,008) (6,008)
Other (731) 1,381 635
---------------- -------------- ---------------
Net cash flows used for investing activities (114,081) (119,998) (122,789)
---------------- -------------- ---------------
Net increase (decrease) in cash and temporary cash
investments (52,184) 57,674 (11,378)
---------------- -------------- ---------------
Cash and temporary cash investments at beginning of
period 57,904 230 11,608
---------------- -------------- ---------------
Cash and temporary cash investments at end of period $ 5,720 $ 57,904 $ 230
================ ============== ===============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 47,307 $ 50,177 $ 46,377
================ ============== ===============
Income taxes $ 70,779 $ 64,738 $ 41,422
================ ============== ===============
Noncash investing and financing activities -
Capital lease obligations incurred $ 25,040 $ 1,426 $ 16,781
================ ============== ===============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-6
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31,
------------------------------------------
1999 1998
------------------- -----------------
Common equity: (in thousands, except share amounts)
<S> <C> <C>
Common stock-$2.50 par value-authorized 24,000,000 shares;
13,370,788 shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 252,953 275,372
------------------- -----------------
565,422 587,841
------------------- -----------------
Cumulative preferred stock:
Cumulative, par value $50 per share, not mandatorily
redeemable - authorized 466,406 shares; 366,406 shares
outstanding
6.10% series, 100,000 shares outstanding 5,000 5,000
4.80% series, 146,406 shares outstanding 7,320 7,320
4.30% series, 120,000 shares outstanding 6,000 6,000
------------------- -----------------
18,320 18,320
------------------- -----------------
Long-term debt:
Collateral Trust Bonds:
7.65% series, due 2000 50,000 50,000
7.25% series, due 2006 60,000 60,000
6-7/8% series, due 2007 55,000 55,000
6% series, due 2008 50,000 50,000
7% series, due 2023 50,000 50,000
5.5% series, due 2023 19,400 19,400
------------------- -----------------
284,400 284,400
First Mortgage Bonds:
Series Y, 8-5/8%, due 2001 60,000 60,000
Series Z, 7.6%, retired in 1999 - 50,000
9-1/8% series, due 2001 21,000 21,000
7-1/4% series, due 2007 30,000 30,000
------------------- -----------------
111,000 161,000
Pollution control obligations:
5.75%, due serially 2000 to 2003 2,996 3,136
Variable rate (5.45% at December 31, 1999), due 2000 to
2010 11,100 11,100
Variable/fixed rate series 1998 (4.25% through 2003), due
2023 10,000 10,000
------------------- -----------------
24,096 24,236
Subordinated Deferrable Interest Debentures, 7-7/8%, due 2025 50,000 50,000
Senior Debentures, 6-5/8%, due 2009 135,000 135,000
------------------- -----------------
604,496 654,636
------------------- -----------------
Less:
Current maturities (51,196) (50,140)
Unamortized debt premium and (discount), net (2,221) (2,476)
------------------- -----------------
551,079 602,020
------------------- -----------------
Total capitalization $ 1,134,821 $ 1,208,181
=================== =================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-7
<PAGE>
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General - The Consolidated Financial Statements include the accounts of IES
Utilities Inc. (IESU) and its consolidated subsidiaries. In the fourth quarter
of 1999, IESU's subsidiaries were merged into IESU. IESU is a subsidiary of
Alliant Energy Corporation (Alliant Energy) and is engaged principally in the
generation, transmission, distribution and sale of electric energy; the
purchase, distribution, transportation and sale of natural gas; and steam
services. All of IESU's retail customers are located in Iowa.
The financial statements are prepared in conformity with generally accepted
accounting principles, which give recognition to the rate making and accounting
practices of the Federal Energy Regulatory Commission (FERC) and state
commissions having regulatory jurisdiction. Certain prior period amounts have
been reclassified on a basis consistent with the current year presentation.
The preparation of the financial statements requires management to make
estimates and assumptions that affect: a) the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements; and b) the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Regulation - IESU is subject to regulation by the FERC and the Iowa
Utilities Board.
(c) Regulatory Assets - IESU is subject to the provisions of Statement of
Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain
Types of Regulation." SFAS 71 provides that rate-regulated public utilities
record certain costs and credits allowed in the rate making process in different
periods than for unregulated entities. These are deferred as regulatory assets
or regulatory liabilities and are recognized in the Consolidated Statements of
Income at the time they are reflected in rates. At December 31, 1999 and 1998,
regulatory assets of $141.6 million and $161.4 million, respectively, were
comprised of the following items (in millions):
1999 1998
------------------------
Tax-related (Note 1(d)) $ 83.0 $ 81.4
Energy efficiency program costs 22.2 39.8
Environmental liabilities (Note 10(f)) 32.4 35.2
Other 4.0 5.0
------------------------
$141.6 $161.4
========================
Refer to the individual notes referenced above for a further discussion of
certain items reflected in regulatory assets. If a portion of IESU's operations
becomes no longer subject to the provisions of SFAS 71 as a result of
competitive restructuring 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 that would meet the requirements
under generally accepted accounting principles for continued accounting as
regulatory assets during such recovery period. In addition, IESU would be
required to determine any impairment to other assets and write-down such assets
to their fair value.
(d) Income Taxes - IESU follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax assets and
liabilities, as appropriate, for all temporary differences between the tax basis
of assets and liabilities and the amounts reported in the financial statements.
Deferred taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for deferred taxes
to reflect the tax effects of temporary differences between the time when
certain costs are recorded in the accounts and when they are deducted for tax
return purposes. As temporary differences reverse, the related accumulated
deferred income taxes are
F-8
<PAGE>
reversed to income. Investment tax credits have been deferred and are
subsequently credited to income over the average lives of the related property.
Consistent with Iowa rate making practices for IESU, deferred tax expense is not
recorded for certain temporary differences (primarily related to utility
property, plant and equipment). As the deferred taxes become payable (over
periods exceeding 30 years for some generating plant differences) they are
recovered through rates. Accordingly, IESU has recorded deferred tax liabilities
and regulatory assets for certain temporary differences, as identified in Note
1(c).
Alliant Energy files a consolidated federal income tax return. Under the terms
of an agreement between Alliant Energy and its subsidiaries (including IESU),
the subsidiaries calculate their respective federal income tax provisions and
make payments to or receive payments from Alliant Energy as if they were
separate taxable entities.
(e) Temporary Cash Investments - Temporary cash investments are stated at cost,
which approximates market value, and are considered cash equivalents for the
Consolidated Statements of Cash Flows. These investments consist of short-term
liquid investments that have maturities of less than 90 days from the date of
acquisition.
(f) Depreciation of Utility Property, Plant and Equipment - IESU uses the
remaining life method of depreciation as approved by the Iowa Utilities Board.
The remaining life of the Duane Arnold Energy Center (DAEC), of which IESU is a
co-owner, is based on the Nuclear Regulatory Commission (NRC) license
end-of-life of 2014. Depreciation expense related to the decommissioning of DAEC
is discussed in Note 10(h). IESU's average depreciation rates for electric and
gas properties for 1999, 1998 and 1997 were all 3.5%.
(g) Property, Plant and Equipment - Utility plant (other than acquisition
adjustments) is recorded at original cost, which includes overhead and
administrative costs and allowance for funds used during construction (AFUDC).
At December 31, 1999, IESU had $25.6 million of acquisition adjustments, net of
accumulated amortization, included in utility plant ($6 million of such balance
is currently being recovered in IESU's rates). AFUDC, which represents the cost
during the construction period of funds used for construction purposes, is
capitalized as a component of the cost of utility plant. The amount of AFUDC
applicable to debt funds and to other (equity) funds, a non-cash item, is
computed in accordance with the prescribed FERC formula. These capitalized costs
are recovered in rates as the cost of the utility plant is depreciated. The
aggregate gross rates used in 1999, 1998 and 1997 were 7.9%, 8.9% and 6.7%,
respectively.
Other property, plant and equipment is recorded at original cost. Upon
retirement or sale of other property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
included in "Miscellaneous, net" in the Consolidated Statements of Income.
Normal repairs, maintenance and minor items of utility plant and other property,
plant and equipment are expensed. Ordinary retirements of utility plant,
including removal costs less salvage value, are charged to accumulated
depreciation upon removal from utility plant accounts and no gain or loss is
recognized.
(h) Operating Revenues - IESU accrues revenues for services rendered but
unbilled at month-end in order to more properly match revenues with expenses. In
the third quarter of 1999, IESU recorded a $5 million increase in the estimate
of utility services rendered but unbilled at month-end. This change was a result
of the implementation of a refined estimation process compared with the unbilled
revenues recorded at June 30, 1999 using the estimation process in effect at
that time.
(i) Utility Fuel Cost Recovery - IESU's tariffs provide for subsequent
adjustments to its electric and natural gas rates for changes in the cost of
fuel and purchased energy and in the cost of natural gas purchased for resale.
Changes in the under/over collection of these costs are reflected in "Electric
and steam production fuels" and "Cost of utility gas sold" in the Consolidated
Statements of Income. The cumulative effects are reflected on the Consolidated
Balance Sheets as a current asset or current liability, pending automatic
reflection in future billings to customers. At IESU, purchased capacity costs
are not recovered from electric customers through energy adjustment clauses.
Recovery of these costs must be addressed in base rates in a formal rate
proceeding.
(j) Nuclear Refueling Outage Costs - The Iowa Utilities Board allows IESU to
collect, as part of its base revenues, funds to offset other operation and
maintenance expenditures incurred during refueling outages at DAEC.
F-9
<PAGE>
As these revenues are collected, an equivalent amount is charged to other
operation and maintenance expenses with a corresponding credit to a reserve.
During a refueling outage, the reserve is reversed to offset the refueling
outage expenditures.
(k) Nuclear Fuel - Nuclear fuel for DAEC is leased. Annual nuclear fuel lease
expenses include the cost of fuel, based on the quantity of heat produced for
the generation of electric energy, plus the lessor's interest costs related to
fuel in the reactor and administrative expenses.
(l) Derivative Financial Instruments - From time to time, IESU uses derivative
financial instruments to hedge exposures to fluctuations in certain commodity
prices. These instruments are used to mitigate risks and are not to be used for
speculative purposes. Under the deferral method of accounting, gains and losses
related to derivatives that qualify as hedges are recognized in earnings when
the underlying hedged item or physical transaction is recognized in income.
IESU is exposed to losses related to financial instruments in the event of
counterparties' nonperformance. IESU has established controls to determine and
monitor the creditworthiness of counterparties in order to mitigate its exposure
to counterparty credit risk. IESU is not aware of any counterparties that will
fail to meet their obligations.
(2) MERGER
On April 21, 1998, IES Industries Inc., WPL Holdings, Inc. and Interstate Power
Company (IPC) completed a merger forming Alliant Energy. The merger was
accounted for as a pooling of interests.
(3) LEASES
IESU has a capital lease covering its 70% undivided interest in nuclear fuel
purchased for DAEC. Future purchases of fuel may also be added to the fuel
lease. This lease provides for annual one-year extensions and IESU intends to
continue exercising such extensions. Interest costs under the lease are based on
commercial paper costs incurred by the lessor. IESU is responsible for the
payment of taxes, maintenance, operating cost, risk of loss and insurance
relating to the leased fuel. The lessor has a $45 million credit agreement with
a bank supporting the nuclear fuel lease. The agreement continues on a
year-to-year basis, unless either party provides at least a three-year notice of
termination; no such notice of termination has been provided by either party.
Annual nuclear fuel lease expenses (included in "Electric and steam production
fuels" in the Consolidated Statements of Income) for 1999, 1998 and 1997 were
$12.7 million, $14.2 million and $16.6 million, respectively.
IESU's operating lease rental expenses for 1999, 1998 and 1997 were $8.9
million, $9.0 million and $8.3 million, respectively. IESU's future minimum
lease payments by year are as follows (in millions):
Year Capital Operating
Leases Leases
-------------------------------- -------------- -----------
2000 $15.6 $ 8.8
2001 10.5 7.1
2002 8.7 5.7
2003 4.3 5.2
2004 3.9 4.7
Thereafter 1.3 10.2
------------- -----------
44.3 $41.7
===========
Less: Amount representing interest 5.0
-------------
Present value of net minimum capital
lease payments $39.3
=============
F-10
<PAGE>
(4) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 1999,
IESU was serving a diversified base of residential, commercial and industrial
customers and did not have any significant concentrations of credit risk.
IESU has an accounts receivable financing agreement to sell up to a
pre-determined maximum amount of accounts receivable to a financial institution
on a limited recourse basis. Accounts receivable sold include receivables
arising from sales to customers and to other public, municipal and cooperative
utilities, as well as from billings to the co-owners of the jointly-owned
electric generating plants operated by IESU. The amounts are discounted at the
then-prevailing market rate and additional administrative fees are payable
according to the activity levels undertaken. All billing and collection
functions remain the responsibility of IESU. Specifics of the two agreements
include (dollars in millions):
Year agreement expires 2000
Maximum amount of receivables that can be sold $65
Effective 1999 all-in cost 5.58%
Average monthly sale of receivables - 1999 $55
- 1998 $63
Receivables sold at December 31, 1999 $59
(5) INCOME TAXES
The components of federal and state income taxes for IESU for the years ended
December 31 were as follows (in millions):
1999 1998 1997
--------- --------- ---------
Current tax expense $55.8 $59.4 $58.3
Deferred tax expense (3.8) (15.3) (13.5)
Amortization of investment tax credits (2.6) (2.6) (2.6)
--------- --------- ---------
$49.4 $41.5 $42.2
========= ========= =========
The overall effective income tax rates shown below for the years ended December
31 were computed by dividing total income tax expense by income before income
taxes.
1999 1998 1997
-------- ------- -------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 7.0 6.6 7.0
Effect of rate making on property related
differences 5.1 1.5 3.5
Amortization of investment tax credits (2.2) (2.5) (2.6)
Adjustment of prior period taxes (2.7) (1.4) (1.4)
Other items, net 0.4 0.9 0.3
-------- ------- -------
Overall effective income tax rate 42.6% 40.1% 41.8%
======== ======= =======
The accumulated deferred income taxes (assets) and liabilities as set forth
below on the Consolidated Balance Sheets at December 31 arise from the following
temporary differences (in millions):
1999 1998
----------------------------
Property related $276.2 $275.7
Investment tax credit related (18.9) (20.8)
Other (31.3) (30.4)
----------------------------
$226.0 $224.5
============================
F-11
<PAGE>
(6) BENEFIT PLANS
IESU has a non-contributory defined benefit pension plan that covers
substantially all of its employees who are subject to a collective bargaining
agreement. Plan benefits are generally based on years of service and
compensation during the employees' latter years of employment. Effective in
1998, eligible employees of IESU that are not subject to a collective bargaining
agreement are covered by the Alliant Energy Cash Balance Pension Plan, a
non-contributory defined benefit pension plan. The projected unit credit
actuarial cost method was used to compute pension cost and the accumulated and
projected benefit obligations. IESU's policy is to fund the pension plan at an
amount that is at least equal to the minimum funding requirements mandated by
the Employee Retirement Income Security Act of 1974, as amended, and that does
not exceed the maximum tax deductible amount for the year.
IESU also provides certain other postretirement benefits to retirees, including
medical benefits for retirees and their spouses and, in some cases, retiree life
insurance. IESU's funding policy for other postretirement benefits is generally
to fund an amount up to the cost calculated using SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
The weighted-average assumptions as of the measurement date of September 30 are
as follows:
<TABLE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------ -------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected return on plan assets 9% 9% 9% 9% 9% 9%
Rate of compensation increase 3.5% 3.5% 4.75% N/A N/A N/A
Medical cost trend on covered charges:
Initial trend range N/A N/A N/A 7% 8% 8%
Ultimate trend range N/A N/A N/A 5% 6% 6.5%
</TABLE>
The components of IESU's qualified pension benefits and other postretirement
benefits costs are as follows (in millions):
<TABLE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
--------- ----------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost $2.6 $2.9 $5.4 $1.5 $1.5 $1.5
Interest cost 7.6 8.0 14.1 4.4 4.2 3.5
Expected return on plan assets (10.3) (11.3) (15.1) (2.0) (1.1) (0.7)
Amortization of:
Transition obligation (asset) (0.2) (0.2) (0.3) 1.8 1.9 1.9
Prior service cost 0.9 0.9 1.8 -- -- --
Actuarial gain -- (0.4) -- -- -- --
--------- ----------- --------- -------- --------- ---------
Total $0.6 ($0.1) $5.9 $5.7 $6.5 $6.2
========= =========== ========= ======== ========= =========
</TABLE>
During 1997, IESU recognized an additional $3.8 million of costs in accordance
with SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," for severance and early
retirement programs. In addition, during 1998, IESU recognized $1.2 million of
curtailment charges relating to IESU's other postretirement benefits.
The pension benefit cost shown above (and in the following tables) for 1999 and
1998 represents only the pension benefit cost for bargaining unit employees of
IESU covered under the bargaining unit pension plan that is sponsored by IESU.
The pension benefit cost for IESU's non-bargaining employees who are now
participants in other Alliant Energy plans was $0.9 million and $2.7 million for
1999 and 1998, respectively, including a special charge of $1.9 million in 1998
for severance and early retirement window programs. In addition, Alliant Energy
Corporate Services, Inc. (Corporate Services) provides services to IESU. The
allocated pension benefit costs associated with these services was $1.2 million
and $0.5 million for 1999 and 1998, respectively. The other postretirement
benefit
F-12
<PAGE>
cost shown above for each period (and in the following tables) represents the
other postretirement benefit cost for all IESU employees. The allocated other
postretirement benefit cost associated with Corporate Services for IESU was $0.4
million and $0.2 million for 1999 and 1998, respectively.
The assumed medical trend rates are critical assumptions in determining the
service and interest cost and accumulated postretirement benefit obligation
related to postretirement benefit costs. A one percent change in the medical
trend rates for 1999, holding all other assumptions constant, would have the
following effects (in millions):
<TABLE>
<CAPTION>
1 Percent Increase 1 Percent Decrease
---------------------- ----------------------
<S> <C> <C>
Effect on total of service and interest cost components $1.3 ($1.0)
Effect on postretirement benefit obligation $8.4 ($6.8)
</TABLE>
A reconciliation of the funded status of IESU's plans to the amounts recognized
on IESU's Consolidated Balance Sheets at December 31 is presented below (in
millions):
<TABLE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
----------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
Change in benefit obligation:
<S> <C> <C> <C> <C>
Net benefit obligation at beginning of year $ 113.1 $ 206.1 $ 65.2 $ 50.8
Transfer of obligation (to)/from other
Alliant Energy plans -- (99.1) -- 2.3
Service cost 2.6 2.9 1.5 1.5
Interest cost 7.6 8.0 4.4 4.2
Plan participants' contributions -- -- 0.4 0.4
Plan amendments -- -- (1.0) --
Actuarial loss (gain) (14.3) 2.2 (20.1) 8.2
Curtailments -- -- -- 0.4
Gross benefits paid (6.7) (7.0) (3.6) (2.6)
------------ ------------ ------------- -------------
Net benefit obligation at end of year 102.3 113.1 46.8 65.2
------------ ------------ ------------- -------------
Change in plan assets:
Fair value of plan assets at beginning of year 118.7 225.7 21.7 19.9
Transfer of assets to other Alliant Energy
plans -- (97.5) -- --
Actual return on plan assets 14.1 (2.5) 5.6 0.1
Employer contributions -- -- 6.2 2.7
Plan participants' contributions -- -- 0.4 0.4
401(h) assets recognized -- -- -- 1.2
Gross benefits paid (6.7) (7.0) (3.6) (2.6)
------------ ------------ ------------- -------------
Fair value of plan assets at end of year 126.1 118.7 30.3 21.7
------------ ------------ ------------- -------------
Funded status at end of year 23.8 5.6 (16.5) (43.5)
Unrecognized net actuarial loss (gain) (25.4) (7.3) (18.6) 5.7
Unrecognized prior service cost 8.9 9.8 (0.3) (0.3)
Unrecognized net transition obligation (asset) (1.4) (1.6) 23.6 25.9
------------ ------------ ------------- -------------
Net amount recognized at end of year $ 5.9 $ 6.5 $ (11.8) $ (12.2)
============ ============ ============= =============
Amounts recognized on the Consolidated
Balance Sheets consist of:
Prepaid benefit cost $ 5.9 $ 6.5 $ -- $ --
Accrued benefit cost -- -- (11.8) (12.2)
------------ ------------ ------------- -------------
Net amount recognized at measurement date 5.9 6.5 (11.8) (12.2)
------------ ------------ ------------- -------------
F-13
<PAGE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
----------------------------- -------------------------------
1999 1998 1999 1998
Contributions paid after 9/30 and prior to 12/31 -- -- 3.4 3.6
------------ ------------ ------------- -------------
Net amount recognized at 12/31 $ 5.9 $ 6.5 $ (8.4) $ (8.6)
============ ============ ============= =============
</TABLE>
Alliant Energy sponsors several non-qualified pension plans which cover certain
current and former officers. The pension expense allocated to IESU for these
plans was $0.8 million, $1.4 million and $2.3 million in 1999, 1998 and 1997,
respectively.
IESU employees also participate in defined contribution pension plans (401(k)
plans) covering substantially all employees. IESU's contributions to the plans,
which are based on the participants' level of contribution, were $2.0 million,
$2.8 million and $1.2 million in 1999, 1998 and 1997, respectively.
(7) COMMON, PREFERRED AND PREFERENCE STOCK
(a) Common Stock - IESU has common stock dividend restrictions based on its bond
indentures and articles of incorporation. IESU has restrictions on the payment
of common stock dividends that are commonly found with preferred stock. In
addition, IESU's ability to pay common stock dividends is restricted based on
requirements associated with sinking funds.
(b) Preferred and Preference Stock - The carrying value of IESU's cumulative
preferred stock at December 31, 1999 and 1998 was $18 million. The fair market
value, based upon the market yield of similar securities and quoted market
prices, at December 31, 1999 and 1998 was $12 million and $15 million,
respectively.
(8) DEBT
(a) Short-Term Debt - IESU participates in a utility money pool with Wisconsin
Power and Light Company (WP&L) and IPC that is funded, as needed, through the
issuance of commercial paper by Alliant Energy. Interest expense and other fees
are allocated based on borrowing amounts. Information regarding short-term debt
is as follows (dollars in millions):
1999 1998 1997
--------- --------- ----------
As of year end:
Money pool borrowings $56.9 $ -- $ --
Interest rate on money pool borrowings 5.84% N/A N/A
For the year ended:
Average amount of short-term debt
(based on daily outstanding balances) $24.6 $ -- $88.4
Average interest rate on short-term debt 5.24% N/A 5.58%
(b) Long-Term Debt - IESU's Indentures and Deeds of Trust securing its First
Mortgage Bonds constitute direct first mortgage liens upon substantially all
tangible public utility property. IESU's Indenture and Deed of Trust securing
its Collateral Trust Bonds constitutes a second lien on substantially all
tangible public utility property while First Mortgage Bonds remain outstanding.
Debt maturities (excluding periodic sinking fund requirements, which will not
require additional cash expenditures) for 2000 to 2004 are $51.2 million, $81.5
million, $0.6 million, $4.1 million and $0, respectively. Depending upon market
conditions, it is currently anticipated that a majority of the maturing debt
will be refinanced with the issuance of long-term securities.
F-14
<PAGE>
The carrying value of IESU's long-term debt at December 31, 1999 and 1998 was
$602 million and $652 million, respectively. The fair market value, based upon
the market yield of similar securities and quoted market prices, at December 31,
1999 and 1998 was $573 million and $687 million, respectively.
(9) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Information relating to various financial instruments held by IESU was as
follows (in millions):
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------------- ----------------------------------
Gross Gross
Carrying Fair Unrealized Carrying Fair Unrealized
Value Value Gains/(Losses) Value Value Gains
------------ --------- ---------------- ----------- -------- -------------
Nuclear decommissioning trust funds:
<S> <C> <C> <C> <C> <C> <C>
Equity securities $ 47 $ 47 $35 $45 $45 $29
Debt securities 58 58 (1) 47 47 2
------------ --------- ---------------- ----------- -------- -------------
Total $105 $105 $34 $92 $92 $31
============ ========= ================ =========== ======== =============
</TABLE>
The carrying amount of IESU's current assets and current liabilities
approximates fair value because of the short maturity of such financial
instruments. The nuclear decommissioning trust funds realized gains from the
sales of securities of $2.5 million, $0.4 million and $0.1 million in 1999, 1998
and 1997, respectively (cost of the investments based on specific identification
were $25.5 million, $14.3 million and $14.6 million, respectively). Since IESU
is subject to regulation, any gains or losses related to the difference between
the carrying amount and the fair value of its financial instruments may not be
realized by IESU's parent.
(10) COMMITMENTS AND CONTINGENCIES
(a) Construction and Acquisition Program - IESU's construction and acquisition
expenditures for the years ended December 31, 1999 and 1998 were $107 million
and $115 million, respectively. IESU's anticipated construction and acquisition
expenditures for 2000 are estimated to be approximately $115 million, of which
45% represents expenditures for electric transmission and distribution
facilities, 26% represents generation expenditures, 15% represents information
technology expenditures and the remaining 14% represents miscellaneous electric,
gas, steam and general expenditures. IESU's levels of utility construction and
acquisition expenditures are projected to be $127 million in 2001, $117 million
in 2002, $118 million in 2003 and $123 million in 2004.
(b) Purchased-Power, Coal and Natural Gas Contracts - Corporate Services has
entered into purchased-power capacity contracts as agent for IESU, WP&L and IPC.
Based on the System Coordination and Operating Agreement, Alliant Energy
annually allocates purchased-power contracts to the individual utilities. Such
process considers factors such as resource mix, load growth and resource
availability and as a result of that process, IESU was not allocated any of the
purchased-power contracts for 2000 to 2004. IESU has entered into a contract for
the purchase of $9.3 million of capacity in 2000 from IPC. See Note 14 for
additional information. In addition, Corporate Services has entered into various
coal contracts as agent for IESU, WP&L and IPC. Contract quantities are
allocated to specific plants at the individual utilities based on various
factors including projected heat input requirements, combustion compatibility
and efficiency. However, in 2000 and 2001, system-wide contracts of $24.6
million (6.5 million tons) and $12.5 million (3.6 million tons), respectively,
have not yet been allocated to the individual utilities due to the need for
additional analysis of combustion compatibility and efficiency. The minimum
commitments directly assigned to IESU are as follows (dollars in millions, tons
in thousands):
F-15
<PAGE>
Coal
(including transportation costs)
----------------------------------
Dollars Tons
-------------- ---------------
2000 $12.8 2,300
2001 10.4 1,556
2002 3.7 619
2003 3.3 520
2004 3.2 475
IESU is in the process of negotiating several new coal contracts. In addition,
it expects to supplement its coal contracts with spot market purchases to
fulfill its future fossil fuel needs. IESU also has various natural gas supply,
transportation and storage contracts outstanding. The minimum dekatherm
commitments, in millions, for 2000-2004 are 93.8, 79.3, 72.1, 60.8 and 2.4,
respectively. The minimum dollar commitments for 2000-2004, in millions, are
$51.4, $39.0, $27.4, $23.5 and $1.3, respectively. The gas supply commitments
are all index-based. IESU expects to supplement its natural gas supply with spot
market purchases as needed.
