-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, muEwa45ynKH+Y7lUkLyQY6ZM3Sc8K7ipmRBIPkS+XJs8HyGSvcasAl5oPlxgIjia 26KM7qizo1osFU1RKIHEEg== 0000052485-95-000003.txt : 19950615 0000052485-95-000003.hdr.sgml : 19950615 ACCESSION NUMBER: 0000052485-95-000003 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950315 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950315 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IES UTILITIES INC CENTRAL INDEX KEY: 0000052485 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 420331370 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04117 FILM NUMBER: 95520800 BUSINESS ADDRESS: STREET 1: 200 FIRST STREET SE CITY: CEDAR RAPIDS STATE: IA ZIP: 52401 BUSINESS PHONE: 3193984411 FORMER COMPANY: FORMER CONFORMED NAME: IOWA ELECTRIC LIGHT & POWER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: IOWA RAILWAY & LIGHT CORP DATE OF NAME CHANGE: 19670629 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 15, 1995 IES UTILITIES INC. (Exact name of registrant as specified in its charter) Iowa 0-4117-1 42-0331370 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File No.) Identification No.) IES Tower, Cedar Rapids, Iowa 52401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 319-398-4411 The purpose of this Current Report is to file certain consolidated financial information regarding the Registrant (IES Utilities Inc.). Such financial information is set forth in the Financial Statements and Exhibits to this Current Report. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. Page (a) Financial Statements Report of Management 4 - 5 Report of Independent Public Accountants 6 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 7 Consolidated Statements of Retained Earnings for the years ended December 31, 1994, 1993 and 1992 8 Consolidated Balance Sheets as of December 31, 1994 and 1993 9 - 10 Consolidated Statements of Capitalization as of December 31, 1994 and 1993 11 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 12 Notes to Consolidated Financial Statements 13 - 39 Management's Discussion and Analysis of the Results of Operations and Financial Condition 40 - 56 Selected Consolidated Quarterly Financial Data (Unaudited) 57 (b) Pro Forma Financial Information None. (c) Exhibits 3 Bylaws of Registrant, as amended February 7, 1995 12 Ratio of Earnings to Fixed Charges 23 Consent of Independent Public Accountants 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IES UTILITIES INC. (Registrant) By /s/ Richard A. Gabbianelli (Signature) Richard A. Gabbianelli Controller & Chief Accounting Officer Date March 15, 1995 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. REPORT OF MANAGEMENT The Company's management has prepared and is responsible for the presentation, integrity and objectivity of the consolidated financial statements and related information included in this report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and, in some cases, include estimates that are based upon management's judgment and the best available information, giving due consideration to materiality. Financial information contained elsewhere in this report is consistent with that in the consolidated financial statements. The Company maintains a system of internal accounting controls which it believes is adequate to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management authorization and the financial records are reliable for preparing the consolidated financial statements. The system of internal accounting controls is supported by written policies and procedures, by a staff of internal auditors and by the selection and training of qualified personnel. The internal audit staff conducts comprehensive audits of the Company's system of internal accounting controls. Management strives to maintain an adequate system of internal controls, recognizing that the cost of such a system should not exceed the benefits derived. In accordance with generally accepted auditing standards, the independent public accountants (Arthur Andersen LLP) obtained a sufficient understanding of the Company's internal controls to plan their audit and determine the nature, timing and extent of other tests to be performed. Management is not aware of any material internal control weaknesses. The Board of Directors, through its Audit Committee comprised entirely of outside directors, meets periodically with management, the internal auditor and Arthur Andersen LLP to discuss financial reporting matters, internal control and auditing. To ensure their independence, both the internal auditor and Arthur Andersen LLP have full and free access to the Audit Committee. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of IES Utilities Inc.: We have audited the accompanying consolidated balance sheets and statements of capitalization of IES UTILITIES INC. (an Iowa corporation) AND SUBSIDIARY COMPANIES as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1994. These financial statements 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 audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IES Utilities Inc. and subsidiary companies as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 7 to the consolidated financial statements, effective January 1, 1993, IES Utilities Inc. and subsidiary companies changed their method of accounting for postretirement benefits other than pensions. ARTHUR ANDERSEN LLP Chicago, Illinois, February 3, 1995 CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 1994 1993 1992 (in thousands) Operating revenues: Electric $ 537,327 $ 550,521 $ 462,999 Gas 139,033 154,318 139,455 Other 9,006 8,911 7,808 685,366 713,750 610,262 Operating expenses: Fuel for production 85,952 87,702 73,368 Purchased power 68,794 93,449 74,794 Gas purchased for resale 95,340 109,122 101,605 Other operating expenses 132,281 123,210 119,607 Maintenance 49,542 46,219 39,573 Depreciation and amortization 75,316 69,407 64,107 Taxes other than income taxes 42,550 41,312 36,847 549,775 570,421 509,901 Operating income 135,591 143,329 100,361 Interest expense and other: Interest expense 41,572 40,169 39,628 Allowance for funds used during construction -3,910 -1,972 -3,177 Miscellaneous, net -1,247 -801 -2,104 36,415 37,396 34,347 Income before income taxes 99,176 105,933 66,014 Federal and state income taxes 37,966 37,963 20,723 Net income 61,210 67,970 45,291 Preferred dividend requirements 914 914 1,729 Net income available for common stock $ 60,296 $ 67,056 $ 43,562 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year Ended December 31 1994 1993 1992 (in thousands) Balance at beginning of year $ 188,862 $ 153,106 $ 134,822 Add: Net income 61,210 67,970 45,291 Deduct: Cash dividends declared - Common stock 52,000 31,300 24,721 Preferred stock, at stated rates 914 914 1,729 Other 0 0 557 Balance at end of year ($18,209,000 restricted as to payment of cash dividends) $ 197,158 $ 188,862 $ 153,106 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS December 31 ASSETS 1994 1993 (in thousands) Property, plant and equipment, at original cost: Utility - Plant in service - Electric $ 1,798,059 $ 1,708,757 Gas 158,115 147,956 Other 86,005 75,845 2,042,179 1,932,558 Less - Accumulated depreciation 880,888 813,312 1,161,291 1,119,246 Leased nuclear fuel, net of amortization 49,731 51,681 Construction work in progress 73,339 45,566 1,284,361 1,216,493 Other 1,824 0 1,286,185 1,216,493 Current assets: Cash and temporary cash investments 2,135 18,313 Accounts receivable - Customer, less reserve 12,051 22,679 Other 9,763 10,330 Income tax refunds receivable 3,450 3,082 Production fuel, at average cost 13,988 14,338 Materials and supplies, at average cost 26,699 26,861 Adjustment clause balances 1,433 0 Regulatory assets 20,145 14,225 Prepayments and other 29,546 30,985 119,210 140,813 Investments: Nuclear decommissioning trust funds 33,779 28,059 Cash surrender value of life insurance policies 2,915 2,380 Other 1,085 1,258 37,779 31,697 Other assets: Regulatory assets 192,955 148,592 Deferred charges and other 9,239 9,383 202,194 157,975 1,645,368 1,546,978 December 31 CAPITALIZATION AND LIABILITIES 1994 1993 (in thousands) Capitalization (See Consolidated Statements of Capitalization): Common stock $ 33,427 $ 33,427 Paid-in surplus 279,042 279,042 Retained earnings 197,158 188,862 Total common equity 509,627 501,331 Cumulative preferred stock 18,320 18,320 Long-term debt 380,404 480,074 908,351 999,725 Current liabilities: Notes payable to associated companies 18,495 0 Short-term borrowings 37,000 24,000 Capital lease obligations 14,385 15,345 Maturities and sinking funds 100,140 224 Accounts payable 70,354 47,179 Accrued interest 9,438 9,438 Accrued taxes 47,188 39,763 Accumulated refueling outage provision 15,196 2,660 Dividends payable 229 5,229 Adjustment clause balances 0 5,149 Provision for rate refund liability 0 8,670 Environmental liabilities 5,428 4,721 Other 18,095 17,648 335,948 180,026 Long-term liabilities: Capital lease obligations 35,346 36,336 Environmental liabilities 37,853 21,114 Other 46,724 29,866 119,923 87,316 Deferred credits: Accumulated deferred income taxes 241,345 237,464 Accumulated deferred investment tax credits 39,801 42,447 281,146 279,911 Commitments and contingencies (Note 11) $ 1,645,368 $ 1,546,978 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31 1994 1993 (in thousands) Common equity: Common stock - par value $2.50 per share - authorized 24,000,000 shares; outstanding 13,370,788 shares $ 33,427 $ 33,427 Paid-in surplus 279,042 279,042 Retained earnings 197,158 188,862 509,627 501,331 Cumulative