(c) Information Technology Services - Alliant Energy has an agreement, expiring
in 2004, with Electronic Data Systems Corporation (EDS) for information
technology services. IESU's anticipated operating and capital expenditures under
the agreement for 2000 are estimated to total approximately $13 million. Future
costs under the agreement are variable and are dependent upon IESU's level of
usage of technological services from EDS.
(d) Financial Guarantees and Commitments - IESU has financial guarantees, which
were generally issued to support third-party borrowing arrangements and similar
transactions, amounting to $17 million and $18 million outstanding at December
31, 1999 and 1998, respectively. Such guarantees are not reflected in the
consolidated financial statements. Management believes that the likelihood of
IESU having to make any material cash payments under these agreements is remote.
(e) Nuclear Insurance Programs - Public liability for nuclear accidents is
governed by the Price Anderson Act of 1988, which sets a statutory limit of $9.5
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, IESU provides this financial protection for a nuclear
incident at DAEC through a combination of liability insurance ($200 million) and
industry-wide retrospective payment plans ($9.3 billion). Under the
industry-wide plan, each operating licensed nuclear reactor in the United States
(U.S.) is subject to an assessment in the event of a nuclear incident at any
nuclear plant in the U.S. The owners of DAEC could be assessed a maximum of
$88.1 million per nuclear incident, with a maximum of $10 million per incident
per year (of which IESU's 70% ownership portion would be approximately $61.7
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.
IESU is a member of the Nuclear Electric Insurance Limited (NEIL), which
provides $1.9 billion of insurance coverage for IESU on certain property losses
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 additional expense
incurred during certain outages. Owners of nuclear generating stations insured
through NEIL are subject to retroactive premium adjustments if losses exceed
accumulated reserve funds. NEIL's accumulated reserve funds are currently
sufficient to more than cover its exposure in the event of a single incident
under the primary and excess property damage or additional expense coverages.
However, IESU could be assessed annually a maximum of $1.9 million for NEIL
primary property, $2.8 million for NEIL excess property and $0.5 million for
NEIL additional expenses if losses exceed the accumulated reserve funds. IESU 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 IESU and could have a material adverse effect on IESU's
financial condition and results of operations.
F-16
<PAGE>
(f) Environmental Liabilities - IESU had recorded the following environmental
liabilities and regulatory assets associated with certain of these liabilities,
as of December 31 (in millions):
<TABLE>
<CAPTION>
Environmental liabilities 1999 1998 Regulatory assets 1999 1998
------------------------- -------- --------- ----------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Manufactured Gas MGP sites $24.5 $26.6
Plant (MGP) sites $24.5 $26.6 NEPA 7.7 8.4
National Energy Policy Other 0.2 0.2
--------- ---------
Act of 1992 (NEPA) 7.0 7.8 $32.4 $35.2
========= =========
Other 0.3 0.4
-------- ---------
$31.8 $34.8
======== =========
</TABLE>
IESU's significant environmental liabilities are discussed further below.
Manufactured Gas Plant Sites - IESU has current or previous ownership interests
in 34 sites previously associated with the production of gas for which it may be
liable for investigation, remediation and monitoring costs relating to the
sites. IESU is working pursuant to the requirements of various federal and state
agencies to investigate, mitigate, prevent and remediate, where necessary, the
environmental impacts to property, including natural resources, at and around
the sites in order to protect public health and the environment. IESU believes
that it has completed the remediation at various sites, although it is still in
the process of obtaining final approval from the applicable environmental
agencies for some of these sites.
IESU records environmental liabilities based upon periodic studies, most
recently updated in the third quarter of 1999, related to the MGP sites. Such
amounts are based on the best current estimate of the remaining amount to be
incurred for investigation, remediation and monitoring 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 current estimates as the investigation process proceeds and as additional
facts become known. The amounts recognized as liabilities are reduced for
expenditures made and are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
obligations are not discounted to their fair value.
Management currently estimates the range of remaining costs to be incurred for
the investigation, remediation and monitoring of IESU's sites to be
approximately $16 million to $33 million.
The Iowa Utilities Board has permitted utilities to recover prudently incurred
MGP-related costs. As a result, regulatory assets have been recorded by IESU
which reflect the probable future rate recovery, where applicable. Considering
the current rate treatment, and assuming no material change therein, IESU
believes that the clean-up costs incurred for these MGP sites will not have a
material adverse effect on its financial condition or results of operations.
Settlement has been reached with all of IESU's insurance carriers regarding
reimbursement for its MGP-related costs and all issues have been resolved.
Insurance recoveries of $18.5 million were available as of December 31, 1999 and
1998. Pursuant to the applicable rate making treatment, IESU has recorded its
recoveries in "Other long-term liabilities and deferred credits."
National Energy Policy Act of 1992 - NEPA 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. IESU is recovering the costs associated with this assessment through
its electric fuel adjustment clauses over the period the costs are assessed.
IESU continues to pursue relief from this assessment through litigation.
(g) Spent Nuclear Fuel - 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. IESU entered into such contracts and has
made the agreed payments to the Nuclear Waste Fund held by the U.S.
Treasury. IESU was subsequently notified by the DOE that it was not able to
begin acceptance of spent nuclear fuel
F-17
<PAGE>
by the January 31, 1998 deadline. Furthermore, the DOE 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.
IESU has participated in several litigation proceedings against the DOE on this
issue and the respective courts have affirmed the DOE's responsibility for spent
nuclear fuel acceptance. IESU is evaluating its options for recovery of damages
due to the DOE's delay in accepting spent nuclear fuel.
The Nuclear Waste Policy Act of 1982 assigns responsibility for interim storage
of spent nuclear fuel to generators of such spent nuclear fuel, such as IESU. In
accordance with this responsibility, IESU has been storing spent nuclear fuel on
site at DAEC since plant operations began. IESU will have to increase its spent
fuel storage capacity at DAEC to store all of the spent fuel that will be
produced before the current license expires in 2014. To provide assurance that
both the operating and post-shutdown storage needs are satisfied, construction
of a dry cask storage facility is being planned. Legislation is being considered
on the federal level that would, among other provisions, expand the DOE's
permanent spent nuclear fuel storage to include interim storage for spent
nuclear fuel as early as 2003. This legislation has been passed in the U.S.
Senate and submitted in the U.S. House. The prospects for the legislation being
approved by the U.S. Senate and the President, and subsequent successful
implementation by the DOE, are uncertain at this time.
(h) Decommissioning of DAEC - Pursuant to the most recent electric rate case
order, the Iowa Utilities Board allows IESU to recover $6 million annually for
its share of the cost to decommission DAEC. Decommissioning expense is included
in "Depreciation and amortization" in the Consolidated Statements of Income and
the cumulative amount is included in "Accumulated depreciation" on the
Consolidated Balance Sheets to the extent recovered through rates.
Additional information relating to the decommissioning of DAEC included in the
most recent electric rate order (dollars in millions):
Assumptions relating to current rate recovery figures:
IESU's share of estimated decommissioning cost $252.8
Year dollars in 1993
Method to develop estimate NRC minimum formula
Annual inflation rate 4.91%
Decommissioning method Prompt dismantling and removal
Year decommissioning to commence 2014
After-tax return on external investments:
Qualified 7.34%
Non-qualified 5.98%
External trust fund balance at December 31, 1999 $105.1
Internal reserve at December 31, 1999 $21.7
After-tax earnings on external trust funds in 1999 $4.8
The rate recovery figures for DAEC included an inflation estimate through 1997.
IESU is funding all rate recoveries for decommissioning into external trust
funds and funding on a tax-qualified basis to the extent possible. All of the
rate recovery assumptions are subject to change in future regulatory
proceedings. In accordance with its regulatory requirements, IESU records the
earnings on the external trust funds as interest income with a corresponding
entry to interest expense. The earnings accumulate in the external trust fund
balances and in accumulated depreciation on utility plant.
IESU's 70% share of the estimated cost to decommission DAEC based on the most
recent site-specific study completed in 1998 is $334.2 million, in 1998 dollars.
This study includes the costs to terminate DAEC's NRC license and to return the
site to a greenfield condition. IESU's 70% share of the estimated cost to
decommission DAEC based on the most recent NRC minimum formula, using the direct
disposal method, is $351.2 million in 1998 dollars. The NRC minimum formula is
intended to apply only to the cost of terminating DAEC's NRC license. The
additional decommissioning expense funding requirements which should result from
these updated studies are not reflected in IESU's rates.
F-18
<PAGE>
(i) Legal Proceedings - IESU is involved in legal and administrative proceedings
before various courts and agencies with respect to matters arising in the
ordinary course of business. Although unable to predict the outcome of these
matters, IESU believes that appropriate reserves have been established and final
disposition of these actions will not have a material adverse effect on its
financial condition or results of operations.
(11) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other Iowa utilities, IESU has undivided
ownership interests in jointly-owned electric generating stations and related
transmission facilities. Each of the respective owners is responsible for the
financing of its portion of the construction costs. Kilowatt-hour generation and
operating expenses are divided on the same basis as ownership with each owner
reflecting its respective costs in its Consolidated Statements of Income.
Information relative to IESU's ownership interest in these facilities at
December 31, 1999 is as follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
------------------------------ -----------------------------
Plant Accumulated
Ownership In- Name-plate Accumulated Provision
Interest service Megawatt Plant in Provision for Plant in for
% Date Capacity Service Depreciation CWIP Service Depreciation CWIP
--------------------------------------------------------------------------------------------------------------------------
Coal:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ottumwa Unit 1 48.0 1981 716 $195.3 $107.8 $0.5 $193.1 $102.7 $0.8
Neal Unit 3 28.0 1975 515 59.2 32.1 -- 59.0 32.4 0.1
Nuclear:
DAEC 70.0 1974 520 515.8 264.4 8.6 507.1 247.2 1.4
-------------------------------- -----------------------------
Total $770.3 $404.3 $9.1 $759.2 $382.3 $2.3
================================ =============================
</TABLE>
(12) SEGMENTS OF BUSINESS
IESU is a regulated domestic utility, serving customers in Iowa, with three
principal business segments: a) electric operations; b) gas operations; and c)
other, which includes steam operations and the unallocated portions of the
utility business. Intersegment revenues were not material to IESU's operations
and there was no single customer whose revenues exceeded 10% or more of IESU's
consolidated revenues.
F-19
<PAGE>
Certain financial information relating to IESU's significant business segments
is presented below:
<TABLE>
<CAPTION>
Electric Gas Other Total
------------------------------------------------------------------------------------------------------------
(in millions)
1999
<S> <C> <C> <C> <C>
Operating revenue $628.0 $145.8 $26.9 $800.7
Depreciation and amortization expense 91.0 8.2 1.9 101.1
Operating income 149.6 8.4 3.5 161.5
Interest expense, net of AFUDC 49.5 49.5
Net income from equity method subsidiaries -- --
Miscellaneous, net (other than equity income/loss) (3.8) (3.8)
Income tax expense 49.4 49.4
Net income 66.4 66.4
Preferred and preference dividends 0.9 0.9
Earnings available for common stock 65.5 65.5
Total assets 1,449.2 201.1 105.5 1,755.8
Investments in equity method subsidiaries -- --
Construction and acquisition expenditures 92.7 13.8 0.8 107.3
------------------------------------------------------------------------------------------------------------
1998
Operating revenue $639.4 $141.3 $26.2 $806.9
Depreciation and amortization expense 84.7 7.6 1.7 94.0
Operating income 143.4 7.6 4.0 155.0
Interest expense, net of AFUDC 49.0 49.0
Net income from equity method subsidiaries -- --
Miscellaneous, net (other than equity income/loss) 2.6 2.6
Income tax expense 41.5 41.5
Net income 61.9 61.9
Preferred and preference dividends 0.9 0.9
Earnings available for common stock 61.0 61.0
Total assets 1,440.8 201.2 147.0 1,789.0
Investments in equity method subsidiaries -- --
Construction and acquisition expenditures 100.5 14.1 0.8 115.4
------------------------------------------------------------------------------------------------------------
1997
Operating revenue $604.3 $183.5 $26.2 $814.0
Depreciation and amortization expense 81.2 7.0 1.6 89.8
Operating income 138.1 13.0 2.7 153.8
Interest expense, net of AFUDC 50.5 50.5
Net loss from equity method subsidiaries 0.4 0.4
Miscellaneous, net (other than equity income/loss) 1.9 1.9
Income tax expense 42.2 42.2
Net income 58.8 58.8
Preferred and preference dividends 0.9 0.9
Earnings available for common stock 57.9 57.9
Total assets 1,441.9 211.7 115.3 1,768.9
Investments in equity method subsidiaries -- --
Construction and acquisition expenditures 89.4 15.3 4.3 109.0
------------------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
(13) SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------- --------------- ----------------- ------------------
(in millions)
1999
<S> <C> <C> <C> <C>
Operating revenues $209.3 $170.8 $228.3 $192.3
Operating income 36.2 24.1 72.1 29.1
Net income 14.4 7.0 35.5 9.5
Earnings available for common stock 14.2 6.8 35.3 9.2
1998 *
Operating revenues $208.3 $174.7 $222.2 $201.7
Operating income 34.3 21.8 69.9 29.0
Net income 11.7 3.0 30.6 16.6
Earnings available for common stock 11.4 2.8 30.4 16.4
* Earnings in 1998 were impacted by the recording of approximately $2 million, $10 million, $3 million and
$2 million of pre-tax merger-related expenses in the first, second, third and fourth quarters,
respectively.
</TABLE>
(14) RELATED PARTY ISSUES
In association with the merger, IESU, WP&L and IPC entered into a System
Coordination and Operating Agreement which became effective with the merger. The
agreement, which has been approved by FERC, provides a contractual basis for
coordinated planning, construction, operation and maintenance of the
interconnected electric generation and transmission systems of the three utility
companies. In addition, the agreement allows the interconnected system to be
operated as a single entity with off-system capacity sales and purchases made to
market excess system capability or to meet system capability deficiencies. Such
sales and purchases are allocated among the three utility companies based on
procedures included in the agreement. The sales amounts allocated to IESU were
$18.1 million and $18.0 million for 1999 and 1998, respectively. The purchases
allocated to IESU were $71.3 million and $56.0 million for 1999 and 1998,
respectively. The procedures were approved by both FERC and all state regulatory
bodies having jurisdiction over these sales. Under the agreement, IESU, WP&L and
IPC are fully reimbursed for any generation expense incurred to support the sale
to an affiliate or to a non-affiliate. Any margins on sales to non-affiliates
are distributed to the three utilities in proportion to each utility's share of
electric production at the time of sale.
Pursuant to a service agreement approved by the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, IESU receives
various administrative and general services from an affiliate, Corporate
Services. These services are billed to IESU at cost based on payroll and other
expenses incurred by Corporate Services for the benefit of IESU. These costs
totaled $93.9 million and $59.3 million for 1999 and 1998, respectively, and
consisted primarily of employee compensation, benefits and fees associated with
various professional services. Corporate Services began operations in May 1998
upon the consummation of the merger.
At December 31, 1999 and 1998, IESU had an intercompany payable to Corporate
Services of $16.4 million and $20.9 million, respectively.
(15) SUBSEQUENT EVENT
On March 15, 2000, the boards of directors of IESU and IPC approved a merger
agreement (as amended on November 29, 2000) that will result in IPC merging with
and into IESU (the "Agreement"). Completion of the merger is subject to the
affirmative vote of the IPC common and preferred shareowners voting together as
a single class and the IESU common shareowners and preferred shareowners of each
series voting separately as individual classes. The vote is expected in early
2001. Under the Agreement, each share of IPC common stock outstanding will be
cancelled without payment and each share of IPC preferred stock outstanding will
be cancelled and converted into the right to receive one share of a new class of
IESU Class A preferred stock with substantially identical designations, rights
and preferences as the previously outstanding IPC preferred stock. IPC and IESU
are
F-21
<PAGE>
both wholly-owned operating subsidiaries of Alliant Energy. As such, the
transaction will be accounted for as a common control merger.
The following illustrates the impact of the merger if it had occurred as of
January 1, 1997 (in thousands):
1999 1998 1997
---- ---- ----
Operating revenues $1,142,801 $1,162,819 $1,145,825
Earnings available for common stock 93,896 77,278 84,577
F-22
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
(in thousands)
Operating revenues:
<S> <C> <C> <C> <C>
Electric utility $ 202,899 $ 206,148 $ 496,934 $ 488,374
Gas utility 20,893 16,648 107,767 99,956
Steam 7,126 5,532 20,298 20,056
-------------- --------------- --------------- --------------
230,918 228,328 624,999 608,386
-------------- --------------- --------------- --------------
Operating expenses:
Electric and steam production fuels 26,806 31,064 88,440 69,937
Purchased power 28,324 22,057 59,464 62,349
Cost of gas sold 13,253 8,777 68,291 58,313
Other operation and maintenance 48,160 56,370 158,865 171,453
Depreciation and amortization 26,856 25,481 80,555 76,444
Taxes other than income taxes 11,630 12,452 35,562 37,535
-------------- --------------- --------------- --------------
155,029 156,201 491,177 476,031
-------------- --------------- --------------- --------------
Operating income 75,889 72,127 133,822 132,355
-------------- --------------- --------------- --------------
Interest expense and other:
Interest expense 12,613 11,765 38,208 39,403
Allowance for funds used during
construction (764) (424) (1,827) (1,808)
Miscellaneous, net 305 (213) (5,861) (3,568)
-------------- --------------- --------------- --------------
12,154 11,128 30,520 34,027
-------------- --------------- --------------- --------------
Income before income taxes 63,735 60,999 103,302 98,328
-------------- --------------- --------------- --------------
Income taxes 26,373 25,521 43,285 41,349
-------------- --------------- --------------- --------------
Net income 37,362 35,478 60,017 56,979
-------------- --------------- --------------- --------------
Preferred dividend requirements 229 229 686 686
-------------- --------------- --------------- --------------
Earnings available for common stock $ 37,133 $ 35,249 $ 59,331 $ 56,293
============== =============== =============== ==============
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-23
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30,
2000 December 31,
ASSETS (Unaudited) 1999
--------------------- ---------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $2,234,056 $2,196,895
Gas 217,774 207,769
Steam 59,988 59,929
Common 141,221 147,845
--------------------- ---------------------
2,653,039 2,612,438
Less - Accumulated depreciation 1,379,402 1,311,996
--------------------- ---------------------
1,273,637 1,300,442
Construction work in progress 62,508 37,572
Leased nuclear fuel, net of amortization 29,341 39,284
--------------------- ---------------------
1,365,486 1,377,298
Other property, plant and equipment, net of accumulated
depreciation and amortization of $2,203 and $2,094,
respectively 5,625 5,481
--------------------- ---------------------
1,371,111 1,382,779
--------------------- ---------------------
Current assets:
Cash and temporary cash investments 6,615 5,720
Accounts receivable:
Customer, less allowance for doubtful accounts of $321
and $824, respectively 23,514 14,130
Associated companies 2,581 5,696
Other, less allowance for doubtful accounts of $323
and $817, respectively 10,217 12,864
Production fuel, at average cost 12,803 12,312
Materials and supplies, at average cost 24,812 24,722
Gas stored underground, at average cost 23,819 11,462
Adjustment clause balances 9,561 11,099
Regulatory assets 17,100 18,569
Prepayments and other 2,814 8,928
--------------------- ---------------------
133,836 125,502
--------------------- ---------------------
Investments:
Nuclear decommissioning trust funds 114,848 105,056
Other 6,104 6,119
--------------------- ---------------------
120,952 111,175
--------------------- ---------------------
Other assets:
Regulatory assets 117,236 123,031
Deferred charges and other 13,108 13,321
--------------------- ---------------------
130,344 136,352
--------------------- ---------------------
Total assets $1,756,243 $1,755,808
===================== =====================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-24
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<CAPTION>
September 30,
2000 December 31,
CAPITALIZATION AND LIABILITIES (Unaudited) 1999
--------------------- ---------------------
(in thousands, except share amounts)
Capitalization:
<S> <C> <C>
Common stock - $2.50 par value - authorized 24,000,000
shares; 13,370,788 shares outstanding $ 33,427 $ 33,427
Additional paid-in capital 279,042 279,042
Retained earnings 268,309 252,953
Accumulated other comprehensive income 8 --
--------------------- ---------------------
Total common equity 580,786 565,422
--------------------- ---------------------
Cumulative preferred stock 18,320 18,320
Long-term debt (excluding current portion) 469,708 551,079
--------------------- ---------------------
1,068,814 1,134,821
--------------------- ---------------------
Current liabilities:
Current maturities and sinking funds 81,560 51,196
Capital lease obligations 12,057 13,307
Notes payable to associated companies 77,004 56,946
Accounts payable 38,875 41,273
Accounts payable to associated companies 24,086 17,438
Accrued interest 12,928 10,833
Accrued taxes 63,452 44,259
Other 27,419 23,618
--------------------- ---------------------
337,381 258,870
--------------------- ---------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 220,524 225,961
Accumulated deferred investment tax credits 25,699 26,682
Environmental liabilities 30,186 26,292
Pension and other benefit obligations 26,183 27,734
Capital lease obligations 17,284 25,977
Other 30,172 29,471
--------------------- ---------------------
350,048 362,117
--------------------- ---------------------
Total capitalization and liabilities $ 1,756,243 $ 1,755,808
===================== =====================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-25
<PAGE>
<TABLE>
IES UTILITIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------------
2000 1999
------------------- ---------------------
Cash flows from operating activities: (in thousands)
<S> <C> <C>
Net income $ 60,017 $ 56,979
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization 80,555 76,444
Amortization of leased nuclear fuel 10,281 9,518
Amortization of deferred energy efficiency expenditures 10,611 12,668
Deferred taxes and investment tax credits (8,656) (7,417)
Refueling outage provision 7,372 6,193
Gain on disposition of assets, net (1,517) -
Other 1,661 877
Other changes in assets and liabilities:
Accounts receivable (3,622) (4,102)
Gas stored underground (12,357) 1,643
Accounts payable 4,250 (14,021)
Accrued taxes 19,193 12,224
Adjustment clause balances 1,538 (15,009)
Benefit obligations and other 6,293 14,580
------------------- ---------------------
Net cash flows from operating activities 175,619 150,577
------------------- ---------------------
Cash flows used for financing activities:
Common stock dividends declared (43,975) (73,292)
Dividends payable (229) (4,840)
Preferred stock dividends (686) (686)
Reductions in long-term debt (51,196) (50,140)
Net change in short-term borrowings 20,058 6,626
Principal payments under capital lease obligations (8,611) (9,461)
Other - (19)
------------------- ---------------------
Net cash flows used for financing activities (84,639) (131,812)
------------------- ---------------------
Cash flows used for investing activities:
Utility construction expenditures (85,123) (66,753)
Nuclear decommissioning trust funds (4,506) (4,506)
Proceeds from disposition of assets 1,528 -
Other (1,984) 35
------------------- ---------------------
Net cash flows used for investing activities (90,085) (71,224)
------------------- ---------------------
Net increase (decrease) in cash and temporary cash investments 895 (52,459)
------------------- ---------------------
Cash and temporary cash investments at beginning of period 5,720 57,904
------------------- ---------------------
Cash and temporary cash investments at end of period $ 6,615 $ 5,445
=================== =====================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 30,912 $ 34,825
=================== =====================
Income taxes $ 31,562 $ 41,052
=================== =====================
Noncash investing and financing activities - Capital lease
obligations incurred $ 338 $ 23,793
=================== =====================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
F-26
<PAGE>
IES UTILITIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The interim consolidated financial statements included herein have been
prepared by IES Utilities Inc. (IESU), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures are
adequate to make the information presented not misleading. IESU is a subsidiary
of Alliant Energy Corporation. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in
IESU's latest Annual Report on Form 10-K.
In the opinion of management, all adjustments, which are normal and recurring in
nature, necessary for a fair presentation of (a) the consolidated results of
operations for the three and nine months ended September 30, 2000 and 1999, (b)
the consolidated financial position at September 30, 2000 and December 31, 1999,
and (c) the consolidated statement of cash flows for the nine months ended
September 30, 2000 and 1999, have been made. Because of the seasonal nature of
IESU's operations, results for the three and nine months ended September 30,
2000 are not necessarily indicative of results that may be expected for the year
ending December 31, 2000. Certain prior period amounts have been reclassified on
a basis consistent with the 2000 presentation.
2. IESU's comprehensive income, and the components of other comprehensive
income, net of taxes, were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
------------ -- ----------- ----------- --- -----------
<S> <C> <C> <C> <C>
Earnings available for common stock $37,133 $35,249 $59,331 $56,293
Other comprehensive income:
Unrealized gains (losses) on derivatives qualified as
hedges:
Unrealized holding gains arising during period
due to cumulative effect of a change in
accounting principle, net of tax 51 -- 51 --
Other unrealized holding losses arising during
period, net of tax (43) -- (43) --
------------ ----------- ----------- -----------
Net unrealized gains on qualifying derivatives 8 -- 8 --
------------ ----------- ----------- -----------
Other comprehensive income 8 -- 8 --
------------ ----------- ----------- -----------
Comprehensive income $37,141 $35,249 $59,339 $56,293
============ =========== =========== ===========
</TABLE>
3. Certain financial information relating to IESU's significant business
segments is presented below. Intersegment revenues were not material to IESU's
operations.
<TABLE>
<CAPTION>
Electric Gas Other Total
--------------------------------------------------------
(in thousands)
Three Months Ended September 30, 2000
<S> <C> <C> <C> <C>
Operating revenues $202,899 $ 20,893 $ 7,126 $230,918
Operating income (loss) 75,638 (854) 1,105 75,889
Earnings available for common stock 37,133
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
Electric Gas Other Total
--------------------------------------------------------
(in thousands)
Three Months Ended September 30, 1999
<S> <C> <C> <C> <C>
Operating revenues $206,148 $ 16,648 $ 5,532 $228,328
Operating income (loss) 75,418 (2,760) (531) 72,127
Earnings available for common stock 35,249
Nine Months Ended September 30, 2000
Operating revenues $496,934 $ 107,767 $ 20,298 $624,999
Operating income 126,415 4,568 2,839 133,822
Earnings available for common stock 59,331
Nine Months Ended September 30, 1999
Operating revenues $488,374 $ 99,956 $ 20,056 $608,386
Operating income 124,558 5,292 2,505 132,355
Earnings available for common stock 56,293
</TABLE>
4. The provisions for income taxes are based on the estimated annual effective
tax rate, which differs from the federal statutory rate of 35% principally due
to: state income taxes, tax credits, effects of utility rate making and certain
non-deductible expenses.
5. IESU adopted Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," as of July 1,
2000. SFAS 133 requires that every derivative instrument be recorded on the
balance sheet as an asset or liability measured at its fair value and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle in accordance with Accounting Principles
Board Opinion 20, "Accounting Changes." In the third quarter of 2000, the impact
of IESU adopting SFAS 133 as of July 1, 2000 did not affect net income.
A limited number of IESU's fixed price commodity contracts are defined as
derivatives under SFAS 133. The fair market values of these derivative
instruments have been recorded as assets and liabilities on the balance sheet
and in the transition adjustment in accordance with the transition provisions of
SFAS 133. Future changes in the fair market values of these instruments, to the
extent that the hedges are effective at mitigating the underlying commodity
risk, will be recorded in other comprehensive income. At the date the underlying
transaction occurs, the amounts accumulated in other comprehensive income will
be reported in the Consolidated Statements of Income. To the extent that the
hedges are not effective, the ineffective portion of the changes in fair market
value will be recorded directly in earnings.
IESU's financial statement impact of recording the various SFAS 133 transactions
at July 1, 2000 was as follows (in thousands):
<TABLE>
<CAPTION>
Financial Statement Account Financial Statement Amount Increased
------------------------------------------------------------ ---------------------- --------------------
<S> <C> <C>
Other assets Balance sheet $86.8
Other liabilities Balance sheet 36.1
Cumulative effect of a change in accounting principle
(other comprehensive income) Balance sheet 50.7
</TABLE>
IESU's primary market risk exposures are associated with commodity prices. IESU
has risk management policies to monitor and assist in controlling these market
risks and uses derivative instruments to manage some of the exposures. As of
September 30, 2000, IESU held derivative instruments designated as cash flow
hedging instruments and other derivatives. The cash flow hedging instruments are
comprised of coal purchase and sales contracts which are used to manage the
price of anticipated coal purchases and sales.
F-28
<PAGE>
For the three and nine months ended September 30, 2000, there was no gain or
loss recognized in earnings representing the amount of hedge ineffectiveness.
IESU did not exclude any components of the derivative instruments' gain or loss
from the assessment of hedge effectiveness and there were no reclasses into
earnings as a result of the discontinuance of hedges. As of September 30, 2000,
the maximum length of time over which IESU is hedging its exposure to the
variability in future cash flows for forecasted transactions is nine months and
IESU estimates that gains of $8,392 will be reclassified from accumulated other
comprehensive income into earnings within the 12 months between October 1, 2000
and September 30, 2001 as the hedged transactions affect earnings.
IESU's derivatives that have not been designated in hedge relationships include
electricity price collars, used to manage energy costs during supply/demand
imbalances. As of September 30, 2000, these derivatives were recorded at their
fair market value as derivative assets, derivative liabilities and regulatory
assets on the Consolidated Balance Sheets.
6. On March 15, 2000, the boards of directors of IESU and IPC approved a merger
agreement (as amended on November 29, 2000) that will result in IPC merging with
and into IESU (the "Agreement"). Completion of the merger is subject to the
affirmative vote of the IPC common and preferred shareowners voting together as
a single class and the IESU common shareowners and preferred shareowners of each
series voting separately as individual classes. The vote is expected in early
2001. Under the Agreement, each share of IPC common stock outstanding will be
cancelled without payment and each share of IPC preferred stock outstanding will
be cancelled and converted into the right to receive one share of a new class of
IESU Class A preferred stock with substantially identical designations, rights
and preferences as the previously outstanding IPC preferred stock. IPC and IESU
are both wholly-owned operating subsidiaries of Alliant Energy. As such, the
transaction will be accounted for as a common control merger.
The following illustrates the impact of the merger if it had occurred as of
January 1, 1997 (in thousands):
For the nine months
ended September 30,
2000 1999
---- ----
Operating revenues $886,137 $873,290
Earnings available for common stock 79,233 79,764
F-29
<PAGE>
Report of Independent Public Accountants
To the Shareowners of Interstate Power Company:
We have audited the accompanying balance sheets and statements of capitalization
of Interstate Power Company (the "Company") as of December 31, 1999 and 1998,
and the related statements of income, cash flows and changes in common equity
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
January 28, 2000, except for Note 15,
as to which the date is November 29, 2000
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareowners and Board of Directors of Interstate Power Company:
We have audited the accompanying statements of income, cash flows and changes in
common equity of Interstate Power Company for the year ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations of Interstate Power Company and its cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the beginning balance of
retained earnings in the 1997 financial statements has been restated to conform
an accounting policy of Interstate Power Company to that used by the merged
companies, as required by the pooling of interests method of accounting for the
April 21, 1998 merger.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Davenport, Iowa
January 29, 1998
(April 21, 1998 as to the fourth paragraph of Note 1)
F-31
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
(in thousands)
Operating revenues:
<S> <C> <C> <C>
Electric utility $ 294,381 $ 313,315 $ 277,340
Gas utility 47,724 42,574 54,507
------------------ ------------------ -------------------
342,105 355,889 331,847
------------------ ------------------ -------------------
Operating expenses:
Electric production fuels 56,537 64,019 55,402
Purchased power 65,446 69,759 56,770
Cost of gas sold 28,138 20,402 33,324
Other operation and maintenance 81,878 106,339 82,467
Depreciation and amortization 33,259 32,484 31,676
Taxes other than income taxes 15,484 17,396 16,708
------------------ ------------------ -------------------
280,742 310,399 276,347
------------------ ------------------ -------------------
Operating income 61,363 45,490 55,500
------------------ ------------------ -------------------
Interest expense and other:
Interest expense 15,121 14,826 15,610
Allowance for funds used during construction (415) (412) (190)
Miscellaneous, net (4,095) 1,226 (6,772)
------------------ ------------------ -------------------
10,611 15,640 8,648
------------------ ------------------ -------------------
Income before income taxes 50,752 29,850 46,852
------------------ ------------------ -------------------
Income taxes 19,906 11,093 17,685
------------------ ------------------ -------------------
Net income 30,846 18,757 29,167
------------------ ------------------ -------------------
Preferred dividend requirements 2,482 2,475 2,469
------------------ ------------------ -------------------
Earnings available for common stock $ 28,364 $ 16,282 $ 26,698
================== ================== ===================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-32
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
BALANCE SHEETS
<CAPTION>
December 31,
-----------------------------------------------
1999 1998
---------------------- ---------------------
ASSETS (in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $ 914,156 $ 886,285
Gas 74,973 72,068
Common 4,396 1,140
---------------------- ---------------------
993,525 959,493
Less - Accumulated depreciation 499,098 474,571
---------------------- ---------------------
494,427 484,922
Construction work in progress 14,921 13,047
---------------------- ---------------------
509,348 497,969
Other property, plant and equipment 149 150
---------------------- ---------------------
509,497 498,119
---------------------- ---------------------
Current assets:
Cash and temporary cash investments 3,545 6,605
Accounts receivable:
Customer, less allowance for doubtful accounts of $200 for
both periods 33,069 27,439
Associated companies 2,639 894
Other, less allowance for doubtful accounts of $0 and $7,
respectively 2,894 3,077
Production of fuel, at average cost 16,682 22,172
Materials and supplies, at average cost 5,966 6,699
Gas stored underground, at average cost 3,065 2,991
Regulatory assets 11,163 3,602
Prepayments and other 2,080 1,221
---------------------- ---------------------
81,103 74,700
---------------------- ---------------------
Other investments 6,694 8,200
---------------------- ---------------------
Other assets:
Regulatory assets 58,418 70,275
Deferred charges and other 6,472 6,069
---------------------- ---------------------
64,890 76,344
---------------------- ---------------------
Total assets $ 662,184 $ 657,363
====================== =====================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-33
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
BALANCE SHEETS (CONTINUED)
<CAPTION>
December 31,
-----------------------------------------------
1999 1998
---------------------- ---------------------
CAPITALIZATION AND LIABILITIES (in thousands, except share amounts)
Capitalization (See Statements of Capitalization):
<S> <C> <C>
Common stock $ 34,221 $ 34,221
Additional paid-in capital 108,748 108,801
Retained earnings 81,549 85,743
Accumulated other comprehensive income - 768
---------------------- ---------------------
Total common equity 224,518 229,533
Cumulative preferred stock, not mandatorily redeemable 10,819 10,819
Cumulative preferred stock, mandatorily redeemable 24,536 24,396
Long-term debt (excluding current portion) 170,313 169,779
---------------------- ---------------------
430,186 434,527
---------------------- ---------------------
Current liabilities:
Current maturities and sinking funds - 450
Notes payable to associated companies 39,198 21,857
Accounts payable 12,818 15,005
Accounts payable to associated companies 10,172 9,342
Accrued payroll and vacations 1,648 1,376
Accrued interest 2,512 2,618
Accrued taxes 14,648 18,922
Environmental liabilities 1,662 3,746
Other 7,429 10,373
---------------------- ---------------------
90,087 83,689
---------------------- ---------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 91,787 91,043
Accumulated deferred investment tax credits 13,864 14,900
Environmental liabilities 15,056 14,404
Pension and other benefit obligations 9,160 12,594
Other 12,044 6,206
---------------------- ---------------------
141,911 139,147
---------------------- ---------------------
Total capitalization and liabilities $ 662,184 $ 657,363
====================== =====================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-34
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998 1997
------------------ ------------------ ----------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 30,846 $ 18,757 $ 29,167
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 33,259 32,484 31,676
Amortization of deferred energy efficiency
expenditures 9,436 8,376 4,803
Deferred taxes and investment tax credits (1,469) (8,559) 1,416
Gains on dispositions of assets, net (2,197) (1,431) -
Other 890 (169) 656
Other changes in assets and liabilities:
Accounts receivable (7,192) 1,174 1,166
Production fuel 5,490 (10,952) 3,086
Accounts payable (1,357) 11,140 (805)
Accrued taxes (4,274) 2,908 (939)
Adjustment clause balances (3,107) 4,418 1,497
Benefit obligations and other 5,335 4,860 (84)
------------------ ------------------ ----------------
Net cash flows from operating activities 65,660 63,006 71,639
------------------ ------------------ ----------------
Cash flows used for financing activities:
Common stock dividends declared (32,558) (8,772) (20,225)
Preferred stock dividends (2,482) (2,475) (2,469)
Proceeds from issuance of common stock - - 2,694
Proceeds from issuance of long-term debt 10,950 4,950 -
Reductions in long-term debt (10,950) (6,300) (17,225)
Net change in short-term borrowings 17,341 (11,643) 4,800
Other (122) 1,843 74
------------------ ------------------ ----------------
Net cash flows used for financing activities (17,821) (22,397) (32,351)
------------------ ------------------ ----------------
Cash flows used for investing activities:
Utility construction expenditures (45,363) (36,619) (28,888)
Deferred energy efficiency expenditures - - (4,894)
Proceeds from disposition of assets 2,955 1,860 -
Shared savings program (4,760) (3,425) -
Other (3,731) 1,283 (5,681)
------------------ ------------------ ----------------
Net cash flows used for investing activities (50,899) (36,901) (39,463)
------------------ ------------------ ----------------
Net increase (decrease) in cash and temporary cash
investments (3,060) 3,708 (175)
------------------ ------------------ ----------------
Cash and temporary cash investments at beginning
of period 6,605 2,897 3,072
------------------ ------------------ ----------------
Cash and temporary cash investments at end of
period $ 3,545 $ 6,605 $ 2,897
================== ================== ================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 13,841 $ 14,564 $ 15,533
================== ================== ================
Income taxes $ 27,262 $ 12,600 $ 17,210
================== ================== ================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-35
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF CAPITALIZATION
<CAPTION>
December 31,
1999 1998
-------------------------------------------------------------------------------------------------------------------
(in thousands, except share amounts)
Common equity:
<S> <C> <C>
Common stock - $3.50 par value - authorized 30,000,000 shares;
9,777,432 shares outstanding $34,221 $34,221
Additional paid-in capital 108,748 108,801
Retained earnings 81,549 85,743
Accumulated other comprehensive income - 768
----------------- ------------------
224,518 229,533
----------------- ------------------
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative preferred stock:
Par/Stated Authorized Shares Mandatory
Value Shares Outstanding Series Redemption
---------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$50 * 216,381 4.36% - 7.76% No 10,819 10,819
$50 * 545,000 6.40% Yes ** 27,250 27,250
----------------- ------------------
38,069 38,069
Less: unamortized expenses (2,714) (2,854)
----------------- ------------------
35,355 35,215
----------------- ------------------
* 2,000,000 authorized shares in total
** $53.20 mandatory redemption price
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
Long-term debt:
First Mortgage Bonds:
<S> <C> <C>
8% series, due 2007 25,000 25,000
8-5/8% series, due 2021 25,000 25,000
7-5/8% series, due 2023 94,000 94,000
----------------- ------------------
144,000 144,000
Pollution Control Revenue Bonds:
6-3/8%, retired in 1999 - 10,950
5.75%, due 2003 1,000 1,000
6.25%, due 2009 1,000 1,000
6.30%, due 2010 5,600 5,600
6.35%, due 2012 5,650 5,650
Variable/fixed rate series 1998 (4.30% through 2003), due 2005 to 2008 4,950 4,950
Variable/fixed rate series 1999 (4.05% through 2004), due 2010 3,250 -
Variable/fixed rate series 1999 (4.20% through 2004), due 2013 7,700 -
----------------- ------------------
29,150 29,150
----------------- ------------------
173,150 173,150
----------------- ------------------
Less:
Current maturities - (450)
Unamortized debt premium and (discount), net (2,837) (2,921)
----------------- ------------------
170,313 169,779
----------------- ------------------
-------------------------------------------------------------------------------------------------------------------
Total capitalization $430,186 $434,527
================= ==================
-------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-36
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF CHANGES IN COMMON EQUITY
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Common
Stock Capital Earnings Income (Loss) Equity
---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
1997:
<S> <C> <C> <C> <C> <C>
Beginning balance (a) $33,848 $105,959 $71,760 ($809) $210,758
Comprehensive income:
Earnings available for common stock 26,698 26,698
Other comprehensive income (loss):
Unrealized gains on securities, net of tax(b) 788 788
Minimum pension liability adjustment, net of tax(c) (347) (347)
-------------
Total comprehensive income 27,139
Common stock dividends (20,225) (20,225)
Common stock issued 315 2,333 2,648
------------- -------------- ------------- --------------- -------------
Ending balance 34,163 108,292 78,233 (368) 220,320
1998:
Comprehensive income:
Earnings available for common stock 16,282 16,282
Other comprehensive income (loss):
Unrealized losses on securities, net of tax(b) (20) (20)
Minimum pension liability adjustment, net of tax(c) 1,156 1,156
-------------
Total comprehensive income 17,418
Common stock dividends (8,772) (8,772)
Common stock issued 58 509 567
------------- -------------- ------------- --------------- -------------
Ending balance 34,221 108,801 85,743 768 229,533
1999:
Comprehensive income:
Earnings available for common stock 28,364 28,364
Other comprehensive income (loss):
Reclassification adjustment for gains included
in net income, net of tax (b) (768) (768)
-------------
Total comprehensive income 27,596
Common stock dividends (32,558) (32,558)
Common stock issued (53) (53)
------------- -------------- ------------- --------------- -------------
Ending balance $34,221 $108,748 $81,549 $-- $224,518
============= ============== ============= =============== =============
---------------------------------------------------------------------------------------------------------------------------------
(a) As discussed in Note 1 to the financial statements, the beginning balance of retained earnings was restated to include
accrued revenues for services rendered but unbilled at month-end of $4,698. The beginning accumulated other comprehensive
income (loss) balance was all related to IPC's minimum pension liability adjustment.
(b) Net of tax expense (benefit) of $551, ($14) and ($537) in 1997, 1998 and 1999, respectively.
(c) Net of tax expense (benefit) of ($243) and $808 in 1997 and 1998, respectively.
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-37
<PAGE>
INTERSTATE POWER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General - The financial statements include the accounts of Interstate Power
Company (IPC), which became a subsidiary of Alliant Energy Corporation (Alliant
Energy) as of the date of the merger (refer to Note 2). IPC is engaged
principally in the generation, transmission, distribution and sale of electric
energy and the purchase, distribution, transportation and sale of natural gas in
selective markets. The principal markets of IPC are located in Iowa, Minnesota
and Illinois.
The financial statements are prepared in conformity with generally accepted
accounting principles, which give recognition to the rate making and accounting
practices of the Federal Energy Regulatory Commission (FERC) and state
commissions having regulatory jurisdiction. Certain prior period amounts have
been reclassified on a basis consistent with the current year presentation.
The preparation of the financial statements requires management to make
estimates and assumptions that affect: a) the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements; and b) the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Effective with the April 21, 1998 merger described in Note 2, the beginning
balance of retained earnings in the 1997 financial statements was restated to
include accrued revenues for services rendered but unbilled at month-end. The
$4.7 million increase represents the after tax impact of adopting the method of
accounting for unbilled revenues used by merger partners WPL Holdings, Inc. and
IES Industries Inc., as required by the pooling of interests method of
accounting for the merger.
(b) Regulation - IPC is subject to regulation by the FERC, the Iowa Utilities
Board, the Minnesota Public Utilities Commission (MPUC) and the Illinois
Commerce Commission.
(c) Regulatory Assets - IPC is subject to the provisions of Statement of
Financial Accounting Standards (SFAS) 71, "Accounting for the Effects of Certain
Types of Regulation." SFAS 71 provides that rate-regulated public utilities
record certain costs and credits allowed in the rate making process in different
periods than for unregulated entities. These are deferred as regulatory assets
or regulatory liabilities and are recognized in the Statements of Income at the
time they are reflected in rates. At December 31, 1999 and 1998, regulatory
assets of $69.5 million and $73.9 million, respectively, were comprised of the
following items (in millions):
1999 1998
------------------------
Tax-related (Note 1(d)) $29.7 $29.8
Energy efficiency program costs 23.9 25.9
Environmental liabilities (Note 10(c)) 15.7 17.5
Other 0.2 0.7
------------------------
$69.5 $73.9
========================
Refer to the individual notes referenced above for a further discussion of
certain items reflected in regulatory assets. If a portion of IPC's operations
become no longer subject to the provisions of SFAS 71 as a result of competitive
restructuring 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 that would meet the requirements under generally
accepted accounting principles for continued accounting as regulatory assets
during such recovery period. In addition, IPC would be required to determine any
impairment to other assets and write-down such assets to their fair value.
F-38
<PAGE>
(d) Income Taxes - IPC follows the liability method of accounting for deferred
income taxes, which requires the establishment of deferred tax assets and
liabilities, as appropriate, for all temporary differences between the tax basis
of assets and liabilities and the amounts reported in the financial statements.
Deferred taxes are recorded using currently enacted tax rates.
Except as noted below, income tax expense includes provisions for deferred taxes
to reflect the tax effects of temporary differences between the time when
certain costs are recorded in the accounts and when they are deducted for tax
return purposes. As temporary differences reverse, the related accumulated
deferred income taxes are reversed to income. Investment tax credits have been
deferred and are subsequently credited to income over the average lives of the
related property.
Consistent with Iowa rate making practices, deferred tax expense is not recorded
for certain temporary differences (primarily related to utility property, plant
and equipment). As the deferred taxes become payable (over periods exceeding 30
years for some generating plant differences) they are recovered through rates.
Accordingly, IPC has recorded deferred tax liabilities and regulatory assets for
certain temporary differences, as identified in Note 1(c).
Alliant Energy files a consolidated federal income tax return. Under the terms
of an agreement between Alliant Energy and its subsidiaries (including IPC), the
subsidiaries calculate their respective federal income tax provisions and make
payments to or receive payments from Alliant Energy as if they were separate
taxable entities.
(e) Temporary Cash Investments - Temporary cash investments are stated at cost,
which approximates market value, and are considered cash equivalents for the
Statements of Cash Flows. These investments consist of short-term liquid
investments that have maturities of less than 90 days from the date of
acquisition.
(f) Depreciation of Utility Property, Plant and Equipment - IPC uses the
straight-line depreciation method as approved by its regulatory commissions. The
average rates of depreciation for electric and gas properties, consistent with
current rate making practices, were as follows:
1999 1998 1997
--------------------------------------
Electric 3.6% 3.6% 3.6%
Gas 3.6% 3.4% 3.4%
(g) Property, Plant and Equipment - Utility plant is recorded at original cost,
which includes overhead and administrative costs and allowance for funds used
during construction (AFUDC). AFUDC, which represents the cost during the
construction period of funds used for construction purposes, is capitalized as a
component of the cost of utility plant. The amount of AFUDC applicable to debt
funds and to other (equity) funds, a non-cash item, is computed in accordance
with the prescribed FERC formula. These capitalized costs are recovered in rates
as the cost of the utility plant is depreciated. The aggregate gross rates used
in 1999, 1998 and 1997 were 5.3%, 7.0% and 6.0%, respectively.
Other property, plant and equipment is recorded at original cost. Upon
retirement or sale of other property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any gain or loss is
included in "Miscellaneous, net" in the Statements of Income. Normal repairs,
maintenance and minor items of utility plant and other property, plant and
equipment are expensed. Ordinary retirements of utility plant, including removal
costs less salvage value, are charged to accumulated depreciation upon removal
from utility plant accounts and no gain or loss is recognized.
(h) Operating Revenues - IPC accrues revenues for services rendered but unbilled
at month-end in order to more properly match revenues with expenses.
(i) Utility Fuel Cost Recovery - IPC's tariffs provide for subsequent
adjustments to its electric and natural gas rates for changes in the cost of
fuel and purchased energy and in the cost of natural gas purchased for resale.
Changes in the under/over collection of these costs are reflected in "Electric
and steam production fuels" and "Cost of utility gas sold" in the Statements of
Income. The cumulative effects are reflected on the Balance Sheets as a current
asset or current liability, pending automatic reflection in future billings to
customers. Purchased capacity
F-39
<PAGE>
costs are not recovered from electric customers through energy adjustment
clauses. Recovery of these costs must be addressed in base rates in a formal
rate proceeding.
(j) Derivative Financial Instruments - IPC is exposed to the impact of market
fluctuations in the commodity price and transportation costs of electricity,
natural gas and oil products it markets. IPC employs established policies and
procedures to manage its risks associated with these market fluctuations
including the use of various commodity derivatives. IPC's exposure to commodity
price risks in the utility business is significantly mitigated by the current
rate making structures in place for the recovery of its electric fuel and
purchased energy costs as well as its cost of natural gas purchased for resale.
Under the deferral method of accounting, gains and losses related to derivatives
that qualify as hedges are recognized in earnings when the underlying hedged
item or physical transaction is recognized in income.
(2) MERGER
On April 21, 1998, IES Industries Inc., WPL Holdings, Inc. and IPC completed a
merger forming Alliant Energy. The merger was accounted for as a pooling of
interests.
In association with the merger, Alliant Energy entered into a three-year
consulting agreement, which expires in the second quarter of 2001, with Wayne
Stoppelmoor, the Chief Executive Officer of IPC prior to the consummation of the
merger. Under the terms of the consulting agreement, Mr. Stoppelmoor, who also
serves as Vice Chairman of Alliant Energy's Board of Directors, receives annual
fees of $324,500, $324,500 and $200,000 for his services during the respective
periods of the agreement.
(3) LEASES
IPC's operating lease rental expenses for 1999, 1998 and 1997 were $2.0 million,
$0.5 million and $0.5 million, respectively. IPC's future minimum lease payments
by year are as follows (in thousands):
Capital Operating
Year Leases Leases
----------------------------------- --------------- --------------
2000 $14.1 $2,036.8
2001 14.1 1,961.5
2002 14.1 1,332.0
2003 14.1 1,215.7
2004 14.1 324.9
Thereafter 19.0 161.4
--------------- --------------
89.5 $7,032.3
==============
Less: Amount representing interest 10.9
---------------
Present value of net minimum capital
lease payments $78.6
===============
(4) UTILITY ACCOUNTS RECEIVABLE
Utility customer accounts receivable, including unbilled revenues, arise
primarily from the sale of electricity and natural gas. At December 31, 1999,
IPC was serving a diversified base of residential, commercial and industrial
customers and did not have any significant concentrations of credit risk.
(5) INCOME TAXES
The components of federal and state income taxes for IPC for the years ended
December 31 were as follows (in millions):
F-40
<PAGE>
1999 1998 1997
------------ ----------- ---------
Current tax expense $21.3 $19.7 $16.3
Deferred tax expense (0.4) (7.5) 2.4
Amortization of investment tax credits (1.0) (1.1) (1.0)
------------ ----------- ---------
$19.9 $11.1 $17.7
============ =========== =========
The overall effective income tax rates shown below for the years ended December
31 were computed by dividing total income tax expense by income before income
taxes.
1999 1998 1997
----------- --------- ----------
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefits 5.1 6.9 5.5
Effect of rate making on property related
differences 2.8 (1.1) (1.5)
Amortization of investment tax credits (2.1) (3.6) (2.2)
Merger expenses -- 2.0 0.4
Property donation (1.9) -- --
Adjustment of prior period taxes -- (3.4) (1.5)
Other, net 0.3 1.4 2.0
----------- --------- ----------
Overall effective income tax rate 39.2% 37.2% 37.7%
=========== ========= ==========
The accumulated deferred income taxes (assets) and liabilities as set forth
below on the Balance Sheets at December 31 arise from the following temporary
differences (in millions):
1999 1998
---------------- ---------------
Property related $75.7 $79.5
Investment tax credit related 11.2 11.2
Other 4.9 0.3
---------------- ---------------
$91.8 $91.0
================ ===============
(6) BENEFIT PLANS
IPC has a non-contributory defined benefit pension plan that covers
substantially all of its employees who are subject to a collective bargaining
agreement. Plan benefits are generally based on years of service and
compensation during the employees' latter years of employment. Eligible
employees of IPC that are not subject to a collective bargaining agreement are
covered by the Alliant Energy Cash Balance Pension Plan, a non-contributory
defined benefit pension plan. The projected unit credit actuarial cost method
was used to compute pension cost and the accumulated and projected benefit
obligations. IPC's policy is to fund the pension plan at an amount that is at
least equal to the minimum funding requirements mandated by the Employee
Retirement Income Security Act of 1974, as amended, and that does not exceed the
maximum tax deductible amount for the year.