preferred stock 18,320 18,320 Long-term debt of IES Utilities Inc.: Collateral Trust Bonds - 6% series, due 2008 50,000 50,000 7% series, due 2023 50,000 50,000 5.5% series, due 2023 19,400 19,400 119,400 119,400 First Mortgage Bonds - Series J, 6-1/4%, due 1996 15,000 15,000 Series L, 7-7/8%, due 2000 15,000 15,000 Series M, 7-5/8%, due 2002 30,000 30,000 Series W, 9-3/4%, due 1995 50,000 50,000 Series X, 9.42%, due 1995 50,000 50,000 Series Y, 8-5/8%, due 2001 60,000 60,000 Series Z, 7.60%, due 1999 50,000 50,000 6-1/8% series, due 1997 8,000 8,000 9-1/8% series, due 2001 21,000 21,000 7-3/8% series, due 2003 10,000 10,000 7-1/4% series, due 2007 30,000 30,000 339,000 339,000 Pollution control obligations - 5.75%, due serially 1995 to 2003 3,696 3,920 5.95%, due 2007, secured by First Mortgage Bonds 10,000 10,000 Variable rate (5.45% - 5.60% at December 31, 1994), due 2000 to 2010 11,100 11,100 24,796 25,020 Unamortized debt premium and (discount), net -2,652 -3,122 480,544 480,298 Less - Amount due within one year 100,140 224 380,404 480,074 908,351 999,725 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1994 1993 1992 (in thousands) Cash flows from operating activities: Net income $ 61,210 $ 67,970 $ 45,291 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation and amortization 75,316 69,407 64,107 Principal payments under capital lease obligations 16,246 11,429 11,725 Deferred taxes and investment tax credits -410 10,531 -2,406 Refueling outage provision 12,536 -4,889 -5,503 Allowance for equity funds used during construction -2,299 -824 -1,831 Other 3,240 1,613 1,134 Other changes in assets and liabilities - Accounts receivable 10,395 -8,553 -571 Production fuel, materials and supplies 404 5,909 1,579 Accounts payable 20,444 5,620 345 Accrued taxes 7,057 -10,991 6,118 Provision for rate refunds -8,670 -350 7,528 Adjustment clause balances -6,582 6,366 -4,122 Gas in storage 1,919 -2,309 -7,867 Other 4,082 183 2,441 Net cash flows from operating activities 194,888 151,112 117,968 Cash flows from financing activities: Dividends declared on common stock -52,000 -31,300 -24,721 Dividends declared on preferred stock -914 -914 -1,729 Equity infusion from parent company 0 50,000 0 Proceeds from issuance of long-term debt 0 119,400 83,400 Reductions in long-term debt and preferred stock -224 -79,624 -39,429 Net change in short-term borrowings 31,495 -68,560 51,660 Principal payments under capital lease obligations -16,304 -11,276 -12,337 Sale of utility accounts receivable 800 10,490 7,710 Other -5,000 5,010 231 Net cash flows from financing activities -42,147 -6,774 64,785 Cash flows from investing activities: Construction and acquisition expenditures -148,062 -113,212 -171,013 Nuclear decommissioning trust funds -5,532 -5,532 -5,532 Deferred energy efficiency costs -16,157 -9,747 -6,877 Other 832 723 -3,009 Net cash flows from investing activities -168,919 -127,768 -186,431 Net increase (decrease) in cash and temporary cash investments -16,178 16,570 -3,678 Cash and temporary cash investments at beginning of year 18,313 1,743 5,421 Cash and temporary cash investments at end of year $ 2,135 $ 18,313 $ 1,743 Supplemental cash flow information: Cash paid during the year for - Interest $ 42,678 $ 39,291 $ 35,770 Income taxes $ 34,479 $ 40,130 $ 23,640 Noncash investing and financing activities - Capital lease obligations incurred $ 14,297 $ 14,605 $ 1,973 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of Consolidation - IES Utilities Inc. (Utilities) is a wholly-owned subsidiary of IES Industries Inc. (Industries). The Consolidated Financial Statements include the accounts of Utilities and its consolidated subsidiaries (collectively the Company). All subsidiaries for which Utilities owns directly or indirectly more than 50% of the voting stock, which are IES Ventures Inc. and IES Midland Development Inc., are included as consolidated subsidiaries. Both of these subsidiaries were formed in December 1994 and had no operations in 1994. All significant intercompany balances and transactions have been eliminated from the Consolidated Financial Statements. Investments for which the Company has at least a 20% interest are accounted for under the equity method of accounting. These investments are stated at acquisition cost, increased or decreased for the Company's equity in undistributed net income or loss, which is included in "Interest expense and other - Miscellaneous, net" in the Consolidated Statements of Income. Certain prior period amounts have been reclassified on a basis consistent with the 1994 presentation. (b) Regulation - Utilities is subject to regulation by the Iowa Utilities Board (IUB) and the Federal Energy Regulatory Commission (FERC). Utilities' consolidated subsidiaries are not subject to regulation by