IPC also provides certain other postretirement benefits to retirees, including
medical benefits for retirees and their spouses and, in some cases, retiree life
insurance. IPC's funding policy for other postretirement benefits is generally
to fund an amount up to the cost calculated using SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
The weighted-average assumptions as of the measurement date of September 30 are
as follows:
F-41
<PAGE>
<TABLE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
-------------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
----------- -------------------------- ----------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.75% 6.75% 7.25% 7.75% 6.75% 7.25%
Expected return on plan assets 9% 9% 8% 9% 9% 8%
Rate of compensation increase 3.5% 3.5-4.5% 5% N/A N/A N/A
Medical cost trend on covered
charges:
Initial trend range N/A N/A N/A 7% 7% 8%
Ultimate trend range N/A N/A N/A 5% 6% 6%
</TABLE>
The components of IPC's qualified pension benefits and other postretirement
benefits costs are as follows (in thousands):
<TABLE>
<CAPTION>
Qualified Pension Benefits Other Postretirement Benefits
------------------------------------- -------------------------------------
1999 1998 1997 1999 1998 1997
--------- ----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost $1,240 $ 2,057 $ 2,431 $ 1,352 $ 1,388 $ 1,266
Interest cost 2,114 4,146 3,730 3,074 2,861 2,911
Expected return on plan assets (2,688) (4,497) (4,236) (1,636) (1,215) (823)
Amortization of:
Transition obligation 153 305 341 1,203 1,416 1,543
Prior service cost 136 270 203 (226) (257) (280)
Actuarial loss (gain) -- 173 -- 143 (25) 61
--------- ----------- --------- ---------- ---------- ---------
Total $ 955 $ 2,454 $ 2,469 $ 3,910 $ 4,168 $ 4,678
========= =========== ========= ========== ========== =========
</TABLE>
During 1998, IPC recognized an additional $2.9 million of costs in accordance
with SFAS 88 for severance and early retirement programs. In addition, during
1999 and 1998, IPC recognized $0.5 million and $5.4 million, respectively, of
curtailment charges relating to IPC's other postretirement benefits.
The pension benefit cost shown above (and in the following tables) for 1999 and
1998 represents the pension benefit cost for bargaining unit employees of IPC
for the entire year and non-bargaining employees of IPC through July 31, 1998,
covered under the IPC Retirement Income Plan sponsored by IPC. The pension
benefit cost for IPC's non-bargaining employees who are now participants in
other Alliant Energy plans was $0.5 million and $1.0 million for 1999 and 1998,
respectively, including a special charge of $0.9 million in 1998 for severance
and early retirement window programs. In addition, Alliant Energy Corporate
Services, Inc. (Corporate Services) provides services to IPC. The allocated
pension benefit costs associated with these services was $550,000 and $250,000
for 1999 and 1998, respectively. The other postretirement benefit cost shown
above for each period (and in the following tables) represents the other
postretirement benefit cost for all IPC employees. The allocated other
postretirement benefit cost associated with Corporate Services for IPC was
$191,000 and $75,000 for 1999 and 1998, respectively.
The assumed medical trend rates are critical assumptions in determining the
service and interest cost and accumulated postretirement benefit obligation
related to postretirement benefit costs. A one percent change in the medical
trend rates for 1999, holding all other assumptions constant, would have the
following effects (in thousands):
<TABLE>
<CAPTION>
1 Percent 1 Percent
Increase Decrease
-------------- -------------
<S> <C> <C>
Effect on total of service and interest cost components $ 700 $ (550)
Effect on postretirement benefit obligation $ 3,700 $ (3,100)
</TABLE>
F-42
<PAGE>
A reconciliation of the funded status of IPC's plans to the amounts recognized
on IPC's Balance Sheets at December 31 is presented below (in thousands):
<TABLE>
<CAPTION>
Qualified Other Postretirement
Pension Benefits Benefits
--------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
Change in benefit obligation:
<S> <C> <C> <C> <C>
Net benefit obligation at beginning of year $ 30,131 $56,210 $ 45,518 $46,242
Service cost 1,240 2,057 1,352 1,388
Interest cost 2,114 4,146 3,074 2,861
Plan participants' contributions -- -- -- 75
Plan amendments -- -- (1,424) --
Actuarial loss (gain) (5,174) 4,938 (10,175) (4,016)
Acquisitions/divestitures -- (37,099) -- --
Curtailments -- (1,462) 321 915
Special termination benefits -- 2,739 -- --
Gross benefits paid (254) (1,398) (2,396) (1,947)
----------- ------------ ----------- -----------
Net benefit obligation at end of year 28,057 30,131 36,270 45,518
----------- ------------ ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year $ 29,914 $51,618 $ 18,400 $14,722
Actual return on plan assets 112 8,979 830 1,298
Employer contributions -- -- 3,253 4,252
Plan participants' contributions -- -- -- 75
Acquisitions/divestitures -- (29,285) -- --
Gross benefits paid (254) (1,398) (2,396) (1,947)
----------- ------------ ----------- -----------
Fair value of plan assets at end of year 29,772 29,914 20,087 18,400
----------- ------------ ----------- -----------
Funded status at end of year 1,715 (217) (16,183) (27,118)
Unrecognized net actuarial loss (gain) (266) 2,331 (5,127) 3,802
Unrecognized prior service cost 1,308 1,444 (896) (1,122)
Unrecognized net transition obligation 472 626 14,088 17,493
----------- ------------ ----------- -----------
Net amount recognized at end of year $ 3,229 $4,184 $ (8,118) $(6,945)
=========== ============ =========== ===========
Amounts recognized on the Balance Sheets
consist of:
Prepaid benefit cost $ 3,229 $4,184 $ -- $592
Accrued benefit cost -- -- (8,118) (7,537)
----------- ------------ ----------- -----------
Net amount recognized at measurement date 3,229 4,184 (8,118) (6,945)
----------- ------------ ----------- -----------
Contributions paid after 9/30 and prior to 12/31 -- -- 2,459 971
----------- ------------ ----------- -----------
Net amount recognized at 12/31 $ 3,229 $4,184 $ (5,659) $(5,974)
=========== ============ =========== ===========
</TABLE>
Alliant Energy sponsors a non-qualified pension plan which covers certain
current and former officers. The pension expense allocated to IPC for this plan
was $0.7 million, $1.6 million and $0.6 million in 1999, 1998 and 1997,
respectively.
IPC employees also participate in defined contribution pension plans (401(k)
plans) covering substantially all employees. IPC's contributions to the plans,
which are based on the participants' level of contribution, were $0.3 million,
$0.5 million and $0.3 million in 1999, 1998 and 1997, respectively.
F-43
<PAGE>
(7) COMMON, PREFERRED AND PREFERENCE STOCK
(a) Common Stock - IPC has common stock dividend restrictions based on its
respective bond indentures and articles of incorporation. IPC has restrictions
on the payment of common stock dividends that are commonly found with preferred
stock. IPC's ability to pay common stock dividends is restricted based on
requirements associated with sinking funds.
(b) Preferred and Preference Stock - In 1993, IPC issued 545,000 shares of
6.40%, $50 par value preferred stock with a final redemption date of May 1,
2022. Under the provisions of the mandatory sinking fund, beginning in 2003, IPC
is required to redeem annually $1.4 million of 6.40% preferred stock (27,250
shares).
The carrying value of IPC's cumulative preferred stock at December 31, 1999 and
1998 was $35 million. The fair market value, based upon the market yield of
similar securities and quoted market prices, at December 31, 1999 and 1998 was
$36 million and $39 million, respectively.
(8) DEBT
(a) Short-Term Debt - IPC participates in a utility money pool with Wisconsin
Power and Light Company (WP&L) and IES Utilities Inc. (IESU) that is funded, as
needed, through the issuance of commercial paper by Alliant Energy. Interest
expense and other fees are allocated based on borrowing amounts. Information
regarding IPC's short-term debt is as follows (dollars in millions):
1999 1998 1997
---------- ---------- ----------
As of year end:
Money pool borrowings $39.2 $21.9 N/A
Commercial paper outstanding N/A N/A $33.5
Interest rate on money pool borrowings 5.84% 5.17% N/A
Discount rates on commercial paper N/A N/A 5.88%
For the year ended:
Average amount of short-term debt
(based on daily outstanding balances) $26.3 $14.0 $28.1
Average interest rate on short-term debt 5.27% 5.59% 5.60%
(b) Long-Term Debt - Substantially all of IPC's utility plant is secured by its
First Mortgage Bonds. Debt maturities (excluding periodic sinking fund
requirements, which will not require additional cash expenditures) for 2000 to
2004 are $0 million, $0 million, $0 million, $1.0 million and $0 million,
respectively. Depending upon market conditions, it is currently anticipated that
a majority of the maturing debt will be refinanced with the issuance of
long-term securities.
The carrying value of IPC's long-term debt at December 31, 1999 and 1998 was
$170 million. The fair market value, based upon the market yield of similar
securities and quoted market prices, at December 31, 1999 and 1998 was $171
million and $184 million, respectively.
(9) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of IPC's current assets and current liabilities approximates
fair value because of the short maturity of such financial instruments. Since
IPC is subject to regulation, any gains or losses related to the difference
between the carrying amount and the fair value of its financial instruments may
not be realized by IPC's parent.
(10) COMMITMENTS AND CONTINGENCIES
(a) Purchased-Power, Coal and Natural Gas Contracts - Corporate Services has
entered into purchased-power capacity contracts as agent for IPC, WP&L and IESU.
Based on the System Coordination and Operating
F-44
<PAGE>
Agreement, Alliant Energy annually allocates purchased-power contracts to the
individual utilities. Such process considers factors such as resource mix, load
growth and resource availability. Refer to Note 12 for additional information.
In addition, Corporate Services has entered into various coal contracts as agent
for IPC, WP&L and IESU. Contract quantities are allocated to specific plants at
the individual utilities based on various factors including projected heat input
requirements, combustion compatibility and efficiency. However, in 2000 and
2001, system-wide contracts of $24.6 million (6.5 million tons) and $12.5
million (3.6 million tons), respectively, have not yet been allocated to the
individual utilities due to the need for additional analysis of combustion
compatibility and efficiency.
The minimum commitments directly assigned to IPC are as follows (dollars in
millions, megawatt-hours (MWH) and tons in thousands):
Coal
Purchased-Power (including transportation costs)
------------------------------ --------------------------------
Dollars MWHs Dollars Tons
-------------- ------------ ------------- --------------
2000 $33.2 61 $9.0 2,109
2001 10.3 61 7.6 1,765
2002 3.1 61 6.1 1,665
2003 3.1 61 5.4 1,516
2004 -- -- 3.1 446
IPC in the process of negotiating several new coal contracts. In addition, it
expects to supplement its coal contracts with spot market purchases to fulfill
its future fossil fuel needs.
IPC also has various natural gas supply, transportation and storage contracts
outstanding. The minimum dekatherm commitments, in millions, for 2000-2004 are
31.7, 26.6, 18.6, 14.9 and 0, respectively. The minimum dollar commitments for
2000-2004, in millions, are $14.7, $12.8, $5.7, $4.4 and $0, respectively. The
gas supply commitments are all index-based. IPC expects to supplement its
natural gas supply with spot market purchases as needed.
(b) Information Technology Services - Alliant Energy has an agreement, expiring
in 2004, with the Electronic Data Systems Corporation for information technology
services. IPC's anticipated operating and capital expenditures under the
agreement for 2000 are estimated to total approximately $0.6 million. Future
costs under the agreement are variable and are dependent upon IPC's level of
usage of technological services from EDS.
(c) Environmental Liabilities - IPC had recorded the following environmental
liabilities, and regulatory assets associated with certain of these liabilities,
as of December 31 (in millions):
Environmental liabilities 1999 1998 Regulatory assets 1999 1998
------------------------- ------ ------- ----------------- ------ -------
Manufactured Gas Plant
(MGP) sites $16.2 $17.5 MGP sites $15.7 $17.5
====== =======
Other 0.5 0.6
------ -------
$16.7 $18.1
====== =======
IPC's significant environmental liabilities are discussed further below.
Manufactured Gas Plant Sites - IPC has current or previous ownership interests
in 9 sites previously associated with the production of gas for which it may be
liable for investigation, remediation and monitoring costs relating to the
sites. The companies are working pursuant to the requirements of various federal
and state agencies to investigate, mitigate, prevent and remediate, where
necessary, the environmental impacts to property, including natural resources,
at and around the sites in order to protect public health and the environment.
IPC believes that it has completed the remediation at various sites, although it
is still in the process of obtaining final approval from the applicable
environmental agencies for some of these sites.
F-45
<PAGE>
IPC records environmental liabilities based upon periodic studies, most recently
updated in the third quarter of 1999, related to the MGP sites. Such amounts are
based on the best current estimate of the remaining amount to be incurred for
investigation, remediation and monitoring 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
current estimates as the investigation process proceeds and as additional facts
become known. The amounts recognized as liabilities are reduced for expenditures
made and are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their fair value.
Management currently estimates the range of remaining costs to be incurred for
the investigation, remediation and monitoring of all IPC sites to be
approximately $11 million to $20 million.
The MPUC allows the deferral of MGP-related costs applicable to the Minnesota
sites and IPC has been successful in obtaining approval to recover such costs in
rates in Minnesota. The Iowa Utilities Board has permitted utilities to recover
prudently incurred costs. As a result, regulatory assets have been recorded by
IPC which reflect the probable future rate recovery, where applicable.
Considering the current rate treatment, and assuming no material change therein,
IPC believes that the clean-up costs incurred for these MGP sites will not have
a material adverse effect on its financial condition or results of operations.
IPC has settled with all but one of its insurance carriers regarding
reimbursement for its MGP-related costs. Insurance recoveries of $5.3 million
and $4.8 million were available as of December 31 1999 and 1998, respectively.
Pursuant to its applicable rate making treatment, IPC has recorded its
recoveries in "Other long-term liabilities and deferred credits."
(d) Legal Proceedings - IPC is involved in legal and administrative proceedings
before various courts and agencies with respect to matters arising in the
ordinary course of business. Although unable to predict the outcome of these
matters, IPC believes that appropriate reserves have been established and final
disposition of these actions will not have a material adverse effect on its
financial condition or results of operations.
(11) JOINTLY-OWNED ELECTRIC UTILITY PLANT
Under joint ownership agreements with other Iowa utilities, IPC has undivided
ownership interests in jointly-owned electric generating stations and related
transmission facilities. Each of the respective owners is responsible for the
financing of its portion of the construction costs. Kilowatt-hour generation and
operating expenses are divided on the same basis as ownership with each owner
reflecting its respective costs in its Statements of Income. Information
relative to IPC's ownership interest in these facilities at December 31, 1999 is
as follows (dollars in millions):
<TABLE>
<CAPTION>
1999 1998
----------------------------------- ---------------------------------
Plant
Ownership In- Name-plate Accumulated Accumulated
Interest Service MW Plant in Provision for Plant in Provision for
% Date Capacity Service Depreciation CWIP Service Depreciation CWIP
--------------------------------------------------------------------------------------------------------------------------------
Coal:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Neal Unit 4 21.5 1979 640 $ 83.5 $51.1 $ -- $ 82.1 $48.4 $1.5
Louisa Unit 1 4.0 1983 738 24.7 12.5 -- 24.7 11.7 --
------------------------------------ ------------------------------------
Total IPC $108.2 $63.6 $ -- $106.8 $60.1 $1.5
==================================== ====================================
</TABLE>
F-46
<PAGE>
(12) SEGMENTS OF BUSINESS
IPC is a regulated domestic utility, serving customers in Iowa, Minnesota and
Illinois, with three principal business segments: a) electric operations; b) gas
operations; and c) other, which includes the unallocated portions of the utility
business. Intersegment revenues were not material to IPC's operations and there
was no single customer whose revenues exceeded 10% or more of IPC's revenues.
Certain financial information relating to IPC's significant business segments is
presented below:
<TABLE>
<CAPTION>
Electric Gas Other Total
-----------------------------------------------------------------------------------------------------------------------
(in millions)
1999
<S> <C> <C> <C> <C>
Operating revenue $294.4 $47.7 $ -- $342.1
Depreciation and amortization expense 30.8 2.5 -- 33.3
Operating income 56.3 5.1 -- 61.4
Interest expense, net of AFUDC 14.7 14.7
Miscellaneous, net (4.1) (4.1)
Income tax expense 19.9 19.9
Net income 30.9 30.9
Preferred and preference dividends 2.5 2.5
Earnings available for common stock 28.4 28.4
Total assets 561.5 76.2 24.5 662.2
Construction and acquisition expenditures 41.9 3.5 -- 45.4
-----------------------------------------------------------------------------------------------------------------------
1998
Operating revenue $313.3 $42.6 $ -- $355.9
Depreciation and amortization expense 30.0 2.5 -- 32.5
Operating income 40.7 4.8 -- 45.5
Interest expense, net of AFUDC 14.4 14.4
Miscellaneous, net 1.2 1.2
Income tax expense 11.1 11.1
Net income 18.8 18.8
Preferred and preference dividends 2.5 2.5
Earnings available for common stock 16.3 16.3
Total assets 551.3 79.9 26.2 657.4
Construction and acquisition expenditures 33.5 3.1 -- 36.6
-----------------------------------------------------------------------------------------------------------------------
1997
Operating revenue $277.3 $54.5 $ -- $331.8
Depreciation and amortization expense 29.4 2.3 -- 31.7
Operating income 52.8 2.7 -- 55.5
Interest expense, net of AFUDC 15.4 15.4
Miscellaneous, net (6.8) (6.8)
Income tax expense 17.7 17.7
Net income 29.2 29.2
Preferred and preference dividends 2.5 2.5
Earnings available for common stock 26.7 26.7
Total assets 549.4 66.2 27.8 643.4
Construction and acquisition expenditures 26.3 2.6 -- 28.9
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-47
<PAGE>
(13) SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ------------- ------------------ ------------------
(in thousands)
1999
<S> <C> <C> <C> <C>
Operating revenues $81,972 $82,263 $100,668 $77,202
Operating income 12,344 9,701 28,237 11,081
Net income 5,697 4,818 14,815 5,516
Earnings available for common stock 5,077 4,198 14,195 4,894
1998 *
Operating revenues $85,124 $85,863 $ 98,942 $85,960
Operating income 12,103 164 23,336 9,887
Net income 5,594 (3,078) 11,338 4,903
Earnings available for common stock 4,976 (3,696) 10,719 4,283
* Earnings in 1998 were impacted by the recording of approximately $5 million, $10 million, $1 million and ($1)
million of pre-tax merger-related expenses in the first, second, third and fourth quarters, respectively.
</TABLE>
(14) RELATED PARTY ISSUES
In association with the merger, IPC, IESU and WP&L entered into a System
Coordination and Operating Agreement which became effective with the merger. The
agreement, which has been approved by FERC, provides a contractual basis for
coordinated planning, construction, operation and maintenance of the
interconnected electric generation and transmission systems of the three utility
companies. In addition, the agreement allows the interconnected system to be
operated as a single entity with off-system capacity sales and purchases made to
market excess system capability or to meet system capability deficiencies. Such
sales and purchases are allocated among the three utility companies based on
procedures included in the agreement. The sales amounts allocated to IPC were
$21.3 million and $18.0 million for 1999 and 1998, respectively. The purchases
allocated to IPC were $65.5 million and $53.3 million for 1999 and 1998,
respectively. The procedures were approved by both FERC and all state regulatory
bodies having jurisdiction over these sales. Under the agreement, IPC, IESU and
WP&L are fully reimbursed for any generation expense incurred to support the
sale to an affiliate or to a non-affiliate. Any margins on sales to
non-affiliates are distributed to the three utilities in proportion to each
utility's share of electric production at the time of sale.
Pursuant to a service agreement approved by the Securities and Exchange
Commission under the Public Utility Holding Company Act of 1935, IPC receives
various administrative and general services from an affiliate, Corporate
Services. These services are billed to IPC at cost based on payroll and other
expenses incurred by Corporate Services for the benefit of IPC. These costs
totaled $42.9 million and $23.7 million for 1999 and 1998, respectively, and
consisted primarily of employee compensation, benefits and fees associated with
various professional services. Corporate Services began operations in May 1998
upon consummation of the merger.
At December 31, 1999 and 1998, IPC had an intercompany payable to Corporate
Services of $10.1 million and $7.3 million, respectively.
(15) SUBSEQUENT EVENT
On March 15, 2000, the boards of directors of IESU and IPC approved a merger
agreement (as amended on November 29, 2000) that will result in IPC merging with
and into IESU (the "Agreement"). Completion of the merger is subject to the
affirmative vote of the IPC common and preferred shareowners voting together as
a single class and the IESU common shareowners and preferred shareowners of each
series voting separately as individual classes. The vote is expected in early
2001. Under the Agreement, each share of IPC common stock outstanding
F-48
<PAGE>
will be cancelled without payment and each share of IPC preferred stock
outstanding will be cancelled and converted into the right to receive one share
of a new class of IESU Class A preferred stock with substantially identical
designations, rights and preferences as the previously outstanding IPC preferred
stock. IPC and IESU are both wholly-owned operating subsidiaries of Alliant
Energy. As such, the transaction will be accounted for as a common control
merger.
The following illustrates the impact of the merger if it had occurred as of
January 1, 1997 (in thousands):
1999 1998 1997
---- ---- ----
Operating revenues $1,142,801 $1,162,819 $1,145,825
Earnings available for common stock 93,896 77,278 84,577
F-49
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- ------------- --------------
(in thousands)
Operating revenues:
<S> <C> <C> <C> <C>
Electric utility $ 94,776 $ 95,714 $ 232,719 $ 230,523
Gas utility 5,307 4,956 28,419 34,381
--------------- --------------- ------------- --------------
100,083 100,670 261,138 264,904
--------------- --------------- ------------- --------------
Operating expenses:
Electric production fuels 20,601 18,192 41,851 44,702
Purchased power 15,930 18,041 50,107 49,830
Cost of gas sold 2,976 3,045 16,953 20,541
Other operation and maintenance 18,273 20,081 66,594 60,416
Depreciation and amortization 8,688 8,720 26,060 26,143
Taxes other than income taxes 3,780 4,354 11,795 12,989
--------------- --------------- ------------- --------------
70,248 72,433 213,360 214,621
--------------- --------------- ------------- --------------
Operating income 29,385 28,237 47,778 50,283
--------------- --------------- ------------- --------------
Interest expense and other:
Interest expense 4,173 3,732 11,996 11,202
Allowance for funds used during
construction (268) 36 (694) (264)
Miscellaneous, net (907) 228 (1,202) (2,080)
--------------- --------------- ------------- --------------
2,998 3,996 10,100 8,858
--------------- --------------- ------------- --------------
Income before income taxes 26,837 24,241 37,678 41,425
--------------- --------------- ------------- --------------
Income taxes 11,713 9,425 15,910 16,094
--------------- --------------- ------------- --------------
Net income 15,124 14,816 21,768 25,331
--------------- --------------- ------------- --------------
Preferred dividend requirements 623 621 1,866 1,860
--------------- --------------- ------------- --------------
Earnings available for common stock $ 14,501 $ 14,195 $ 19,902 $ 23,471
=============== =============== ============= ==============
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-50
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
BALANCE SHEETS
<CAPTION>
ASSETS September 30, December 31,
2000
(Unaudited) 1999
---------------------- ---------------------
(in thousands)
Property, plant and equipment:
Utility -
Plant in service -
<S> <C> <C>
Electric $ 932,885 $ 914,156
Gas 76,537 74,973
Common 5,610 4,396
---------------------- ---------------------
1,015,032 993,525
Less - Accumulated depreciation 518,475 499,098
---------------------- ---------------------
496,557 494,427
Construction work in progress 21,994 14,921
---------------------- ---------------------
518,551 509,348
Other property, plant and equipment 252 149
---------------------- ---------------------
518,803 509,497
---------------------- ---------------------
Current assets:
Cash and temporary cash investments 1,459 3,545
Accounts receivable:
Customer, less allowance for doubtful accounts of $1,130
and $200, respectively 36,103 33,069
Associated companies 1,352 2,639
Other 647 2,894
Production fuel, at average cost 24,092 16,682
Materials and supplies, at average cost 6,161 5,966
Gas stored underground, at average cost 5,501 3,065
Regulatory assets 10,363 11,163
Prepayments and other 2,493 2,080
---------------------- ---------------------
88,171 81,103
---------------------- ---------------------
Other investments 6,681 6,694
---------------------- ---------------------
Other assets:
Regulatory assets 55,587 58,418
Deferred charges and other 5,864 6,472
---------------------- ---------------------
61,451 64,890
---------------------- ---------------------
Total assets $ 675,106 $ 662,184
====================== =====================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-51
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
BALANCE SHEETS (CONTINUED)
<CAPTION>
CAPITALIZATION AND LIABILITIES September 30, December 31,
2000
(Unaudited) 1999
---------------------- ---------------------
(in thousands, except share amounts)
Capitalization:
<S> <C> <C>
Common stock - $3.50 par value - authorized 30,000,000
shares; 9,777,432 shares outstanding $ 34,221 $ 34,221
Additional paid-in capital 108,705 108,748
Retained earnings 85,171 81,549
---------------------- ---------------------
Total common equity 228,097 224,518
Cumulative preferred stock, not mandatorily redeemable 10,819 10,819
Cumulative preferred stock, mandatorily redeemable 24,650 24,536
Long-term debt (excluding current portion) 170,378 170,313
---------------------- ---------------------
433,944 430,186
---------------------- ---------------------
Current liabilities:
Notes payable to associated companies 47,397 39,198
Accounts payable 14,742 12,818
Accounts payable to associated companies 10,295 10,172
Accrued payroll and vacations 1,579 1,648
Accrued interest 3,535 2,512
Accrued taxes 21,323 14,648
Environmental liabilities 1,112 1,662
Other 4,885 7,429
---------------------- ---------------------
104,868 90,087
---------------------- ---------------------
Other long-term liabilities and deferred credits:
Accumulated deferred income taxes 89,122 91,787
Accumulated deferred investment tax credits 13,088 13,864
Environmental liabilities 14,572 15,056
Pension and other benefit obligations 7,941 9,160
Other 11,571 12,044
---------------------- ---------------------
136,294 141,911
---------------------- ---------------------
Total capitalization and liabilities $ 675,106 $ 662,184
====================== =====================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-52
<PAGE>
<TABLE>
INTERSTATE POWER COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------------------
2000 1999
---------------------- -------------------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 21,768 $ 25,331
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 26,060 26,143
Amortization of deferred energy efficiency expenditures 8,454 6,766
Deferred taxes and investment tax credits (3,822) (3,018)
Gains on dispositions of assets, net - (2,065)
Other 615 677
Other changes in assets and liabilities:
Accounts receivable 500 (4,054)
Production fuel (7,410) 2,081
Gas stored underground (2,436) (405)
Accounts payable 2,047 1,712
Accrued taxes 6,675 1,149
Benefit obligations and other (3,061) 1,786
---------------------- -------------------------
Net cash flows from operating activities 49,390 56,103
---------------------- -------------------------
Cash flows used for financing activities:
Common stock dividends declared (16,280) (27,132)
Preferred stock dividends (1,866) (1,860)
Proceeds from issuance of long-term debt - 10,950
Reductions in long-term debt - (10,950)
Net change in short-term borrowings 8,199 (648)
Other (564) (145)
---------------------- -------------------------
Net cash flows used for financing activities (10,511) (29,785)
---------------------- -------------------------
Cash flows used for investing activities:
Utility construction expenditures (34,796) (26,867)
Proceeds from disposition of assets - 2,815
Shared savings program (1,120) (3,339)
Other (5,049) (3,241)
---------------------- -------------------------
Net cash flows used for investing activities (40,965) (30,632)
---------------------- -------------------------
Net decrease in cash and temporary cash investments (2,086) (4,314)
---------------------- -------------------------
Cash and temporary cash investments at beginning of
period 3,545 6,605
---------------------- -------------------------
Cash and temporary cash investments at end of period $ 1,459 $ 2,291
====================== =========================
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 9,068 $ 9,321
====================== =========================
Income taxes $ 8,170 $ 15,858
====================== =========================
The accompanying Notes to Financial Statements are an integral part of these statements.
</TABLE>
F-53
<PAGE>
INTERSTATE POWER COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. The interim financial statements included herein have been prepared by
Interstate Power Company (IPC), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted, although management believes that the disclosures are
adequate to make the information presented not misleading. IPC is a subsidiary
of Alliant Energy Corporation.
In the opinion of management, all adjustments, which are normal and recurring in
nature, necessary for a fair presentation of (a) the results of operations for
the three and nine months ended September 30, 2000 and 1999, (b) the financial
position at September 30, 2000 and December 31, 1999, and (c) the statement of
cash flows for the nine months ended September 30, 2000 and 1999, have been
made. Because of the seasonal nature of IPC's operations, results for the three
and nine months ended September 30, 2000 are not necessarily indicative of
results that may be expected for the year ending December 31, 2000. Certain
prior period amounts have been reclassified on a basis consistent with the 2000
presentation.
2. IPC's comprehensive income, and the components of other comprehensive income,
net of taxes, were as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Earnings available for common stock $14,501 $14,195 $19,902 $23,471
Other comprehensive income:
Unrealized gains (losses) on derivatives qualified as
hedges:
Unrealized holding gains arising during period
due to cumulative effect of a change in
accounting principle, net of tax 3 -- 3 --
Other unrealized holding losses arising during
period, net of tax (3) -- (3) --
------------ ----------- ----------- -----------
Net unrealized gains on qualifying derivatives -- -- -- --
------------ ----------- ----------- -----------
Other comprehensive income -- -- -- --
------------ ----------- ----------- -----------
Comprehensive income $14,501 $14,195 $19,902 $23,471
============ =========== =========== ===========
</TABLE>
F-54
<PAGE>
3. Certain financial information relating to IPC's significant business segments
is presented below. Intersegment revenues were not material to IPC's operations.
<TABLE>
<CAPTION>
Electric Gas Total
-------------------------------------------
(in thousands)
Three Months Ended September 30, 2000
<S> <C> <C> <C>
Operating revenues $ 94,776 $ 5,307 $100,083
Operating income (loss) 29,887 (52) 29,835
Earnings available for common stock 14,501
Three Months Ended September 30, 1999
Operating revenues $ 95,714 $ 4,956 $100,670
Operating income (loss) 28,520 (283) 28,237
Earnings available for common stock 14,195
Nine Months Ended September 30, 2000
Operating revenues $232,719 $28,419 $261,138
Operating income 47,186 592 47,778
Earnings available for common stock 19,902
Nine Months Ended September 30, 1999
Operating revenues $230,523 $34,381 $264,904
Operating income 46,262 4,021 50,283
Earnings available for common stock 23,471
</TABLE>
4. The provisions for income taxes are based on the estimated annual effective
tax rate, which differs from the federal statutory rate of 35% principally due
to: state income taxes, tax credits, effects of utility rate making and certain
non-deductible expense.
5. IPC adopted Statement of Financial Accounting Standards (SFAS) 133,
"Accounting for Derivative Instruments and Hedging Activities," as of July 1,
2000. SFAS 133 requires that every derivative instrument be recorded on the
balance sheet as an asset or liability measured at its fair value and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met.
SFAS 133 requires that as of the date of initial adoption, the difference
between the fair market value of derivative instruments recorded on the balance
sheet and the previous carrying amount of those derivatives be reported in net
income or other comprehensive income, as appropriate, as the cumulative effect
of a change in accounting principle in accordance with Accounting Principles
Board Opinion 20, "Accounting Changes." In the third quarter of 2000, the impact
of IPC adopting SFAS 133 as of July 1, 2000 did not affect net income before
the cumulative effect of a change in accounting principle.
A limited number of IPC's fixed price commodity contracts are defined as
derivatives under SFAS 133. The fair market values of these derivative
instruments have been recorded as assets and liabilities on the balance sheet
and in the transition adjustment in accordance with the transition provisions of
SFAS 133. Future changes in the fair market values of these instruments, to the
extent that the hedges are effective at mitigating the underlying commodity
risk, will be recorded in other comprehensive income. At the date the underlying
transaction occurs, the amounts accumulated in other comprehensive income will
be reported in the Statements of Income. To the extent that the hedges are not
effective, the ineffective portion of the changes in fair market value will be
recorded directly in earnings.
IPC's financial statement impact of recording the various SFAS 133 transactions
at July 1, 2000 was as follows (in thousands):
F-55
<PAGE>
<TABLE>
<CAPTION>
Financial Statement Account Financial Statement Amount Increased
------------------------------------------------------------ ---------------------- --------------------
<S> <C> <C>
Other assets Balance sheet $5.8
Other liabilities Balance sheet 2.4
Cumulative effect of a change in accounting principle
(other comprehensive income) Balance sheet 3.4
</TABLE>
IPC's primary market risk exposures are associated with commodity prices. IPC
has risk management policies to monitor and assist in controlling these market
risks and uses derivative instruments to manage some of the exposures. As of
September 30, 2000, IPC held derivative instruments designated as cash flow
hedging instruments and other derivatives. The cash flow hedging instruments are
comprised of coal purchase and sales contracts which are used to manage the
price of anticipated coal purchases and sales.
For the three and nine months ended September 30, 2000, there was no gain or
loss recognized in earnings representing the amount of hedge ineffectiveness.
IPC did not exclude any components of the derivative instruments' gain or loss
from the assessment of hedge effectiveness and there were no reclasses into
earnings as a result of the discontinuance of hedges.
IPC's derivatives that have not been designated in hedge relationships include
electricity price collars, used to manage energy costs during supply/demand
imbalances. As of September 30, 2000, these derivatives were recorded at their
fair market value as derivative assets, derivative liabilities and regulatory
assets on the Balance Sheets.
6. On March 15, 2000, the boards of directors of IESU and IPC approved a merger
agreement (as amended on November 29, 2000) that will result in IPC merging with
and into IESU (the "Agreement"). Completion of the merger is subject to the
affirmative vote of the IPC common and preferred shareowners voting together as
a single class and the IESU common shareowners and preferred shareowners of each
series voting separately as individual classes. The vote is expected in early
2001. Under the Agreement, each share of IPC common stock outstanding will be
cancelled without payment and each share of IPC preferred stock outstanding will
be cancelled and converted into the right to receive one share of a new class of
IESU Class A preferred stock with substantially identical designations, rights
and preferences as the previously outstanding IPC preferred stock. IPC and IESU
are both wholly-owned operating subsidiaries of Alliant Energy. As such, the
transaction will be accounted for as a common control merger.
The following illustrates the impact of the merger if it had occurred as of
January 1, 1997 (in thousands):
For the nine months
ended September 30,
2000 1999
---- ----
Operating revenues $886,137 $873,290
Earnings available for common stock 79,233 79,764
F-56
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
AS AMENDED
BETWEEN
IES UTILITIES, INC.
AND
INTERSTATE POWER COMPANY
DATED AS OF MARCH 15, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..........................................................2
1.1 EFFECTIVE TIME OF THE MERGER.........................................2
1.2 CLOSING..............................................................2
1.3 EFFECTS OF THE MERGER................................................2
1.4 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION..................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
COMPANIES.....................................................................3
2.1 CANCELLATION OF IPW COMMON STOCK.....................................3
2.2 CONVERSION OF IPW PREFERRED STOCK....................................3
2.3 IES COMMON AND PREFERRED STOCK.......................................4
2.4 DISSENTING SHARES....................................................4
2.5 PAYMENT FOR SHARES...................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................5
3.1 REPRESENTATIONS AND WARRANTIES OF IES................................5
3.2 REPRESENTATIONS AND WARRANTIES OF IPW................................8
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS..........................9
4.1 COVENANTS OF IES AND IPW.............................................9
ARTICLE V ADDITIONAL AGREEMENTS..............................................10
5.1 PREPARATION OF THE REGISTRATION STATEMENT AND JOINT PROXY
STATEMENT/PROSPECTUS................................................10
5.2 ACCESS TO INFORMATION...............................................10
5.3 SHAREHOLDERS' MEETINGS..............................................10
5.4 LEGAL CONDITIONS TO MERGER..........................................10
5.5 EXPENSES............................................................10
5.6 INDEMNIFICATION: DIRECTORS AND OFFICERS.............................11
5.7 ADDITIONAL AGREEMENT: REASONABLE EFFORTS............................11
ARTICLE VI CONDITIONS PRECEDENT..............................................12
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..........12
6.2 NO IPW MATERIAL ADVERSE CHANGES.....................................12
6.3 NO IES MATERIAL ADVERSE CHANGES.....................................13
ARTICLE VII TERMINATION AND AMENDMENT........................................13
7.1 TERMINATION.........................................................13
7.2 EFFECT OF TERMINATION...............................................13
7.3 AMENDMENT...........................................................13
7.4 EXTENSION, WAIVER...................................................13
ARTICLE VIII GENERAL PROVISIONS..............................................13
8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................13
8.2 NOTICES.............................................................13
8.3 INTERPRETATION......................................................14
8.4 COUNTERPARTS........................................................14
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES......................14
8.6 GOVERNING LAW.......................................................14
8.7 SAVING CLAUSE.......................................................14
-i-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 15, 2000 (the
"Agreement"), between IES Utilities, Inc., an Iowa corporation ("IES") and
Interstate Power Company, a Delaware corporation ("IPW").
WHEREAS, upon full consideration of the best interests of IES and IPW,
including a full consideration of certain community interest factors, that is,
the effect of a merger of IES and IPW upon their respective shareholders,
employees, suppliers, creditors, customers and the communities in which each
company operates, both in the long term and the short term; and
WHEREAS, upon full consideration whether the interests of both
companies may be best served by their continued independence.
NOW, THEREFORE, with the approvals of their respective Boards of
Directors and subject to votes of their respective preferred shareholders
required by law, IES and IPW hereby agree to a plan of merger of IPW into IES
(the "Merger"), upon the following terms and conditions:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, certificates and/or articles of merger (the "Articles of Merger")
shall be duly prepared, executed and acknowledged by the Surviving Corporation
(as defined in Section 1.3) and thereafter delivered on the Closing Date (as
defined in Section 1.2) to the respective Secretaries of State of the States of
Iowa, Illinois, Delaware and Minnesota for filing, as provided in the respective
business corporation laws of said states, as soon as practicable on or after the
Closing Date. The Merger shall become effective upon the last filing of the
Articles of Merger by a said Secretary of State or at such time thereafter as is
provided in the Articles of Merger (the "Effective Time").
1.2 Closing. The Closing of the Merger (the "Closing") will take place
on a date (the "Closing Date") to be specified by the parties after satisfaction
or waiver of the latest to occur of the conditions set forth in Article VI at
the offices of IES, 200 First Street, S.E., Cedar Rapids, Iowa 52401, unless
another date or place is agreed to in writing by the parties hereto.
1.3 Effects of the Merger. At the Effective Time, IPW will be merged
into IES (IES and IPW are each sometimes referred to herein as a "Constituent
Company"), and the separate existence of IPW shall cease. IES will be the
surviving corporation (sometimes referred to herein as the "Surviving
Corporation"), to be renamed upon the consummation of the Merger with the filing
of Restated Articles of Incorporation of IES under a new corporate name. The
Articles of Incorporation of IES immediately before the Effective Time shall be
the Articles of Incorporation of the Surviving Corporation, and the Bylaws of
IES as in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation and the Merger shall have all the effects provided by
applicable law.
1.4 Directors and Officers of the Surviving Corporation. The Board of
Directors of the Surviving Corporation shall remain the same as the current
Boards of Directors of IES and IPW and will be composed of: Lee Liu, Chairman of
the Board; Alan B. Arends; Erroll B. Davis, Jr.; Jack B. Evans; Rockne G.
Flowers; Joyce L. Hanes; Katharine C. Lyall; Arnold M. Nemirow; Milton E.
Neshek; Judith D. Pyle; Robert D. Ray; Wayne H. Stoppelmoor, Vice Chairman;
Robert W. Schlutz; and Anthony R. Weiler.
The Officers of the Surviving Corporation shall be:
Enrique Bacalao, Assistant Treasurer
Erroll B. Davis, Jr., Chief Executive Officer
Daniel A. Doyle, VP-Chief Accounting & Financial Planning Officer
Dean E. Ekstrom, VP-Sales and Service
Edward M. Gleason, VP-Treasurer and Corporate Secretary
<PAGE>
William D. Harvey, Executive VP-Generation
Dundeana K. Langer, VP-Customer Services and Operations
Daniel L. Mineck, VP-Performance Engineering and Environmental
Steven F. Price, Assistant Treasurer
Eliot G. Protsch, President
Robert A. Rusch, Assistant Treasurer
Dale R. Sharp, Senior VP-Transmission
Daniel L. Siegfried, Assistant Corporate Secretary
Barbara J. Swan, Executive VP and General Counsel
Thomas M. Walker, Executive VP and Chief Financial Officer
Pamela J. Wegner, Executive VP-Corporate Services
Linda J. Wentzel, Assistant Corporate Secretary
David L. Wilson, VP-Nuclear
Kim K. Zuhke, VP-Customer Operations
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT COMPANIES
2.1 Cancellation of IPW Common Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of IES, IPW or the holders of
the following securities:
(a) Each share of the common stock, par value $3.50 per share of
IPW ("IPW Common Stock"), issued and outstanding immediately prior to
the Effective Time shall be canceled and extinguished without
conversion thereof or payment therefor.
(b) Each share of IPW Common Stock held as treasury stock shall
be canceled and extinguished without conversion thereof or payment
therefor.
2.2 Conversion of IPW Preferred Stock. Subject to Section 2.4
regarding dissenting shares, at the Effective Time, by virtue of the Merger and
without any action on the part of IES, IPW or the holders of the following
securities:
(a) Each share of the cumulative preferred stock, par value
$50.00 per share, of IPW ("IPW Preferred Stock") designated as Series
4.36% (the "4.36% IPW Preferred Stock") shall cease to be outstanding
and shall be converted into and become the right to receive one share
of New IES Preferred Stock, as defined in Section 6.1(a), designated
as Series 4.36% ("Series 4.36% IES Preferred Stock").
(b) Each share of IPW Preferred Stock designated as Series 4.68%
(the "4.68% IPW Preferred Stock") shall cease to be outstanding and
shall be converted into and become the right to receive one share of
New IES Preferred Stock designated as Series 4.68% ("Series 4.68% IES
Preferred Stock").
(c) Each share of IPW Preferred Stock designated as Series 7.76%
(the "7.76% IPW Preferred Stock") shall cease to be outstanding and
shall be converted into and become the right to receive one share of
New IES Preferred Stock designated as Series 7.76% ("Series 7.76% IES
Preferred Stock").
(d) Each share of IPW Preferred Stock designated as Series 6.40%
(the "6.40% IPW Preferred Stock") shall cease to be outstanding and
shall be converted into and become the right to receive one share of
New IES Preferred Stock designated as Series 6.40% ("Series 6.40% IES
Preferred Stock").
(e) Each share of IPW Preferred Stock held as treasury stock
shall be canceled and extinguished without conversion thereof or
payment therefor.
-3-
<PAGE>
2.3 IES Common and Preferred Stock. Subject to Section 2.4 regarding
dissenting shares, at the Effective Time, by virtue of the Merger and without
any action on the part of IES, IPW or the holders of the following securities:
(a) The shares of common stock, par value $2.50 per share, of IES
("IES Common Stock"), issued and outstanding immediately prior to the
Effective Time shall be unaffected by the Merger and, at the Effective
Time, such shares shall remain issued and outstanding as shares of
common stock of the Surviving Corporation.
(b) The shares of IES Preferred Stock, as defined in Section
3.1(b), issued and outstanding immediately prior to the Effective Time
("IES Shares") shall be unaffected by the Merger and, at the Effective
Time, such shares shall remain issued and outstanding as shares of
preferred stock of the Surviving Corporation.
2.4 Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary,
any issued and outstanding shares of any series of IPW Preferred Stock
("IPW Shares") held by a person (an "IPW Dissenting Shareholder") who
does not vote in favor of the Merger and complies with all the
provisions of Delaware law concerning the right of holders of IPW
Shares to require appraisal of their IPW Shares ("IPW Dissenting
Shares") shall not be converted as described in Section 2.2, but shall
become the right to receive such consideration as may be determined to
be due to such IPW Dissenting Shareholder pursuant to Section 262 of
the Delaware General Corporation Law ("DGCL"). If, after the Effective
Time, such IPW Dissenting Shareholder withdraws his, her or its demand
for appraisal or fails to perfect or otherwise loses such IPW
Dissenting Shareholder's right of appraisal, in any case pursuant to
the DGCL, such IPW Dissenting Shareholder's IPW Shares shall be deemed
to be converted as of the Effective Time into the right to receive
shares of New IES Preferred Stock as contemplated by Section 2.2. IPW
shall give IES (i) prompt notice of any demands for appraisal of IPW
Shares received by IPW and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such
demands. IPW shall not, without the prior written consent of IES, make
any payment with respect to, or settle, offer to settle or otherwise
negotiate, any such demands.
(b) Notwithstanding anything in this Agreement to the contrary,
any issued and outstanding IES Shares held by a person (an "IES
Dissenting Shareholder") who does not vote in favor of the Merger and
complies with all the provisions of Iowa law concerning the right of
holders of IES Shares to require appraisal of their IES Shares ("IES
Dissenting Shares") shall have the right to receive such consideration
as may be determined to be due to such IES Dissenting Shareholder
pursuant to Division XIII of the Iowa Business Corporation Act
("IBCA"). If, after the Effective Time, such IES Dissenting
Shareholder withdraws his, her or its demand for appraisal or fails to
perfect or otherwise loses such IES Dissenting Shareholder's right of
appraisal, in any case pursuant to the IBCA, such IES Dissenting
Shareholder's IES Shares shall be deemed to be unaffected by the
Merger and such shares shall remain issued and outstanding as
contemplated by Section 2.3.
2.5 Payment for Shares.
(a) IES shall appoint an agent for the Merger (the "Exchange
Agent"). IES will enter into an exchange agent agreement with the
Exchange Agent, in form and substance reasonably acceptable to IPW,
and shall deposit with the Exchange Agent in trust certificates
representing shares of New IES Preferred Stock for the benefit of
holders of IPW Shares (such certificates being hereinafter referred to
as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, make the conversions provided for in Section
2.2 out of the Exchange Fund.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause the Exchange Agent to mail to each record holder, as of
the Effective Time, of an outstanding certificate or certificates that
immediately prior to the Effective Time represented IPW Shares (the
"Certificates"), a form
-4-
<PAGE>
of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent)
and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of New
IES Preferred Stock as specified in Section 2.2. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of
transmittal duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing
that number of shares of New IES Preferred Stock which such holder is
entitled to receive in respect of the Certificate surrendered pursuant
to this Section 2.5.
(c) Any portion of the Exchange Fund that remains unclaimed by
the holders of IPW Preferred Stock for twelve months after the
Effective Time shall be returned to the Surviving Corporation. Any
holders of IPW Preferred Stock who have not theretofore complied with
this Section 2.5 shall thereafter look only to the Surviving
Corporation for conversion of their IPW Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of IES. IES represents and warrants
to IPW as follows:
(a) Organization, Standing and Power. IES is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Iowa and has all the requisite power and authority to own,
lease and operate its properties and to carry on all its business as
now being conducted.
(b) Capital Structure. As of the date hereof, the authorized
capital stock of IES consists of (i) 24,000,000 shares of IES Common
Stock, (ii) 120,000 shares of 4.30% Cumulative Preferred Stock, par
value $50 per share ("4.30% Preferred Stock"), 146,406 shares of 4.80%
Cumulative Preferred Stock, par value $50 per share ("4.80% Preferred
Stock") and 200,000 shares of Cumulative Preferred Stock, par value
$50 per share, of which 100,000 shares have been designated as Series
6.10% ("6.10% Preferred Stock") (collectively, the "IES Preferred
Stock"), and (iii) 700,000 shares of preference stock, par value $100
per share ("IES Preference Stock"). At the close of business on
September 30, 2000, (i) 13,370,788 shares of IES Common Stock were
outstanding, all of said shares being held by Alliant Energy
Corporation ("Alliant"), (ii) 120,000 shares of 4.30% Preferred Stock,
146,406 shares of 4.80% Preferred Stock, and 100,000 shares of 6.10%
Preferred Stock were outstanding and (iii) no shares of IES Preference
Stock were outstanding. At the close of business on September 30,
2000, no shares of IES Preferred Stock were held by IES or any of its
affiliates, and no bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into securities having the
right to vote) on any matters on which shareholders may vote ("Voting
Debt") were issued or outstanding. All outstanding shares of IES
Common Stock and IES Preferred Stock are validly issued, fully paid
and nonassessable and are not subject to preemptive rights. As of the
date of this Agreement and except as otherwise contemplated herein,
there are no options, warrants, calls, rights, commitments or
agreements of any character to which IES is a party or by which it is
bound obligating IES to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or any Voting
Debt of IES or obligating IES to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
(c) Authority. IES has all the requisite corporate power and
authority to enter into this Agreement and, subject to approval of
this Agreement and the Charter Amendments, as defined herein, by the
requisite vote of the holder of IES Common Stock and the holders of
each class of IES Preferred Stock, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
filing of the Charter Amendments with the Secretary of State of the
State of Iowa and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of IES, subject to such approval as is necessary by the
holder of IES Common Stock and the holders of IES Preferred Stock.
This Agreement has been duly executed and delivered by IES and,
subject to any necessary approval of this Agreement and the Charter
Amendments by the holder of IES Common Stock and the holders of IES
Preferred Stock, constitutes a valid and binding obligation of IES
enforceable in accordance with its terms. Except as contemplated by
the next sentence hereof, the execution and delivery
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of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit
under, or the creation of a lien, pledge, security interest or other
encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, shall
hereinafter be referred to as a "Violation") pursuant to, (A) any
provision of the Articles of Incorporation or Bylaws of IES, (B) any
provision of any loan or credit agreement, note, mortgage, indenture,
lease or other agreement, obligation, instrument, permit, concession,
franchise, license, or (C) any judgment or order, decree, statute,
law, ordinance, rule or regulation applicable to IES or its properties
or assets, which Violation, in the case of each of clauses (B) and
(C), would have a material adverse effect on IES.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), is required by IES in
connection with the execution and delivery of this Agreement by IES or
the consummation by IES of the transactions contemplated hereby, the
failure to obtain which would have a material adverse effect on IES,
except for (i) the filing with the Securities and Exchange Commission
(the "SEC") of (A) the Registration Statement, as defined in Section
3.1(e), (B) a joint proxy statement/prospectus (which will form part
of the Registration Statement) in definitive form relating to the
registration of shares of New IES Preferred Stock and the meetings of
holders of IES and IPW capital stock to be held in connection with the
Merger and related matters (such proxy statement/prospectus as amended
or supplemented is referred to herein as the "Joint Proxy
Statement/Prospectus"), and (C) such reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions
contemplated hereby, (ii) the filing of such documents with, and the
obtaining of such orders from, any state securities authority that are
required in connection with the transactions contemplated by this
Agreement, (iii) such filings, authorizations, orders and approvals as
are required the Iowa Utilities Board, the Minnesota Public Service
Commission, the Illinois Commerce Commission any other similar state
or local Governmental Entity (the "State Utility Commission
Approvals"), (iv) the filing of the Articles of Merger pursuant to
Section 1.1 of this Agreement and the filing of the Charter Amendment
with the Secretary of State of the States of Delaware and Iowa, and
(iv) such filings, authorizations, orders and approvals (the "FERC
Approvals") as are required under the Federal Power Act, as amended,
and (vi) such filings, authorizations, orders and approvals (the
"PUHCA Approvals") as are required under the Public Utility Holding
Company Act of 1935, as amended.
(d) SEC Documents. IES has made available to IPW a true and
complete copy of each report, schedule and registration statement
filed by IES with the SEC since January 1, 1995 (as such documents
have since the time of their filing been amended, the "IES SEC
Documents") which are all the documents (other than preliminary
material) that IES was required to file with the SEC since that date.
As of their respective dates, the IES SEC Documents complied in all
material aspects with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), or the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable
to such IES SEC Documents, and none of the IES SEC Documents contained
any untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of IES included in the IES SEC
Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements to normal, recurring
audit adjustments) the consolidated results of its operations and cash
flows (or changes in financial position prior to the approval of
Statement of Financial Accounting Standards Number 95 ("FASB 95")) for
the periods then ended.
(e) Information Supplied. The information supplied by IES for
inclusion in the registration statement of IES (the "Registration
Statement") pursuant to which the shares of New IES
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Preferred Stock to be issued in the Merger will be registered with the
SEC shall not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading. None of the information
supplied or to be supplied by IES for inclusion or incorporation by
reference in the Joint Proxy Statement/Prospectus will, at the date
mailed to shareholders and at the time of any meeting of the
shareholders to be held in connection with the Merger contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement and the Joint Proxy
Statement/Prospectus will comply as to form in all material respects
with the provisions of the Securities Act, the Exchange Act and the
rules and regulations thereunder.
(f) Compliance with Applicable Laws. IES holds all permits,
licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the
businesses of IES (the "IES Permits"). IES is in compliance with the
terms of the IES Permits, except where failure to comply would not
have a material adverse effect on IES. Except as disclosed in the IES
SEC Documents filed prior to the date of this Agreement, the
businesses of IES are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity, except for
possible violations which individually or in the aggregate do not, and
insofar as reasonably can be foreseen, in the future will not, have a
material adverse effect on IES.
(g) Absence of Certain Changes or Events. Except as disclosed in
the IES SEC Documents filed prior to the date of this Agreement, or in
the unaudited balance sheet of IES at February 29, 2000, and the
related statements of income, cash flows and changes in shareholders'
equity (the "2000 IES Financials"), true and correct copies of which
have been delivered to IPW, or except as contemplated by this
Agreement, since the date of the 2000 IES Financials, there has been
no material adverse change in the business, or the financial or other
condition of IES.
(h) Vote Required. The affirmative votes of the holder of IES
Common Stock and of the holders of a majority of the outstanding
shares eligible to vote of each of the 4.30% Preferred Stock, 4.80%
Preferred Stock, and 6.10% Preferred Stock, each of the three classes
voting separately as an individual class, are the only votes of the
holders of any classes or series of IES capital stock necessary to
approve this Agreement and the transactions contemplated hereby,
according to the rights granted to the holders of the IES Common
Stock, the 4.30% Preferred Stock, the 4.80% Preferred Stock and the
6.10% Preferred Stock in IES's Articles of Incorporation. The
affirmative votes of the holder of IES Common Stock and of the holders
of a majority of the outstanding shares eligible to vote and in
attendance at the IES shareholder meeting of each of the 4.30%
Preferred Stock, 4.80% Preferred Stock, and 6.10% Preferred Stock,
each of the three classes voting separately as an individual class,
are the only votes of the holders of any classes or series of IES
capital stock necessary to approve the Charter Amendment according to
the rights granted to the holders of the IES Common Stock 4.30%
Preferred Stock, the 4.80% Preferred Stock and the 6.10% Preferred
Stock in IES's Articles of Incorporation.