the IUB or the FERC. (c) Regulatory Assets - Utilities is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). The regulatory assets represent probable future revenue to Utilities associated with certain incurred costs as these costs are recovered through the rate making process. At December 31, regulatory assets as reflected in the Consolidated Balance Sheets were comprised of the following items: 1994 1993 (in millions) Deferred income taxes (Note 1(d)) $ 90.1 $ 88.6 Environmental liabilities (Note 11(f)) 43.8 25.4 Energy efficiency programs (Note 3(b)) 34.7 18.5 Employee pension and benefit costs (Note 7) 25.0 14.1 FERC Order No. 636 transition costs (Note 11(h)) 8.0 5.0 Unamortized loss on reacquired debt 6.1 6.4 Cancelled plant costs 2.4 3.3 Other 3.0 1.5 213.1 162.8 Classified as "Current assets - regulatory assets" 20.1 14.2 Classified as "Other assets - regulatory assets" $ 193.0 $ 148.6 Refer to the individual footnotes referenced above for a further discussion of certain items reflected in regulatory assets. (d) Income Taxes - The Company follows the liability method of accounting for deferred income taxes, which requires the establishment of deferred tax liabilities and assets, as appropriate, for all temporary differences between the tax basis of assets and liabilities and the amounts reported in the financial statements. Deferred taxes are recorded using currently enacted tax rates. Except as noted below, income tax expense includes provisions for deferred taxes to reflect the tax effects of temporary differences between the time when certain costs are recorded in the accounts and when they are deducted for tax return purposes. As temporary differences reverse, the related accumulated deferred income taxes are reversed to income. Investment tax credits for Utilities have been deferred and are subsequently credited to income over the average lives of the related property. Consistent with rate making practices for Utilities, deferred tax expense is not recorded for certain temporary differences (primarily related to utility property, plant and equipment). Accordingly, Utilities has recorded deferred tax liabilities and regulatory assets, as identified in Note 1(c). (e) Temporary Cash Investments - Temporary cash investments are stated at cost, which approximates market value, and are considered cash equivalents for the Consolidated Statements of Cash Flows. These investments consist of short-term liquid investments which have maturities of less than 90 days from the date of acquisition. (f) Depreciation of Utility Property, Plant and Equipment - The average rates of depreciation for electric and gas properties of Utilities, including Utilities' nuclear generating station, the Duane Arnold Energy Center (DAEC), which is being depreciated over a 36-year life using a remaining life method, consistent with current rate making practices, were as follows: 1994 1993 1992 Electric 3.6% 3.5% 3.5% Gas 3.8% 3.5% 3.0% (g) Decommissioning of the DAEC - Included in Utilities' proposed electric rate increase discussed in Note 3(a) is a proposal to increase the annual recovery of anticipated costs to decommission the DAEC to approximately $9 million annually from the current level of $5.5 million. Decommissioning expense is included in "Depreciation and amortization" in the Consolidated Statements of Income and the cumulative amount is included in "Accumulated depreciation" in the Consolidated Balance Sheets to the extent recovered through rates. The proposal is based on the following assumptions: 1) cost to decommission the DAEC of $252.7 million in 1993 dollars, based on the Nuclear Regulatory Commission (NRC) minimum formula (which exceeds the amount in the current site-specific study completed in 1994); 2) inflation of 4.91% annually to the year 2014, when decommissioning is expected to begin; 3) the prompt dismantling and removal method of decommissioning; 4) monthly funding of all future collections into external trust funds and funded on a tax-qualified basis to the extent possible; 5) an average after-tax return of 6.82% for all external investments; and 6) collection of the costs on a straight-line basis, in real terms, through 2014. Current levels of rate recovery: 1) do not recognize estimated future inflation for the entire period prior to commencement of the decommissioning process; 2) assume that decommissioning begins in 2010; and 3) provide recovery on a straight-line basis without considering the effects of inflation. At December 31, 1994, Utilities had $33.8 million invested in external decommissioning trust funds as indicated in the Consolidated Balance Sheets, and also had an internal decommissioning reserve of $21.7 million recorded as accumulated depreciation. Earnings on the external trust funds, which were $1.0 