3.2 Representations and Warranties of IPW. IPW represents and warrants
to IES as follows:
(a) Organization, Standing and Power. IPW is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all the requisite power and authority to
own, lease and operate its properties and to carry on all its business
as now being conducted.
(b) Capital Structure. As of the date hereof, the authorized
capital stock of IPW consists of (i) 30,000,000 shares of IPW Common
Stock, (ii) 2,000,000 shares of cumulative preferred stock, par value
$50.00 per share, of IPW ("IPW Preferred Stock"), including 200,000
shares designated as 4.36% IPW Preferred Stock, 166,000 shares
designated as 4.68% IPW Preferred Stock, 100,000 shares designated as
7.76% IPW Preferred Stock and 545,000 shares designated as 6.40% IPW
Preferred Stock, and (iii) 2,000,000 shares of preference stock, par
value of $1 per share ("IPW Preference Stock"). At the
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close of business on September 30, 2000 (i) 9,777,432 shares of IPW
Common Stock were outstanding, all of said shares being held by
Alliant, (ii) 60,455 shares of 4.36% IPW Preferred Stock, 55,926
shares of 4.68% IPW Preferred Stock, 100,000 shares of 7.76% IPW
Preferred Stock, and 545,000 shares of 6.40% IPW Preferred Stock were
outstanding and (iii) no shares of IPW Preference Stock were
outstanding. At the close of business on September 30, 2000, no shares
of IPW Preferred Stock were held by IPW or any of its affiliates, and
no Voting Debt was issued or outstanding. All outstanding shares of
IPW Common Stock and IPW Preferred Stock are validly issued, fully
paid and nonassessable and are not subject to preemptive rights. As of
the date of this Agreement, there are no options, warrants, calls,
rights, commitments or agreements of any character to which IPW is a
party or by which it is bound obligating IPW to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or any Voting Debt of IPW or obligating IPW to grant,
extend or enter into any such option, warrant, call, right, commitment
or agreement.
(c) Authority. IPW has all the requisite corporate power and
authority to enter into this Agreement and, subject to approval of the
Merger by a majority of the shares outstanding and eligible to vote of
the combined class of IPW Common Stock and IPW Preferred Stock, to
consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of IPW, subject to such approval as is
necessary by the holders of IPW Common Stock and IPW Preferred Stock.
This Agreement has been duly executed and delivered by IPW and,
subject to any necessary approval of this Agreement by the holders of
IPW Common Stock and IPW Preferred Stock, constitutes a valid and
binding obligation of IPW enforceable in accordance with its terms.
Except as contemplated by the next sentence hereof, the execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, result in any Violation of
(A) any provision of the Articles of Incorporation or Bylaws of IPW,
(B) any provision of any loan or credit agreement, note, mortgage,
indenture, lease or other agreement, obligation, instrument, permit,
concession, franchise, license, or (C) any judgment or order, decree,
statute, law, ordinance, rule or regulation applicable to IPW or its
properties or assets, which Violation, in the case of each of clauses
(B) and (C), would have a material adverse effect on IPW.
No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by IPW
in connection with the execution and delivery of this Agreement by IPW
or the consummation by IPW of the transactions contemplated hereby,
the failure to obtain which would have a material adverse effect on
IPW, except for (i) the State Utility Commission Approvals, (ii) the
filing of the Articles of Merger pursuant to Section 1.1 of this
Agreement, (iii) the FERC Approvals, and (vi) the PUHCA Approval.
(d) Intentionally Omitted.
(e) Information Supplied. The information supplied by IPW for
inclusion in the Registration Statement shall not at the time the
Registration Statement is declared effective contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. None of the information supplied or
to be supplied by IPW for inclusion in the Joint Proxy
Statement/Prospectus will, at the date the Joint Proxy
Statement/Prospectus is mailed to shareholders or at the time of any
meetings of the shareholders to be held in connection with the Merger
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading.
(f) Compliance with Applicable Laws. IPW holds all permits,
licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the
businesses of IPW (the "IPW Permits"). IPW is in compliance with the
terms of the IPW Permits, except where failure to comply would not
have a material adverse effect on IPW. The businesses of IPW are not
being conducted in violation of any law, ordinance or regulation of
any Governmental Entity, except for
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possible violations which individually or in the aggregate do not, and
insofar as reasonably can be foreseen, in the future will not, have a
material adverse effect on IPW.
(g) Absence of Certain Changes or Events. Except as disclosed in
the IPW SEC Documents filed prior to the date of this Agreement, or in
the unaudited balance sheet of IPW at February 29, 2000, and the
related statements of income, cash flows and changes in shareholders'
equity (the "2000 IPW Financials"), true and correct copies of which
have been delivered to IES, or except as contemplated by this
Agreement, since the date of the 2000 IPW Financials, there has been
no material adverse change in the business, or the financial or other
condition of IPW.
(h) Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares eligible to vote of the combined
class of IPW Common Stock and IPW Preferred Stock, each share getting
one vote, is the only vote of the holders of any classes or series of
IPW capital stock necessary to approve this Agreement, the Merger and
the transactions contemplated hereby, according to the rights granted
to the holders of the IPW Common Stock and IPW Preferred Stock in
IPW's Restated Certificate of Incorporation.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of IES and IPW. During the period from the date of this
Agreement and continuing until the Effective Time, IES and IPW each agree that
(except as expressly contemplated or permitted by this Agreement or to the
extent the other party shall otherwise consent in writing):
(a) Ordinary Course. Each party shall carry on its respective
business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted to the end that its goodwill
and ongoing business shall not be impaired in any material respect at
the Effective Time.
(b) Governing Documents. No party shall amend or propose to amend
its Certificate or Articles of Incorporation or Bylaws.
(c) Filings with Governmental Entities. Each party shall promptly
provide the other copies of all filings made by such party with any
state or federal Governmental Entity in connection with this Agreement
and the transactions contemplated hereby.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of the Registration Statement and Joint Proxy
Statement/Prospectus. IES and IPW shall promptly prepare and IES shall promptly
file with the SEC the Registration Statement, including the Joint Proxy
Statement/Prospectus as a part thereof.
5.2 Access to Information. Upon reasonable notice, IES and IPW shall
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, IES and IPW shall furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of Federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request.
5.3 Shareholders' Meetings. IES and IPW shall take the following steps
necessary to obtain the requisite approvals of the Merger, the Charter
Amendments and the transactions contemplated hereby:
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(a) IES shall obtain the consent of the sole holder of IES Common
Stock, approving this Agreement, the Charter Amendments and the
transactions contemplated hereby.
(b) IES shall call a meeting of the holders of IES Preferred
Stock to be held as promptly as practicable for the purpose of voting
upon this Agreement, the Charter Amendments and the transactions
contemplated hereby. IES will, through its Board of Directors,
recommend that the holders of IES Common Stock and IES Preferred Stock
vote to approve this Agreement, the Charter Amendments and the
transactions contemplated hereby.
(c) IPW shall call a meeting of the holders of the combined class
of IPW Common Stock and IPW Preferred Stock to be held as promptly as
practicable for the purpose of voting upon this Agreement and the
transactions contemplated hereby. IPW will, through its Board of
Directors, recommend the holders of IPW Common Stock and IPW Preferred
Stock vote to approve this Agreement and the transactions contemplated
hereby.
5.4 Legal Conditions to Merger. Each of IES and IPW will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on itself with respect to the Merger (including furnishing
all information in connection with the FERC and State Utility Commission
Approvals and in connection with the approval of or filings with any other
Governmental Entity) and will promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon either of them
in connection with the Merger. IES and IPW will take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party, required to be
obtained or made by IES or IPW in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement.
5.5 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be shared by IES and IPW based upon a ratio of assets,
revenues and operating expenses, regardless of which company actually incurs
such costs and expenses.
5.6 Indemnification: Directors and Officers. Each of the Constituent
Companies shall, and from and after the Effective Time the Surviving Corporation
shall, indemnify, defend and hold harmless each person who is now, or had been
at any time prior to the date hereof or who becomes prior to the Effective Time,
an officer, director or employee of the Surviving Corporation or a Constituent
Company or any of their subsidiaries (the "Indemnified Parties") against (i) all
losses, claims, damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement with the approval of the indemnifying party (which
approval shall not be unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such a person is or was a
director, officer or employee of such Constituent Company, the Surviving
Corporation, or any subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Time ("Indemnified Liabilities") and (ii)
all Indemnified Liabilities based in whole or in part on, or arising in whole or
in part out of, or pertaining to this Agreement or the transactions contemplated
hereby, the fullest extent permitted by law (and the Surviving Corporation will
pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law).
Without limited the foregoing, in the event any such claim, action,
suit, proceeding, or investigation is brought against any Indemnified Party
(whether arising before or after the Effective Time), (i) the Indemnified
Parties may retain counsel satisfactory to them and such Constituent Company (or
them and the Surviving Corporation after the Effective Time); (ii) such
Constituent Company (or after the Effective Time, the Surviving Corporation)
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; and (iii) such Constituent
Company (or after the Effective Time, the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither such Constituent Company nor the Surviving Corporation
shall be liable for any settlement of any claim effected without its written
consent, which consent, however, shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section 5.6, upon
learning of any such claim, action, suit, proceeding or
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investigation, shall notify the Constituent Company or the Surviving Corporation
(but the failure to so notify a party shall not relieve such party from any
liability which it may have under this Section 5.6 except to the extent such
failure prejudices such party). The Indemnified Parties as a group may retain
only one law firm to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
The provisions of this Section 5.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, and the heirs and
representatives of each Indemnified Party.
5.7 Additional Agreement: Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of the holders of IES and IPW
Preferred Stock described in Section 6.1(a), including cooperating fully with
the other party, including by providing information and making all necessary
filings in connection with, among other things, the FERC Approvals and the State
Utility Commission Approvals. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either
Constituent Company, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Shareholder Approval. This Agreement shall have been approved
by the shareholders of IES and IPW, as provided in Sections 3.1(h) and
Section 3.2(h), respectively, and the amendments to the IES Articles
of Incorporation, authorizing a new class of IES Class A Preferred
Stock, with terms substantially identical to the IPW Preferred Stock
under the IPW Certificate of Incorporation ("New IES Preferred
Stock"), shall have been approved by the shareholders of IES, as
provided in Section 3.1(h).
(b) Other Approvals. Other than the filing provided for by
Section 1.1, all authorizations, consents, orders or approvals of, or
declarations or filings with any Governmental Entity the failure to
obtain or make which could have a material adverse effect on the
Surviving Corporation shall have been filed, obtained or made,
including but not limited to the FERC Approvals and State Utility
Commission Approvals. IES shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to consummate
the Merger.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in
effect.
(d) Taxes. Counsel to IES and IPW shall have delivered its
opinion to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended, and that IES
and IPW will each be a party to that reorganization within the meaning
of Section 368(b) of such Code.
(e) Consents Under Agreements. IES and IPW shall have obtained
the consent or approval of each person (other than the Governmental
Entities referred to in Section 6.1(b)) whose consent or approval
shall be required in order to permit the succession by the Surviving
Corporation pursuant to the Merger to any obligation, right or
interest of IES or IPW under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument, except
those for which failure to obtain such
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consents and approvals would not, in the reasonable opinion of IES or
IPW, as the case may be, have a material adverse effect on the
Surviving Corporation or upon the consummation of the transactions
contemplated hereby.
(f) Representations and Warranties. The respective
representations and warranties of IES and IPW set forth in this
Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date.
(g) Designation of Series of New IES Preferred Stock. The Board
of Directors of IES shall have designated the following series of New
IES Preferred Stock: 4.36% IES Preferred Stock, 4.68% IES Preferred
Stock, 7.76% IES Preferred Stock and 6.40% IES Preferred Stock. The
amendment of the IES Articles of Incorporation creating the New IES
Preferred Stock as contemplated by Section 6.1(a) and the action of
the Board of Directors of IES designating the new series of the New
IES Preferred Stock are collectively referred to herein as the
"Charter Amendments."
6.2 No IPW Material Adverse Changes. The obligations of IES to effect
the Merger are also subject to the condition that, since the date of this
Agreement, there has not been any change in the financial condition, results of
operations or business of IPW, that either individually or in the aggregate
would have a material adverse effect on IPW. IES shall have received a
certificate of the President and the Chief Financial Officer of IPW to that
effect.
6.3 No IES Material Adverse Changes. The obligations of IPW to effect
the Merger are also subject to the condition that, since the date of this
Agreement, there has not been any change in the financial condition, results of
operations or business of IES, that either individually or in the aggregate
would have a material adverse effect on IES. IPW shall have received a
certificate of the President and the Chief Financial Officer of IES to that
effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of IES or IPW, by consent of IES
and IPW.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of IES or IPW or their
respective officers or directors.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of IES or of IPW, but, after any such approval, no material
amendment shall be made without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension, Waiver. At any time prior to the Effective Time, the
parties hereto, by action duly taken, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, except those in
Sections 5.6 and 5.7..
8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given when personally delivered, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses:
(1) if to IES, to: IES Utilities, Inc.
200 First Street, S.E.
Cedar Rapids, Iowa 52401
Attention: President
(2) if to IPW, to: Interstate Power Company
1000 Main Street
Dubuque, Iowa 52004
Attention: President
8.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to March 15, 2000.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 5.6, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Iowa.
8.7 Saving Clause. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, each term and condition of this Agreement is deemed
to have independent effect and the invalidity of any partial or whole paragraph
or article shall not invalidate the remaining paragraphs or articles.
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<PAGE>
IN WITNESS WHEREOF, IES and IPW have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
IES UTILITIES, INC.
By: /s/ Eliot G. Protsch
---------------------------------
Name: Eliot G. Protsch
Title: President
INTERSTATE POWER COMPANY
By: /s/ Dale R. Sharp
---------------------------------
Name: Dale R. Sharp
Title: President
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<PAGE>
Appendix B
IOWA Business Corporation Act
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII.
In this division:
1. "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as a record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 490.1302 and who exercises that right when and in the
manner required by Sections 490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares to the
extent of the rights granted by a nominee certificate on file with a
corporation.
"Shareholder" means the record shareholder or the beneficial shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.
1. A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
a. Consummation of a plan of merger to which the corporation is a party
if either of the following apply:
(1) Shareholder approval is required for the merger by Section
490.1103 or the articles of incorporation and the shareholder is
entitled to vote on the merger.
(2) The corporation is a subsidiary that is merged with its parent
under Section 490.1104.
b. Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
<PAGE>
c. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale
or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within one year after the date of
sale.
d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it
does any or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the
redemption or repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting
rights.
(5) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Section 490.604.
(6) Extends, for the first time after being governed by this chapter,
the period of duration of a corporation organized under Chapter
491 or 496A and existing for a period of years on the day
preceding the date the corporation is first governed by this
chapter.
(7) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their
shares.
2. A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this chapter is not entitled to challenge the corporate action
creating the shareholder's entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
1. A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in that shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person
and notifies the corporation in writing of the name and address of each
person on whose behalf the shareholder asserts dissenters' rights. The
rights of a partial dissenter under this subsection are determined as if
the shares as to which the shareholder dissents and the shareholder's other
shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to shares held on
the shareholder's behalf only if the shareholder does both the following:
a. Submits to the corporation the record shareholder's written consent to
the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has
power to direct the vote.
490.1304 through 490.l319 Reserved.
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<PAGE>
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.
1. If proposed corporate action creating dissenters' rights under Section
490.1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this part and be accompanied by a copy of this
part.
2. If corporate action creating dissenters' rights under Section 490.1302 is
taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.
1. If proposed corporate action creating dissenters' rights under Section
490.1302 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice of
the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the proposed
action.
2. A shareholder who does not satisfy the requirements of subsection 1, is not
entitled to payment for the shareholder's shares under this part.
490.1322 DISSENTERS' NOTICE.
1. If proposed corporate action creating dissenters' rights under Section
490.1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if
the corporate action is taken without a vote of the shareholders, no later
than ten days after the corporate action is taken, and must do all of the
following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received.
c. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of
the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired
beneficial ownership of the shares before that date.
d. Set a date by which the corporation must receive the payment demand,
which date shall not be fewer than thirty nor more than sixty days
after the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT.
1. A shareholder sent a dissenters' notice described in Section 490.1322 must
demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
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<PAGE>
dissenters' notice pursuant to Section 490.1322, Subsection 2, Paragraph
"c", and deposit the shareholder's certificates in accordance with the
terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's shares
under Subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS.
1. The corporation may restrict the transfer of uncertificated shares from the
date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Section 490.1326.
2. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
490.1325 PAYMENT.
1. Except as provided in Section 490.1327, at the time the proposed corporate
action is taken, or upon receipt of a payment demand, whichever occurs
later, the corporation shall pay each dissenter who complied with Section
490.1323 the amount the corporation estimates to be the fair value of the
dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment under Section
490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION.
1. If the corporation does not take the proposed action within one hundred
eighty days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 490.1322 as if the corporate action was
taken without a vote of the shareholders and repeat the payment demand
procedure.
490.1327 AFTER ACQUIRED SHARES.
1. A corporation may elect to withhold payment required by Section 490.1325
from a dissenter unless the dissenter was the beneficial owner of the
shares before the date set forth in the dissenters' notice as the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action.
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<PAGE>
2. To the extent the corporation elects to withhold payment under Subsection
1, after taking the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the
dissenter's demand. The corporation shall send with its offer a statement
of its estimate of the fair value of the shares, and explanation of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under Section 490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
1. A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
Section 490.1325, or reject the corporation's offer under Section 490.1327
and demand payment of the fair value of the dissenter's shares and interest
due, if any of the following apply:
a. The dissenter believes that the amount paid under Section 490.1325 or
offered under Section 490.1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under Section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set
for demanding payment.
2. A dissenter waives the dissenter's right to demand payment under this
Section unless the dissenter notifies the corporation of the dissenter's
demand in writing under Subsection 1 within thirty (30) days after the
corporation made or offered payment for the dissenter's shares.
490.1329 RESERVED.
PART C
490.1330 COURT ACTION.
1. If a demand for payment under Section 490.1328 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving
the payment demand and petition the court to determine the fair value of
the shares and accrued interest. If the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of the
county where a corporation's principal office or, if none in this state,
its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
3. The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
Subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil
proceedings.
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<PAGE>
5. Each dissenter made a party to the proceeding is entitled to judgment for
either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under Section 490.1327.
6. Notwithstanding the provisions of this division, if the corporation is a
bank holding company as defined in section 524.1801, fair value, at the
election of the bank holding company, may be determined as provided in
section 524.1406, subsection 3, prior to giving notice under section
490.1320 or 490.1322. The fair value as determined shall be included in any
notice under section 490.1320 or 490.1322, and section 490.1328 shall not
apply.
490.1331 COURT COSTS AND COUNSEL FEES.
1. The court in an appraisal proceeding commenced under Section 490.1330 shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
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<PAGE>
Appendix C
DELAWARE General Corporation Law
TITLE 8 CORPORATIONS
SUBCHAPTER XI. MERGER, CONSOLIDATION OR CONVERSION.
262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251 (other than a merger effected pursuant to ss.251(g)
of this title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss.251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss.228 or
ss.253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
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(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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Appendix D
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IES UTILITIES INC.
ARTICLE I
The name of the Corporation is IES Utilities Inc.
ARTICLE II
1. Section 1 of Article IV of the Corporation's Articles of Incorporation is
amended by deleting the existing Section 1 of Article IV and by inserting
the following in lieu thereof:
Section 1. The authorized capital stock of the Corporation shall consist of
25,927,787 shares, of which 146,406 shall be 4.80% Cumulative Preferred
Stock of the par value of $50 each, 120,000 shares shall be 4.30%
Cumulative Preferred Stock of the par value of $50 each, 200,000 shares
shall be Cumulative Preferred Stock of the par value of $50 each issuable
in series as hereinafter provided, 761,381 shares shall be Class A
Preferred Stock of the par value of $50 each issuable in series as
hereinafter provided, 700,000 shares shall be Cumulative Preference Stock
of the par value of $100 each issuable in series as hereinafter provided
and 24,000,000 shares shall be Common Stock of the par value of $2.50 each.
2. Section 2 of Article IV of the Corporation's Articles of Incorporation is
amended by inserting the following after the designations, rights,
preferences and conditions of the Cumulative Preferred Stock of the
Corporation (including the designations, rights, preferences and conditions
of the 6.10% Series Cumulative Preferred Stock) but before the
designations, rights, preferences and conditions of the Cumulative
Preference Stock of the Corporation:
CLASS A PREFERRED STOCK
This portion of Section 2 of Article IV of these Articles of
Incorporation titled "Class A Preferred Stock" is hereinafter referred to as the
"Class A Part."
I. The Class A Preferred Stock may be issued at any time or from time
to time in any amount, not exceeding in the aggregate (including all shares of
any and all series thereof theretofore issued) the total number of shares of
Class A Preferred Stock hereinabove authorized, as Class A Preferred Stock of
one or more series, as hereinafter provided. All Shares of any one series of
Class A Preferred Stock shall be alike in every particular, each series thereof
shall be distinctly designated by letter or descriptive words, and all series of
Class A Preferred Stock shall rank equally and be identical in all respects
except as permitted by the provisions of Paragraph II of this Class A Part.
II. Authority is hereby expressly granted to and vested in the Board
of Directors at any time or from time to time to issue the Class A Preferred
Stock as Class A Preferred Stock of any series, and in connection with the
creation of each such series to fix by the resolution or resolutions providing
for the issue of shares thereof, the designations and the preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of such series, to the full extent now or
hereafter permitted by the laws of the State of Iowa, in respect to the matters
set forth in the following subparagraphs (a) to (g), inclusive:
<PAGE>
(a) The distinctive designation of such series and the
number of shares which shall constitute such series, which number may
be increased or decreased (but not below the number of shares thereof
then outstanding) from time to time by resolution of the Board of
Directors;
(b) The dividend rate per annum of such series, the
quarterly payment dates for dividends on shares of such series, and
the date from which dividends on shares of such series shall be
cumulative (hereinafter called the "date of cumulation"), which date
of cumulation shall be identical for all shares of such series;
(c) The price or prices at which, and the terms and
conditions on which, the shares of such series may be redeemed at the
option of the Corporation (hereinafter called the "optional redemption
price");
(d) The amount or amounts payable upon the shares of such
series in the event of voluntary liquidation, dissolution or winding
up of the Corporation;
(e) Whether or not the shares of such series shall be
entitled to the benefit of a sinking fund or a purchase fund to be
applied to the purchase or redemption of shares of such series, and if
so entitled, the amount of such fund and the manner of its
application, including the price or prices at which the shares of such
series may be redeemed or purchased through the application of such
fund;
(f) Whether or not the shares of such series shall be made
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any class or classes of
stock of the Corporation and, if made so convertible or exchangeable,
the conversion price or prices, or the rates of exchange, and the
adjustments thereof, if any, at which such conversion or exchange may
be made, and any other terms and conditions of such conversion or
exchange; and
(g) Whether or not the issue of any additional shares of
such series, or any future series in addition to such series, or of
any shares of any other class of stock (except junior stock, as
hereinafter in this Class A Part defined) of the Corporation shall be
subject to restrictions and, if so, the nature thereof.
III. Series.
IV. Out of the net profits or net assets of the Corporation legally
available for dividends the holders of Class A Preferred Stock of each series
shall be entitled to receive, in preference to the Common Stock but pari passu
with any additional class of cumulative preferred stock heretofore authorized or
which may hereafter be authorized pursuant to the provisions of Paragraph 10 of
Section 2 of Article IV of these Articles of Incorporation, when and as declared
by the Board of Directors, dividends at the per annum rate for such series fixed
by the Board of Directors pursuant to the Paragraph II of this Class A Part, and
no more, payable quarterly on the dates fixed by the Board of Directors pursuant
to said Paragraph II for such series, in each case from the date of cumulation
of such series; and such dividends shall be cumulative (whether or not in any
dividend period or periods there shall be net profits or net assets of the
Corporation legally available for the payment of such dividends), so that, if at
any time full cumulative dividends, as hereinafter in this Class A Part defined,
to the end of the then current dividend period upon the outstanding Class A
Preferred Stock of all series shall not have been paid or declared and set apart
for payment, the amount of the deficiency shall be fully paid, but without
interest, or dividends in such amount declared on each such series and set apart
for payment, before interest, or dividends in such amount declared on each such
series and set apart for payment, before any sum or sums shall be set aside for
or applied to the purchase or redemption of Class A Preferred Stock of any
series and before any dividend shall be declared or paid upon or set apart for,
or any other distribution shall be ordered or made in respect of, any junior
stock and before any shares of junior stock shall be purchased, redeemed or
otherwise acquired for value (except in exchange for or with the proceeds of the
issue of other junior stock) by the Corporation.
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All dividends declared on the Class A Preferred Stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Class A Preferred Stock of different series shall in all cases bear to each
other the same proportions that the respective dividend rates of such respective
series bear to each other.
V. After full cumulative dividends to the end of the then current
dividend period upon the outstanding Class A Preferred Stock of all series shall
have been paid or declared and set apart for payment, the Corporation shall set
aside as a sinking fund or purchase fund, when and as required, out of any funds
legally available for that purpose, in respect of each series of Class A
Preferred Stock any shares of which shall at the time be outstanding and in
respect of which a sinking fund or purchase fund for the purchase or redemption
thereof has been provided for in the resolution or resolutions referred to in
Paragraph II of this Class A Part, the sum or sums required by the terms of such
resolution or resolutions as a sinking fund or purchase fund to be applied in
the manner specified therein.
VI. Out of any net profits or net assets of the Corporation legally
available for dividends remaining after full cumulative dividends to the end of
the then current dividend period upon the outstanding Class A Preferred Stock of
all series shall have been paid or declared and set apart for payment and after
the Corporation shall have complied or made provision for compliance with the
provisions of the foregoing Paragraph V of this Class A Part in respect of any
and all amounts then or theretofore required to be set aside or applied in
respect of any sinking fund or purchase fund mentioned in said Paragraph V, then
and not otherwise, the holders of any junior stock shall, subject to the
provisions hereof and of any resolution or resolutions of the Board of Directors
with respect to any series of Class A Preferred Stock adopted pursuant to
Paragraph II of this Class A Part, be entitled to receive such dividends as may
from time to time be declared by the Board of Directors.
In the event of the issue of additional Class A Preferred Stock of any
then existing series, all dividends paid on Class A Preferred Stock of such
series prior to the issue of such additional Class A Preferred Stock and all
dividends declared and payable to holders of record of Class A Preferred Stock
of such series on any date prior to such additional issue shall be deemed to
have been paid on the additional Class A Preferred Stock so issued.
VII. So long as any shares of the Class A Preferred Stock of any
series shall be outstanding, the right of the Corporation to make any
distribution on junior stock, as hereinafter in this Class A Part defined, shall
be subject to the following limitations:
(a) If and so long as the junior stock equity ratio, as
hereinafter in this Class A Part defined, is 20% or more but less than
25%, the Corporation shall not make, during the twelve months' period
ending with and including the date of any proposed distributions on
junior stock, distributions on junior stock (including the proposed
distribution on junior stock) exceeding in aggregate amount 75% of the
consolidated net income of the Corporation and its subsidiaries, as
hereinafter in this Class A Part defined, for the twelve months'
period ending with and including the second calendar month preceding
the date on which the Board of Directors shall authorize such proposed
distribution on junior stock; and
(b) If and so long as the junior stock equity ratio is less
than 20%, the Corporation shall not make, during the twelve months'
period ending with and including the date of any proposed distribution
on junior stock, distributions on junior stock (including the proposed
distribution on junior stock) exceeding in aggregate amount 50% of the
consolidated net income of the Corporation and its subsidiaries for
the twelve months' period ending with and including the second
calendar month preceding the date on which the Board of Directors
shall authorize such proposed distribution on junior stock.
Voting Rights of Class A Preferred Stock - -
Certain Voting Rights of Class A Preferred Stock as to Directors
VIII. Except as otherwise required by the statutes of the State of
Iowa and as otherwise provided in this Class A Part, the holders of the Class A
Preferred Stock and the holders of the Common Stock shall vote together as one
class on all matters submitted to a vote of stockholders of the Corporation,
with each share of Class A Preferred Stock and each share of Common Stock being
entitled to one vote. Notwithstanding the foregoing, if and whenever full
cumulative dividends for four (4) quarterly dividend periods upon any series of
Class A Preferred
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Stock shall be unpaid, the holders of the Class A Preferred Stock and of other
shares of preferred stock ranking pari passu therewith, voting as a class, shall
be entitled to elect a majority of the total number of directors, and the
holders of Common Stock, voting as a separate class, shall be entitled to elect
the remaining directors. Whenever the right shall vest in the holders of the
Class A Preferred Stock and of other shares of preferred stock ranking pari
passu therewith to elect such directors, the Board of Directors shall, at least
fifteen days prior to such annual meeting at which such dividends remain accrued
and unpaid, cause to be mailed to each stockholder, at his last known post
office address as shown on the stock records of the Corporation, a notice to
this effect. At all meetings of stockholders where the holders of the Class A
Preferred Stock and of other preferred stock ranking pari passu therewith shall
have such right to elect such directors, the presence in person or by proxy of
the holders of a majority of the aggregate number of outstanding shares of Class
A Preferred Stock shall be required to constitute a quorum for the election of
such directors; further provided, however, that the absence of a quorum of the
holders of Class A Preferred Stock shall not prevent the election at any such
meeting or adjournments thereof of directors in the usual manner by the holder
of Common Stock if the necessary quorum of the holders of Common Stock is
present in person or by proxy at such meeting. When all dividends accrued and
unpaid on the Class A Preferred Stock shall have been paid or declared and set
apart for payment, holders of Class A Preferred Stock and of other preferred
stock ranking pari passu therewith shall at the next annual meeting be divested
of their rights in respect of such election of a majority of the directors, and
the voting power of the holders of the Class A Preferred Stock and of other
preferred stock ranking pari passu therewith and the holders of the Common Stock
shall revert to the status existing before the first dividend payment date on
which dividends on the Class A Preferred Stock were not paid in full; but always
subject to the same provisions for vesting such special rights in the holders of
the Class A Preferred Stock and of other preferred stock ranking pari passu
therewith in the event dividends on the Class A Preferred Stock shall again
become accrued and unpaid in an amount equal to four quarterly dividends.
Vacancies among directors elected by holders of Class A Preferred Stock and of
other preferred stock ranking pari passu therewith during any period for which
directors shall have been so elected shall not be filled until the next annual
or special meeting for the election of directors, by the vote of a majority of
the remaining directors elected by the holders of Class A Preferred Stock and of
other preferred stock ranking pari passu therewith. Vacancies among directors
elected by the Common Stock shall be filled by the vote of a majority of the
remaining directors elected by the holders of Common Stock until the next annual
meeting for the election of directors or special meeting in lieu thereof.
Certain Voting Rights of Class A Preferred Stock
IX. So long as any shares of the Class A Preferred Stock of any series
shall be outstanding, the Corporation shall not, without the consent by vote or
in writing of the holders of a majority of the shares of the Class A Preferred
Stock of all series at the time outstanding, considered as a class without
regard to series,
(a) Sell all or substantially all its assets or consolidate
or merge with or into any other corporation or corporations, except
that no such consent or vote shall be required if such sale,
consolidation or merger or the issuance or assumption of all
securities to be issued or assumed in connection with such sale,
consolidation or merger shall have been approved, permitted or ordered
by the Securities and Exchange Commission or by any successor
commission or by any regulatory authority of the United States of
America having jurisdiction over such sale, consolidation or merger or
the issuance or assumption of securities in connection therewith;
provided, however, that the provisions of this subparagraph (a) shall
not apply to (i) a consolidation of the Corporation with, or a merger
into the Corporation of, any subsidiary of the Corporation, or (ii)
the purchase or other acquisition by the Corporation of the franchises
or assets of another corporation in any manner which does not involve
a consolidation or merger under the laws of the State of Iowa; the
term "subsidiary" as used in this subparagraph (a) shall mean any
corporation all of the outstanding shares of stock of which (except
directors' qualifying shares) at the time shall be owned directly or
indirectly by the Corporation or by a wholly-owned subsidiary of the
Corporation; or
(b) Increase the total authorized amount of Class A
Preferred Stock, or authorized any other preferred stock on a parity
therewith with respect to the payment of dividends or the distribution
of assets upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary; or
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(c) Issue any additional shares of preferred stock
(including the reissuance of reacquired preferred stock) ranking on a
parity with the outstanding shares of Class A Preferred Stock either
as to the payment of dividends or as to the distribution of assets
unless (i) the consolidated gross income of the Corporation and its
subsidiaries (after all taxes including taxes based on income) for 12
consecutive calendar months within a period of 15 calendar months
immediately preceding the date of such issuance is equal to at least
one and one-half times the aggregate of all interest charges on
indebtedness of the Corporation and its subsidiaries on a consolidated
basis (excluding interest charges on indebtedness to be retired by the
application of the proceeds from the issuance of such preferred stock)
and the annual dividend requirements on all preferred stock of the
Corporation and its subsidiaries on a consolidated basis (including
dividend requirements on all preferred stock ranking as to dividends
or assets prior to or on a parity with the preferred stock to be
issued) which will be outstanding immediately after the issuance of
such preferred stock; and unless (ii) the aggregate par value, or
stated capital represented by the outstanding shares of the junior
stock of the Corporation, including premiums thereon plus any surplus
of the Corporation is equal to at least the aggregate amount payable
in connection with an involuntary liquidation of the Corporation with
respect to all shares of the Class A Preferred Stock and all shares of
stock, if any, ranking prior thereto or on a parity therewith as to
dividends or assets, which will be outstanding immediately after the
issuance of such preferred stock. If for the purpose of meeting the
requirements of clause (c)(ii) immediately preceding it shall have
been necessary to take into consideration any earned surplus of the
Corporation, the Corporation shall not thereafter pay any dividends
on, or make any distributions in respect of, or purchase or otherwise
acquire, junior stock which would result in reducing the junior stock
equity to an amount less than the amount payable on involuntary
liquidation of the Corporation with respect to all shares of the Class
A Preferred Stock and all shares ranking prior to or on a parity with
the Class A Preferred Stock as to dividends and assets at the time
outstanding. If, during the period for which gross income is to be
determined for the purpose set forth in clause (c)(ii) above, the
amount required to be expended by the Corporation pursuant to a
maintenance fund or similar fund established under its mortgage
indenture shall exceed the amount deducted in the determination of
gross income on account of depreciation and maintenance, such excess
shall also be deducted in determining gross income; or
(d) Issue or assume any unsecured notes, debentures or other
securities representing unsecured indebtedness for any purpose other
than
(i) the refunding of unsecured indebtedness
theretofore created or assumed by the Corporation and then
outstanding;
(ii) the reacquisition, redemption or other
retirement of any indebtedness, whether secured or
unsecured, which reacquisition, redemption or other
retirement has been authorized by any state or federal
regulatory authority; or
(iii) the reacquisition, redemption or other
retirement of outstanding shares of one or more series of
preferred stock of the Corporation;
if immediately after such issue or assumption the total
principal amount of all unsecured notes, debentures or other
securities representing unsecured indebtedness issued or
assumed by the Corporation (including unsecured indebtedness
then to be issued or assumed) would exceed twenty per centum
(20%) of the aggregate of (1) the total principal amount of
all bonds or other securities representing secured
indebtedness issued or assumed by the Corporation and then
to be outstanding and (2) the par value of, or stated
capital represented by the shares of all classes of stock of
the Corporation then to be outstanding in the hands of the
public, plus premium on such stock, plus capital surplus,
earned surplus and any other surplus of the Corporation as
then to be stated on the books of account of the
Corporation.
X. So long as any shares of the Class A Preferred Stock of any series
shall be outstanding, the Corporation shall not, without the consent by vote or
in writing of the holders of two-thirds of the number of shares of the Class A
Preferred Stock of all series at the time outstanding considered as a class
without regard to series, authorize any class of stock ranking prior to the
Class A Preferred Stock with respect to the payment of dividends or
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<PAGE>
the distribution of assets upon the dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary.
XI. So long as any shares of the Class A Preferred Stock of any series
shall be outstanding, the Corporation shall not change the express terms and
provisions of the Class A Preferred Stock as to such series so as to affect such
series adversely, without the consent by vote or in writing of the holders of
two-thirds of the number of shares of Class A Preferred Stock of all series so
affected, considered as a class without regard to series.
Rights of Class A Preferred Stock on
Liquidation, Dissolution or Winding Up
XII. In the event of any liquidation or dissolution or winding up of
the Corporation the holders of the Class A Preferred Stock of each series shall
be entitled to receive, in preference to the Common Stock, but pari passu with
any additional class of cumulative preferred stock which may be authorized
pursuant to the provisions of Paragraph 10 of Section 2 of Article IV of these
Articles of Incorporation, out of the assets of the Corporation available for
distribution to its stockholders, before any distribution of assets shall be
made to the holders of any class of junior stock, (i) if such liquidation,
dissolution or winding up shall be involuntary, the sum of fifty dollars ($50)
per share plus full cumulative dividends thereon to the date of final
distribution to the holders of the Class A Preferred Stock and (ii) if such
liquidation, dissolution or winding up shall be voluntary, the amount per share
fixed by the Board of Directors pursuant to Paragraph II of this Class A Part
plus full cumulative dividends thereon to the date of final distribution to the
holders of the Class A Preferred Stock. If upon any liquidation or dissolution
or winding up of the Corporation the net assets of the Corporation shall be
insufficient to pay the holders of all outstanding shares of Class A Preferred
Stock the full amounts to which they respectively shall be entitled, the holders
of shares of Class A Preferred Stock of all series shall share ratably in any
distribution of assets according to the respective amounts payable in respect of
the shares held by them upon such distribution if all amounts payable on or with
respect to the Class A Preferred Stock of all series were paid in full. Neither
the merger nor consolidation of the Corporation into or with other corporation,
nor the merger or consolidation of any other corporation into or with the
Corporation, nor a sale, transfer or lease of all or any part of the assets of
the Corporation, shall be deemed to be a liquidation, dissolution or winding up
of the Corporation.
Certain Definitions
XIII. As used in this Class A Part, the following terms have the
following meanings:
The term "consolidated net income of the Corporation and its
subsidiaries" shall mean the consolidated gross earnings of the Corporation and
its subsidiaries from all sources less all proper deductions for operating
expenses, taxes (including income, excess profits and other taxes based on or
measured by income or undistributed earnings or income), interest charges and
other appropriate items, including provision for maintenance and depreciation,
and less all dividends paid or accrued on the Class A Preferred Stock of the
Corporation which are applicable to the periods in question, and otherwise
determined in accordance with sound accounting practice in use at the time but
determined without deducting any losses, expenses or provisions charged directly
to surplus in accordance with the Uniform Systems of Accounts prescribed by
regulatory commissions having jurisdiction over the Corporation and its
subsidiaries. The amount deducted for maintenance and depreciation of property
of the Corporation and its subsidiaries shall be at least equal to the aggregate
amount spent for maintenance and provided for depreciation by the Corporation
and its subsidiaries.
The term "consolidated surplus of the Corporation and its
subsidiaries" shall include capital surplus, earned surplus and any other
surplus of the Corporation and its subsidiaries, consolidated in accordance with
sound accounting practice.
The term "distribution on junior stock" shall mean a dividend (other
than a dividend payable in junior stock) or other distribution on junior stock,
a purchase or redemption of junior stock and any other acquisition for value of
junior stock (except in exchange for or with the proceeds of the issue of other
junior stock).
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The term "full cumulative dividends" whenever used in this Class A
Part with reference to any share of any series of the Class A Preferred Stock
shall be deemed to mean (whether or not in any dividend period or any part
thereof in respect of which such term is used there shall have been net profits
or net assets of the Corporation legally available for the payment of such
dividends) that amount which shall be equal to dividends at the rate per share
fixed for such series by the Board of Directors pursuant to Paragraph II of this
Class A Part, for the period of time elapsed from the date of cumulation of such
series to the date as of which full cumulative dividends are to be computed
(including an amount equal to a dividend at such rate for the elapsed portion of
the current dividend period) less, in each case, the amount of all dividends
paid, or deemed paid, upon such stock.
The term "junior stock", whenever used in this Part, shall mean the
Common Stock, Preference Stock and any other class or classes of stock of the
Corporation over which the Class A Preferred Stock has preference or priority
with respect to the payment of dividends and the distribution of assets upon the
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary.
The term "junior stock equity", whenever used in this Class A Part,
shall mean the aggregate par value of, or stated capital represented by, the
outstanding shares of the junior stock of the Corporation including premiums
thereon plus any surplus of the Corporation.
The term "junior stock equity ratio" shall mean the ratio, computed as
of the end of the second calendar month preceding the date of the authorization
by the Board of Directors of the proposed distribution on junior stock and
adjusted to reflect the proposed distribution on junior stock, of
(i) the aggregate par value of, or stated capital
represented by, the outstanding shares of the junior stock, including
premiums on junior stock, plus the consolidated surplus of the
Corporation and its subsidiaries, as hereinafter in this Class A Part
defined,
to
(ii) the total capitalization of the Corporation and its
subsidiaries, as hereinafter in this Class A Part defined, plus the
consolidated surplus of the Corporation and its subsidiaries.
The term "total Capitalization of the Corporation and its
subsidiaries" shall mean the aggregate of the principal amount of all
indebtedness of the Corporation and its subsidiaries outstanding in the hands of
the public maturing more than twelve (12) months from the date of determination
of total capitalization of the Corporation and its subsidiaries, plus the par
value of, or stated capital represented by, the shares of all classes of stock
of the Corporation and its subsidiaries outstanding in the hands of the pubic,
plus premium on such stock plus, in the case of such stock of subsidiaries, any
surplus applicable thereto.
Redemption of Class A Preferred Stock
XIV. The Class A Preferred Stock of all series, or of any series
thereof, or any part of any series thereof, at any time outstanding, may be
redeemed by the Corporation, at its election expressed by resolution of the
Board of Directors, at any time or from time to time (which time, when fixed in
each case, is herein after called the "redemption date"), upon not less than
thirty (30) days previous notice to the holders of record of the Class A
Preferred Stock to be redeemed, given by mail and by publication in a newspaper
of general circulation in the Borough of Manhattan, City and State of New York,
in such manner as may be prescribed by resolution or resolutions of the Board of
Directors, at the optional redemption price or prices fixed by the Board of
Directors pursuant to Paragraph II of this Class A Part then applicable to the
Preferred Stock to be redeemed, plus an amount equal to full cumulative
dividends thereon to the redemption date (the aggregate of which amounts is
hereinafter in this Paragraph XIV called the "redemption price"). If less than
all the outstanding shares of the Preferred Stock of any series are to be
redeemed, the redemption may be made either by lot or pro rata in such manner as
may be prescribed by resolution of the Board of Directors. The Corporation may,
if it so elects, provide moneys for the payment of the redemption price by
depositing the amount thereof for the account of the holders of Class A
Preferred Stock entitled thereto, with a bank or trust company doing business in
the Borough of Manhattan, in the City of New
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York, and having capital and surplus of at least Five Million Dollars
($5,000,000), at any time prior to the redemption date (the date of any such
deposit being hereinafter called the "date of deposit"). In such event, the
notice of redemption shall include a statement of the intention of the
Corporation to deposit such amount prior to the redemption date and the name and
address of the bank or trust company with which the deposit will be made. On and
after the redemption date (unless default shall be made by the Corporation in
providing moneys for the payment of the redemption price), or, if the
Corporation shall make such deposit on or before the date specified therefor in
the notice, then on and after the date of deposit, all dividends on the Class A
Preferred Stock thereby called for redemption shall cease to accrue and,
notwithstanding that any certificate for shares of Class A Preferred Stock so
called for redemption shall not have been surrendered for cancellation, the
shares represented thereby shall no longer be deemed to be outstanding and all
rights of the holders thereof as stockholders of the Corporation shall cease and
terminate, except the right to receive the redemption price as hereinafter
provided and except any conversion or exchange rights not theretofore expired.
Such conversion or exchange rights, however, in any event shall cease and
terminate upon the redemption date or upon any earlier date fixed by the Board
of Directors pursuant to Paragraph II of this Class A Part for the termination
of such rights. The Corporation may pay in regular course any dividends
reflected in the redemption price either to the holders of record on the record
date fixed for determination of stockholders entitled to receive such dividends
(in which event, anything herein to the contrary notwithstanding, the amount so
deposited need not include any dividends so paid or to be paid) or as a part of
the redemption price upon surrender of the certificates for the shares redeemed.
On and after the redemption date or, if the Corporation shall elect to deposit
the moneys for such redemption as herein provided, then on and after the date of
deposit, the holders of record of the Class A Preferred Stock to be redeemed
shall be entitled to receive the redemption price upon actual delivery to the
Corporation or, in the event of such a deposit, to the bank or trust company
with which such deposit is made, of certificates for the shares to be redeemed
(such certificates, if required, to be properly stamped for transfer and duly
endorsed in blank or accompanied by proper instruments of assignment and
transfer thereof duly endorsed in blank). Any moneys so deposited which shall
remain unclaimed by the holders of such Class A Preferred Stock at the end of
six (6) years after the redemption date shall be paid by such bank or trust
company to the Corporation; provided, however, that all money so deposited,
which shall not be required for such redemption because of the exercise of any
right of conversion or exchange, shall be returned to the Corporation forthwith.
Any interest accrued on moneys so deposited shall be paid to the Corporation
from time to time.
Purchase of Class A Preferred Stock
XV. The Corporation may, from time to time, subject to the provisions
of Paragraph II of this Class A Part, purchase the whole of the Class A
Preferred Stock or any series thereof, or any part of any series thereof, upon
the best terms reasonably obtainable, but in no event at a price greater than
the then current redemption of the shares so purchased.
-8-
<PAGE>
ARTICLE III
In accordance with Section 490.1003 of the Iowa Business Corporation
Act, the shareholders of the Corporation approved on ____________ __, 2001, this
Amendment by the following votes, with the number of affirmative votes cast by
each voting group entitled to vote separately on the Amendment being sufficient
for approval by such voting group:
Number of Shares Number of Shares Number of Affirmative
Outstanding and Represented at the Votes Cast
Class Entitled to Vote Special Meeting ----------
----- ---------------- ---------------
Common Stock 13,370,788
4.30%
Preferred Stock 120,000
4.80%
Preferred Stock 146,406
6.10%
Preferred Stock 100,000
ARTICLE IV
These Articles of Amendment shall be effective at _____ _.m., Central
Time, on the ____ day of ____________, 2001.
Executed on behalf of the Corporation on the ____ day of ____________,
2001.
By:______________________________________
Name:____________________________________
Title: __________________________________
-9-
<PAGE>
Appendix E
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
IES UTILITIES INC.
ARTICLE I
The name of the Corporation is IES Utilities Inc.
ARTICLE II
Article I of the Corporation's Articles of Incorporation is amended by
deleting the existing Article I and by inserting the following in lieu thereof:
"The name of the corporation is Interstate Power and Light Company."
ARTICLE III
In accordance with Section 490.1003 of the Iowa Business Corporation
Act, the shareholders of the Corporation approved as of ____________ __, 2001,
this Amendment by the following votes, with the number of affirmative votes cast
by each voting group entitled to vote separately on the Amendment being
sufficient for approval by such voting group:
Number of Shares Number of Shares Number of Affirmative
Outstanding and Represented at the Votes Cast
Class Entitled to Vote Special Meeting ----------
----- ---------------- ---------------
Common Stock 13,370,788
4.30%
Preferred Stock 120,000
4.80%
Preferred Stock 146,406
6.10%
Preferred Stock 100,000
<PAGE>
ARTICLE IV
These Articles of Amendment shall be effective at _____ _.m., Central
Time, on the ____ day of ____________, 2001.
Executed on behalf of the Corporation on the ____ day of ____________,
2001.
By:______________________________________
Name:____________________________________
Title: __________________________________
<PAGE>
Appendix F
ARTICLES OF AMENDMENT
relating to
4.36% PREFERRED STOCK
4.68% PREFERRED STOCK
7.76% PREFERRED STOCK AND
6.40% PREFERRED STOCK
of
IES UTILITIES INC.
----------------------------------------------------------
Pursuant to Sections 490.602 and 490.1002
of the Iowa Business Corporation Act
----------------------------------------------------------
I, _____________________, [Title] of IES Utilities Inc., a corporation
organized and existing under the Iowa Business Corporation Act (the "Company"),
in accordance with the provisions of Sections 490.602 and 490.1002 thereof, DO
HEREBY CERTIFY THAT:
1. Pursuant to the authority conferred upon the Board of Directors of
the Company by its Amended and Restated Articles of Incorporation, and in
accordance with the provisions of Sections 490.602 and 490.1002 of the Iowa
Business Corporation Act, the Board of Directors of the Company duly adopted a
resolution on October ______, 2000, creating four series of shares of Class A
Preferred Stock, $50 par value per share, of the Company, designated as 4.36%
Preferred Stock, 4.68% Preferred Stock, 7.76% Preferred Stock and 6.40%
Preferred Stock.
2. Said resolution of the Board of Directors of the Company creating
the series designated as 4.36% Preferred Stock provides that said series shall
have such designations and number of shares and such preferences, limitations
and relative rights as are set forth in the paragraphs below, which paragraphs
shall constitute Subparagraph (i) under Paragraph III of the enumeration of the
designations, rights, preferences and conditions of the Class A Preferred Stock
of the Company set forth in Section 2 of Article IV of the Amended and Restated
Articles of Incorporation of the Company:
(i) 4.36% Preferred Stock
The Corporation has established a "4.36% Preferred Stock",
consisting initially of 200,000 authorized shares of the par value of
$50 per share.
The terms of the "4.36% Preferred Stock", in the respects in
which the shares of such series may vary from shares of other series
of the Class A Preferred Stock (in addition to the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, set forth elsewhere in this Part, which are applicable to the
Class A Preferred Stock of the par value of $50 per share of all
series) shall be as follows:
(a) The dividend rate of the 4.36% Preferred Stock shall be
4.36% per share per annum upon the par value thereof payable quarterly
on the first days of January, April, July and October in each year
(the quarterly periods ending on the first days of such months,
respectively, to be designated as dividend periods) and the date from
which dividends on shares of the 4.36% Preferred Stock shall be
cumulative shall be December 1, 1954.
(b) The prices at which the 4.36% Preferred Stock may be
redeemed at the option of the Corporation, on the terms and conditions
specified in Paragraph XIV of this Part, shall be $53.30
<PAGE>
per share, if redeemed on or before December 1, 1959, $52.80 per share
if redeemed thereafter and on or before December 1, 1964, and $52.30
per share if redeemed after December 1, 1964, plus, as provided in
said Paragraph XIV, an amount equal to full cumulative dividends
thereon to the redemption date.
(c) The amounts payable upon the shares of 4.36% Preferred
Stock in the event of any voluntary liquidation or dissolution or
winding up of the Corporation shall be an amount equal to the
redemption price (exclusive of dividends) specified in Paragraph (b)
hereof above, then in effect, plus, as provided in Paragraph XII of
this Part, an amount equal to full cumulative dividends thereon to the
date of final distribution to the holders of the Class A Preferred
Stock.
3. Said resolution of the Board of Directors of the Company creating
the series designated as 4.68% Preferred Stock provides that said series shall
have such designations and number of shares and such preferences, limitations
and relative rights as are set forth in the paragraphs below, which paragraphs
shall constitute Subparagraph (ii) under Paragraph III of the enumeration of the
designations, rights, preferences and conditions of the Class A Preferred Stock
of the Company set forth in Section 2 of Article IV of the Amended and Restated
Articles of Incorporation of the Company:
(i) 4.68% Preferred Stock
The Corporation has established a "4.68% Preferred Stock"
consisting initially of 166,000 authorized shares of the par value of
$50 per share.
The terms of the "4.68% Preferred Stock", in the respects in
which the shares of such series may vary from shares of other series
of the Class A Preferred Stock (in addition to the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, set forth elsewhere in this Part, which are applicable to the
Class A Preferred Stock of the par value of $50 per share of all
series) shall be as follows:
(a) The dividend rate of the 4.68% Preferred Stock shall be
4.68% per share per annum upon the par value thereof payable quarterly
on the first days of January, April, July and October in each year
(the quarterly periods ending on the first days of such months
respectively, to be designated as dividend periods) and the date from
which dividends on shares of the 4.68% Preferred Stock shall be
cumulative shall be May 26, 1965.
(b) The prices at which the 4.68% Preferred Stock may be
redeemed at the option of the Corporation, on the terms and conditions
specified in Paragraph XIV of this Part, shall be $53.22 per share, if
redeemed on or before May 1, 1970, $52.37 per share if redeemed
thereafter and on or before May 1, 1975, and $51.62 per share if
redeemed after May 1, 1975, plus, as provided in said Paragraph XIV,
an amount equal to full cumulative dividends thereon to the redemption
date.
(c) The amounts payable upon the shares of 4.68% Preferred
Stock in the event of any voluntary liquidation or dissolution or
winding up of the Corporation shall be an amount equal to the
redemption price (exclusive of dividends) specified in Paragraph (b)
hereof above, then in effect, plus, as provided in Paragraph XII of
this Part, an amount equal to full cumulative dividends thereon to the
date of final distribution to the holders of the Class A Preferred
Stock.
4. Said resolution of the Board of Directors of the Company creating
the series designated as 7.76% Preferred Stock provides that said series shall
have such designations and number of shares and such preferences, limitations
and relative rights as are set forth in the paragraphs below, which paragraphs
shall constitute Subparagraph (iii) under Paragraph III of the enumeration of
the designations, rights, preferences and conditions of the Class A Preferred
Stock of the Company set forth in Section 2 of Article IV of the Amended and
Restated Articles of Incorporation of the Company:
-2-
<PAGE>
(i) 7.76% Preferred Stock
The Corporation has established a "7.76% Preferred Stock",
consisting initially of 100,000 authorized shares of the par value of
$50 per share.
The terms of the "7.76% Preferred Stock", in the respects in
which the shares of such series may vary from shares of other series
of the Class A Preferred Stock (in addition to the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, set forth elsewhere in this Part, which are applicable to the
Class A Preferred Stock of the par value of $50 per share of all
series) shall be as follows:
(a) The dividend rate of the 7.76% Preferred Stock shall be
7.76% per share per annum upon the par value thereof payable quarterly
on the first days of January, April, July and October in each year
(the quarterly periods ending on the first days of such months,
respectively, to be designated as dividend periods) and the date from
which dividends on shares of the 7.76% Preferred Stock shall be
cumulative shall be May 28, 1969.
(b) The prices at which the 7.76% Preferred Stock may be
redeemed at the option of the Corporation, on the terms and conditions
specified in Paragraph XIV of this Part, shall be $58.82 per share, if
redeemed on or before May 1, 1974, $53.97 per share if redeemed
thereafter and on or before May 1, 1979, and $53.00 per share if
redeemed thereafter and on or before May 1, 1984, and $52.03 per share
if redeemed after May 1, 1984, plus, as provided in said Paragraph
XIV, an amount equal to full cumulative dividends thereon to the
redemption date.
(c) The amounts payable upon the shares of 7.76% Preferred
Stock in the event of any voluntary liquidation or dissolution or
winding up of the Corporation shall be an amount equal to the
redemption price (exclusive of dividends) specified in Paragraph (b)
hereof above, then in effect, plus, as provided in Paragraph XII of
this Part, an amount equal to full cumulative dividends thereon to the
date of final distribution to the holders of the Class A Preferred
Stock.
5. Said resolution of the Board of Directors of the Company creating
the series designated as 6.40% Preferred Stock provides that said series shall
have such designations and number of shares and such preferences, limitations
and relative rights as are set forth in the paragraphs below, which paragraphs
shall constitute Subparagraph (iv) under Paragraph III of the enumeration of the
designations, rights, preferences and conditions of the Class A Preferred Stock
of the Company set forth in Section 2 of Article IV of the Amended and Restated
Articles of Incorporation of the Company:
(i) 6.40% Preferred Stock
The Corporation has established a "6.40% Preferred Stock",
consisting initially of 545,000 authorized shares of the par value of
$50 per share.
The terms of the "6.40% Preferred Stock", in the respects in
which the shares of such series may vary from shares of other series
of the Class A Preferred Stock (in addition to the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, set forth elsewhere in this Part, which are applicable to the
Class A Preferred Stock of the par value of $50 per share of all
series) shall be as follows:
(a) The dividend rate of the 6.40% Preferred Stock shall be
6.40% per share per annum upon the par value thereof payable quarterly
on the first days of January, April, July and October in each year
(the quarterly periods ending on the first days of such months,
respectively, to be designated as dividend periods) and the date from
which dividends on shares of the 6.40% Preferred Stock shall be
cumulative shall be May 26, 1993.
-3-
<PAGE>
(b) The prices at which the 6.40% Preferred Stock may be
redeemed at the option of the Corporation, otherwise than for sinking
fund purposes, on the terms and conditions specified in Paragraph XIV
of this Part, shall be $53.20 per share, if redeemed on or before May
1, 2003, $51.60 per share if redeemed thereafter and on or before May
1, 2009, and $50.80 per share if redeemed thereafter and on or before
May 1, 2014, and $50 per share, if redeemed after May 1, 2014, plus,
as provided in said Paragraph XIV, an amount equal to full cumulative
dividends thereon to the redemption date; except $50 per share if
redeemed at any time for the sinking fund, plus, in each case, accrued
dividends to the date of redemption; provided, however, that prior to
May 1, 2003, none of the shares may be redeemed pursuant to this
paragraph (b) if such redemption is for the purpose or in anticipation
of refunding any shares through the use, directly or indirectly, of
funds borrowed by the Company, or through the use, directly or
indirectly, of funds derived through the issuance by the Company of
stock ranking prior to or on a parity with the 6.40% Preferred Stock,
as to dividends or assets, if such borrowed funds have an interest
rate or an effective interest cost to the Company (computed in
accordance with generally accepted financial practice) or such stock
has a dividend rate or cost (so computed) of less than 6.40% per
annum.
(c) The amounts payable upon the shares of 6.40% Preferred
Stock, in the event of any voluntary liquidation or dissolution or
winding up of the Corporation shall be an amount equal to the
redemption price (exclusive of dividends) specified in Paragraph (b)
hereof above, then in effect, plus, as provided in Paragraph XII of
this Part, an amount equal to full cumulative dividends thereon to the
date of final distribution to the holders of the Class A Preferred
Stock.
(d) The holders of shares of 6.40% Preferred Stock shall be
entitled to the benefit of a sinking fund as follows: on May 1, 2003
and on each May 1 (except that the final redemption shall be on May 1,
2022) thereafter the Corporation shall redeemed out of funds legally
available therefor 27,250 shares of this series (or the number of
shares then outstanding if less than 27,250) at a sinking fund
redemption price equal to $50 per share plus accrued and unpaid
dividends to the redemption date; on May 1, 2008, and on each May 1
thereafter the Corporation shall have the noncumulative option to
redeem up to an additional 27,250 shares of this series at a sinking
fund redemption price equal to $50 per share plus accrued and unpaid
dividends to the redemption date; all shares redeemed by the
Corporation pursuant to the foregoing provisions shall be canceled; in
the event that the Corporation shall at any time be in default in the
performance of its obligations under the foregoing provisions of this
Paragraph (d), no dividends (other than dividends payable in Common
Stock) shall be paid or any other distribution of assets made, by
purchase of shares of otherwise, on Common Stock or any other stock of
the Company over which the Preferred Stock has preference as to the
payment of dividends or as to assets.
6. The amendment creating the 4.36% Preferred Stock, the 4.68%
Preferred Stock, the 7.76% Preferred Stock and the 6.40% Preferred Stock was
duly adopted by the Board of Directors of the Company in accordance with Section
490.1002 of the Iowa Business Corporation Act and shareowner action was not
required.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and subscribed these
Articles of Amendment on behalf of the Company and does affirm the foregoing as
true this ____ day of ___________________.
By:______________________________________
Name:____________________________________
Title: __________________________________
-5-
<PAGE>
Appendix G
IES UTILITIES INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY o
1. Approval and adoption of the Agreement
and Plan of Merger, dated as of March 15,
2000, as amended, by and between IES
Utilities Inc. and Interstate Power
Company. FOR AGAINST ABSTAIN
/ / / / / /
2. Approval and Adoption of the amendment
to IES Utilities Inc.'s Amended and
Restated Articles of Incorporation
creating the class of new IESU Class A FOR AGAINST ABSTAIN
preferred stock.
/ / / / / /
3. Approval and Adoption of the amendment
to IES Utilities Inc.'s Amended and
Restated Articles of Incorporation
changing the corporate name to Interstate
Power and Light Company upon the
effectiveness of the merger. FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, upon such other
business as may properly come before the
meeting and at any adjournment thereof
Dated: _____________, 2001
When properly executed, this proxy will Signature(s)_______________________
be voted as you have directed herein. If
no direction is made, this proxy will be ___________________________________
voted FOR the approval and adoption of PLEASE SIGN EXACTLY AS YOUR NAME
the merger agreement, FOR the amendment APPEARS ON THIS PROXY CARD. When
to the IES Utilities Inc. amended and shares are held by joint tenants,
restated articles of incorporation both should sign. When signing as
creating the class of new IESU Class A attorney, executor, administrator,
preferred stock, FOR the amendment to trustee or guardian, please give
the IES Utilities Inc. amended and your full title as such. If you are
restated articles of incorporation a corporation, please sign in full
changing the corporate name to corporate name by the president or
Interstate Power and Light Company upon other authorized officers. If you
the effectiveness of the merger and in are a partnership, please sign in
accordance with the best judgment of the partnership name by an authorized
proxies named herein on any other person.
business that may properly come before
the meeting.
--------------------------------------------------------------------------------
(DELTA) FOLD AND DETACH HERE (DELTA)
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IMMEDIATELY
USING THE ENCLOSED ENVELOPE.
<PAGE>
IES UTILITIES INC.
SPECIAL MEETING OF SHAREOWNERS - ____________ __, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby appoint Erroll B. Davis, Jr. and Edward M. Gleason as my
proxies, and hereby authorize either or both them to represent and to vote, as I
have indicated below, all my shares of Preferred Stock of IES Utilities Inc.,
which I held of record on __________ __, 2001, at the special meeting of
shareholders scheduled to be held on __________ __ 2001, and at any adjournment
thereof. I also authorize them to appoint their substitutes.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD IMMEDIATELY
USING THE ENCLOSED ENVELOPE.
Please do not fold (Continued and to be signed on reverse side.)
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 490.851 of the Iowa Business Corporations Act ("IBCA") grants
each corporation organized thereunder, such as the Registrant, the power to
indemnify its directors and officers against liabilities for certain of their
acts. The Registrant's Amended and Restated Articles of Incorporation states
that the Registrant may, but is not required to, purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Registrant, or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted and incurred
against such person in any such capacity or arising out of such person's status
as such, whether or not the Registrant would have the power to indemnify such
person against such liability under the provisions thereof. Section 8.1 of the
Registrant's Bylaws, as amended, permits the Registrant to maintain such
insurance and further provides that the Registrant shall indemnify directors and
officers of the Registrant to the full extent permitted by the IBCA and advance
any and all reasonable expenses incurred in any proceeding to which any such
director or officer is a party because he or she is or was a director or
officer.
Section 490.832 of the IBCA grants corporations organized thereunder,
such as the Registrant, the authority to adopt a provision in their respective
articles of incorporation eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or to its shareholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Registrant's Amended and Restated Articles of Incorporation eliminates the
personal liability of each director except for liability (i) for any breach of
the director's duty of loyalty to the Registrant or its shareholders, (ii) for
acts or omissions not in good faith or which involve any intentional misconduct
or knowing violation of the law, (iii) for any transaction from which the
director derived an improper personal benefit, or (iv) under Section 490.833 of
the IBCA relating to liability for unlawful distribution.
The foregoing statements are subject to the detailed provisions of
Sections 490.832, 490.833 and 490.851 of the IBCA, the Amended and Restated
Articles of Incorporation of the Registrant and Section 8.1 of the Bylaws, as
amended of the Registrant, as applicable and should be read in conjunction
therewith for a more full understanding of their affect on the Registrant.
The indemnification provided by the Registrant is not exclusive of any
other rights to which a director or officer of the Registrant may be entitled.
The Registrant also carries directors' and officers' liability insurance. The
Registrant's directors' and officers' insurance policies are designed to
reimburse the Registrant for any payments made by it pursuant to the foregoing
indemnification provisions.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. The exhibits listed in the accompanying Exhibit Index
are filed (except where otherwise indicated) as part of this Registration
Statement.
(b) Financial Statement Schedules. All schedules are omitted because
they are not applicable or not required, or because the required information is
shown either in the consolidated financial statements or in the notes thereto.
(c) Reports, Opinions or Appraisals. Not applicable.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
II-1
<PAGE>
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes as follows:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
II-2
<PAGE>
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (d)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Madison,
State of Wisconsin, on January 12, 2001.
IES UTILITIES INC.
By: /s/ Erroll B. Davis, Jr.
------------------------------------
Erroll B. Davis, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Erroll B. Davis, Jr. Chairman, Chief Executive Officer January 12, 2001
------------------------- and Director
Erroll B. Davis, Jr. (Principal Executive Officer)
/s/ Thomas M. Walker Executive Vice President and Chief January 12, 2001
------------------------- Financial Officer (Principal
Thomas M. Walker Financial Officer)
/s/ John E. Kratchmer Corporate Controller and Chief January 12, 2001
------------------------- Accounting Officer (Principal
John E. Kratchmer Accounting Officer)
* Director January 12, 2001
-------------------------
Alan B. Arends
* Director January 12, 2001
-------------------------
Jack B. Evans
* Director January 12, 2001
-------------------------
Rockne G. Flowers
* Director January 12, 2001
-------------------------
Joyce L. Hanes
* Director January 12, 2001
-------------------------
Lee Liu
* Director January 12, 2001
-------------------------
Katharine C. Lyall
* Director January 12, 2001
-------------------------
Arnold M. Nemirow
* Director January 12, 2001
-------------------------
Milton E. Neshek
II-4
<PAGE>
Signature Title Date
--------- ----- ----
* Director January 12, 2001
-------------------------
Judith D. Pyle
* Director January 12, 2001
-------------------------
Robert W. Schlutz
* Director January 12, 2001
-------------------------
Wayne H. Stoppelmoor
* Director January 12, 2001
-------------------------
Anthony R. Weiler
*By: /s/ Erroll B. Davis, Jr.
------------------------------
Erroll B. Davis, Jr.
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
(2.1) Agreement and Plan of Merger, dated as of March 15, 2000, by and
between IESU and IPC
(2.2) First Amendment to Agreement and Plan of Merger, dated as of
November 29, 2000, by and between IESU and IPC
(3.1) Amended and Restated Articles of Incorporation of IESU (incorporated
by reference to Exhibit 3.5 to IESU's Form 10-Q for the quarter ended
June 30, 1998)
(3.2) Bylaws of IESU, as amended, effective as of March 15, 2000
(incorporated by reference to Exhibit 3.6 to IESU's Form 10-K for the
year 1999)
(4.1) Indenture of Mortgage and Deed of Trust, dated as of September 1,
1993, between IESU (formerly Iowa Electric Light and Power Company
("IE")) and The First National Bank of Chicago, as Trustee (Mortgage)
(incorporated by reference to Exhibit 4(c) to IESU's Form 10-Q for the
quarter ended September 30, 1993), and the indentures supplemental
thereto dated, respectively, October 1, 1993, November 1, 1993, March
1, 1995, September 1, 1996 and April 1, 1997 [Exhibit 4(d) in IESU's
Form 10-Q dated November 12, 1993, Exhibit 4(e) in IESU's Form 10-Q
dated November 12, 1993, Exhibit 4(b) in IESU's Form 10-Q dated May
12, 1995, Exhibit 4(c)(i) in IESU's Form 8-K dated September 19, 1996
and Exhibit 4(a) in IESU's Form 10-Q dated May 14, 1997]
(4.2) Indenture of Mortgage and Deed of Trust, dated as of August 1, 1940,
between IESU (formerly IE) and The First National Bank of Chicago,
Trustee (1940 Indenture) [incorporated by reference to Exhibit 2(a) to
IESU's Registration Statement, File No. 2-25347], and the indentures
supplemental thereto dated, respectively, March 1, 1941, July 15,
1942, August 2, 1943, August 10, 1944, November 10, 1944, August 8,
1945, July 1, 1946, July 1, 1947, December 15, 1948, November 1, 1949,
November 10, 1950, October 1, 1951, March 1, 1952, November 5, 1952,
February 1, 1953, May 1, 1953, November 3, 1953, November 8, 1954,
January 1, 1955, November 1, 1955, November 9, 1956, November 6, 1957,
November 4, 1958, November 3, 1959, November 1, 1960, January 1, 1961,
November 7, 1961, November 6, 1962, November 5, 1963, November 4,
1964, November 2, 1965, September 1, 1966, November 30, 1966, November
7, 1967, November 5, 1968, November 1, 1969, December 1, 1970,
November 2, 1971, May 1, 1972, November 7, 1972, November 7, 1973,
September 10, 1974, November 5, 1975, July 1, 1976, November 1, 1976,
December 1, 1977, November 1, 1978, December 1, 1979, November 1,
1981, December 1, 1980, December 1, 1982, December 1, 1983, December
1, 1984, March 1, 1985, March 1, 1988, October 1, 1988, May 1, 1991,
March 1, 1992, October 1, 1993, November 1, 1993, March 1, 1995,
September 1, 1996 and April 1, 1997 [Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in File No. 2-25347,
Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in
II-6
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
File No. 2-25347, Exhibit 2(a) in File No. 2-25347, Exhibit 2(a) in
File No. 2-25347, Exhibit 4.10 in IESU's Form 10-K for the year 1966,
Exhibit 4.10 in IESU's Form 10-K for the year 1966, Exhibit 4.10 in
IESU's Form 10-K for the year 1967, Exhibit 4.10 in IESU's Form 10-K
for the year 1968, Exhibit 4.10 in IESU's Form 10-K for the year 1969,
Exhibit 1 in IESU's Form 8-K dated December 1970, Exhibit 2(g) in File
No. 2-43131, Exhibit 1 in IESU's Form 8-K dated May 1972, Exhibit 2(i)
in File No. 2-56078, Exhibit 2(j) in File No. 2-56078, Exhibit 2(k) in
File No. 2-56078, Exhibit 2(l) in File No. 2-56078, Exhibit 1 in
IESU's Form 8-K dated July 1976, Exhibit 1 in IESU's Form 8-K dated
December 1976, Exhibit 2(o) in File No. 2-60040, Exhibit 1 in IESU's
Form 10-Q dated June 30, 1979, Exhibit 2(q) in Form S-16 in File No.
2-65996, Exhibit 2 in IESU's Form 10-Q dated March 31, 1982, Exhibit
4(s) in IESU's Form 10-K for the year 1981, Exhibit 4(t) in IESU's
Form 10-K for the year 1982, Exhibit 4(u) in IESU's Form 10-K for the
year 1983, Exhibit 4(v) in IESU's Form 10-K for the year 1984, Exhibit
4(w) in IESU's Form 10-K for the year 1984, Exhibit 4(b) in IESU's
Form 10-Q dated May 12, 1998, Exhibit 4(c) in IESU's Form 10-Q dated
November 10, 1988, Exhibit 4(d) in IESU's Form 10-Q dated August 13,
1991, Exhibit 4(c) in IESU's Form 10-K for the year 1991, Exhibit 4(a)
in IESU's Form 10-Q dated November 12, 1993, Exhibit 4(b) in IESU's
Form 10-Q dated November 12, 1993, Exhibit 4(a) in IESU's Form 10-Q
dated May 12, 1995, Exhibit 4(f) in IESU's Form 8-K dated September
19, 1996 and Exhibit 4(b) in IESU's Form 10-Q dated May 14, 1997]
(4.3) Indenture of Deed of Trust dated as of February 1, 1923, between IESU
(successor to Iowa Southern Utilities Company ("IS") as result of
merger of IS and IE) and The Northern Trust Company (The First
National Bank of Chicago, successor) and Harold H. Rockwell (Richard
D. Manella, successor), as Trustees (1923 Indenture) [incorporated by
reference to Exhibit B-1 to File No. 2-1719], and the indentures
supplemental thereto dated, respectively, May 1, 1940, May 2, 1940,
October 1, 1945, October 2, 1945, January 1, 1948, September 1, 1950,
February 1, 1953, October 2, 1953, August 1, 1957, September 1, 1962,
June 1, 1967, February 1, 1973, February 1, 1975, July 1, 1975,
September 2, 1975, March 10, 1976, February 1, 1977, January 1, 1978,
March 1, 1979, March 1, 1980, May 31, 1986, July 1, 1991, September 1,
1992 and December 1, 1994 [Exhibit B-1-k in File No. 2-4921, Exhibit
B-1-1 in File No. 2-4921, Exhibit 7(m) in File No. 2-8053, Exhibit
7(n) in File No. 2-8053, Exhibit 7(o) in File No. 2-8053, Exhibit 4(e)
in File No. 33-3995, Exhibit 4(b) in File No. 2-10543, Exhibit 4(q) in
File No. 2-10543, Exhibit 2(b) in File No. 2-13496, Exhibit 2(b) in
File No. 2-20667, Exhibit 2(b) in File No. 2-26478, Exhibit 2(b) in
File No. 2-46530, Exhibit 2(aa) in File No. 2-53860, Exhibit 2(bb) in
File No. 2-54285, Exhibit 2(bb) in File No. 2-57510, Exhibit 2(cc) in
File No. 2-57510, Exhibit 2(ee) in File No. 2-60276, Exhibit 2 in File
No. 0-849, Exhibit 2 in File No. 0-849, Exhibit 2 in File No. 0-849,
Exhibit 4(g) in File No. 33-3995, Exhibit 4(h) in File No. 0-849,
Exhibit 4(m) in File No. 0-849 and Exhibit 4(f) in File No. 0-4117-1]
(4.4) Indenture (For Unsecured Subordinated Debt Securities), dated as of
December 1, 1995, between IESU and The First National Bank of Chicago,
as Trustee (Subordinated Indenture) [incorporated by reference to
Exhibit 4(i) to IESU's Amendment No. 1 to Registration Statement, File
No. 33-62259]
(4.5) Indenture (For Senior Unsecured Debt Securities), dated as of August
1, 1997, between IESU and The First National Bank of Chicago, as
Trustee [incorporated by reference to Exhibit 4(j) to IESU's
Registration Statement, File No. 333-32097]
(5) Form of Form of Opinion of Foley & Lardner (including consent of
counsel)
II-7
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
(8) Form of Opinion of Foley & Lardner regarding certain tax matters
(10.1) Service Agreement by and among Wisconsin Power & Light Company
("WP&L"), South Beloit Water, Gas and Electric Company, IESU, IPC, and
Corporate Services (incorporated by reference to Exhibit 10.1 to
Alliant Energy Corporation's ("Alliant Energy") Form 10-Q for the
quarter ended June 30, 1998)
(10.2) System Coordination and Operating Agreement dated April 11, 1997,
among IESU, IPC, WP&L and Corporate Services (incorporated by
reference to Exhibit 10.3 to Alliant Energy's Form 10-Q for the
quarter ended June 30, 1998)
(10.3) Operating and Transmission Agreement between Central Iowa Power
Cooperative ("CIPCO") and IESU (incorporated by reference to Exhibit
10(q) to IESU's Form 10-K for the year 1990)
(10.4) Duane Arnold Energy center ("DAEC") Ownership Participation Agreement
dated June 1, 1970 between CIPCO, Corn Belt Power Cooperative and IESU
(incorporated by reference to Exhibit 5(kk) to IESU's Registration
Statement, File No. 2-38674)
(10.5) DAEC Operating Agreement dated June 1, 1970 between CIPCO, Corn Belt
Power Cooperative and IESU (incorporated by reference to Exhibit 5(ll)
to IESU's Registration Statement, File No. 2-38764)
(10.6) DAEC Agreement for Transmission, Transformation, Switching, and
Related Facilities dated June 1, 1970 between CIPCO, Corn Belt Power
Cooperative and IESU (incorporated by reference to Exhibit 5(mm) to
IESU's Registration Statement, File No. 2-38764)
(10.7) Basic Generating Agreement dated April 16, 1975 between Iowa Public
Service Company, Iowa Power and Light Company, Iowa-Illinois Gas and
Electric Company and IESU for the joint ownership of Ottumwa
Generation Station-Unit 1 ("OSG-1") (incorporated by reference to
Exhibit 1 to IESU's Form 10-K for the year 1977)
(10.8) Addendum Agreement to the Basic Generating Agreement for OGS-1 dated
December 7, 1977 between Iowa Public Service Company, Iowa-Illinois
Gas and Electric Company, Iowa Power and Light Company and IESU for
the purchase of 15% ownership in OGS-1 (incorporated by reference to
Exhibit 3 to IESU's Form 10-K for the year 1977)
(10.9) Second Amended and Restated Credit Agreement dated as of September 17,
1987 between Arnold Fuel, Inc. and the First National Bank of Chicago
and the Amended and Restated Consent and Agreement dated as of
September 17, 1987 by IESU (incorporated by reference to Exhibit 10(j)
to IESU's Form 10-K for the year 1987)
(10.10)* Key Employee Deferred Compensation Plan (incorporated by reference to
Exhibit 10(n) to IES Industries Inc.'s ("IES") Form 10-K for the year
1987)
(10.11)* Amendments to Key Employee Deferred Compensation Agreement for Key
Employees (incorporated by reference to Exhibit 10(v) to IES's Form
10-Q for the quarter ended March 31, 1990)
(10.12)* IES Grantor Trust for Director Retirement Plan (incorporated by
reference to Exhibit 10(c) to IES's Form 10-Q for the quarter ended
September 30, 1997)
II-8
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
(10.13)* IES Grantor Trust for Deferred Compensation Agreements (incorporated
by reference to Exhibit 10(d) to IES's Form 10-Q for the quarter ended
September 30, 1997)
(10.14)* IES Grantor Trust for Supplemental Retirement Agreements (incorporated
by reference to Exhibit 10(e) to IES's Form 10-Q for the quarter ended
September 30, 1997)
(10.15)* IESU Grantor Trust for Deferred Compensation Agreements (incorporated
by reference to Exhibit 10(f) to IES's Form 10-Q for the quarter ended
September 30, 1997)
(10.16)* IESU Grantor Trust for Supplemental Retirement Agreements
(incorporated by reference to Exhibit 10(g) to IES's Form 10-Q for the
quarter ended September 30, 1997)
(10.17)* Supplemental Retirement Plan (incorporated by reference to Exhibit
10(l) to IES's Form 10-K for the year 1987)
(10.18)* Executive Change of Control Severance Agreement-Vice Presidents
(incorporated by reference to Exhibit 10(b) to IES's Form 10-Q for the
quarter ended September 30, 1996)
(10.19)* Executive Guaranty Plan (incorporated by reference to Exhibit 10(p) to
IES's Form 10-K for the year 1987)
(12.1) Statement re IESU computation of ratios of earnings to combined fixed
charges and preferred dividends
(12.2) Statement re IPC computation of ratios of earnings to combined fixed
charges and preferred dividends
(23.1) Consent of Arthur Andersen LLP
(23.2) Consent of Arthur Andersen LLP
(23.3) Consent of Deloitte & Touche LLP
(23.4) Consents of Foley & Lardner (filed as part of Exhibits (5) and (8))
(24) Powers of Attorney
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrants agree to
furnish to the SEC, upon request, any instrument defining the rights of holders
of unregistered long-term debt not filed as an exhibit hereto. No such
instrument authorizes securities in excess of 10% of the total assets of IESU.
Documents incorporated by reference to filings made by Alliant Energy
Corporation under the Securities Exchange Act of 1934, as amended, are under
File No. 1-9894. Documents incorporated by reference to filings made by IESU
under the Securities Exchange Act of 1934, as amended, are under File No.
0-4117-1.
*Management contract or compensatory plan or arrangement.
II-9