million in 1994, are recorded as interest income and a corresponding interest expense payable to the funds is recorded. The earnings accumulate in the external trust fund balances and in accumulated depreciation on utility plant. See "Management's Discussion and Analysis of the Results of Operations and Financial Condition" for a discussion of industry issues raised by the staff of the SEC and a Financial Accounting Standards Board review regarding the electric utility industry method of accounting for decommissioning costs. (h) Allowance for Funds Used During Construction - The allowance for funds used during construction (AFC), which represents the cost during the construction period of funds used for construction purposes, is capitalized by Utilities as a component of the cost of utility plant. The amount of AFC applicable to debt funds and to other (equity) funds, a non-cash item, is computed in accordance with the prescribed FERC formula. The aggregate gross rates used by Utilities for 1994-1992 were 9.3%, 5.7% and 9.2%, respectively. (i) Operating Revenues - The Company accrues revenues for services rendered but unbilled at month-end in order to more properly match revenues with expenses. (j) Adjustment Clauses - Utilities' tariffs provide for subsequent adjustments to its electric and natural gas rates for changes in the cost of fuel and purchased energy and in the cost of natural gas purchased for resale. Changes in the under/over collection of these costs are reflected in "Fuel for production" and "Gas purchased for resale" in the Consolidated Statements of Income. The cumulative effects are reflected in the Consolidated Balance Sheets as a current asset or current liability, pending automatic reflection in future billings to customers. (k) Accumulated Refueling Outage Provision - The IUB allows Utilities to collect, as part of its base revenues, funds to offset other operating and maintenance expenditures incurred during refueling outages at the DAEC. As these revenues are collected, an equivalent amount is charged to other operating and maintenance expenses with a corresponding credit to a reserve. During a refueling outage, the reserve is reversed to offset the refueling outage expenditures. (2) ACQUISITION OF IOWA SERVICE TERRITORY OF UNION ELECTRIC COMPANY: Effective December 31, 1992, Utilities purchased the Iowa distribution system and a portion of the Iowa transmission facilities of Union Electric Company (UE) for approximately $65 million in cash. The net book value of the acquired assets was approximately $35 million and the amount of the purchase price in excess of the book value (approximately $30 million) has been recorded as an acquisition adjustment. The acquisition adjustment is being amortized over the life of the property and the amortization is included in "Interest expense and other - Miscellaneous, net" in the Consolidated Statements of Income. Recovery of the acquisition adjustment through rates has been requested in Utilities' current electric rate filing, which is discussed in Note 3(a). See Note 11(b) for a discussion of the purchase power contracts between Utilities and UE associated with this acquisition. (3) RATE MATTERS: (a) 1994 Electric Rate Case - In 1994, Utilities applied to the IUB for an increase in retail electric rates of approximately $26 million annually, or 5.2%. Utilities' proposal includes approximately $12 million in annual revenue requirement related to increased recovery levels of depreciation expense and nuclear decommissioning expense. To the extent these proposals are approved by the IUB, corresponding increases in expense would be recorded and there would be no effect on net income. No interim increase was requested. The Office of Consumer Advocate (OCA) filed a petition in connection with this proceeding to reduce the rates for retail electric service by approximately $27 million or 5.5%. The primary differences between the amount of the increase requested by Utilities and the decrease proposed by the OCA are: 1) a 13.9% return on common equity requested by Utilities compared to 11.1% proposed by the OCA; 2) OCA's rejection of Utilities' proposal to increase collections for decommissioning the DAEC; 3) OCA's rejection of Utilities' proposal to increase depreciation rates; 4) OCA's proposal to reject most of Utilities' request to recover an acquisition adjustment associated with its acquisition of the Iowa service territory of UE; and 5) an adjustment to test year sales levels proposed by the OCA. If a rate reduction is ultimately ordered by the IUB, the reduction would be effective from October 22, 1994, and revenues collected beyond that date would be subject to refund to the extent of the reduction approved by the IUB, if any. As of December 31, 1994, Utilities' revenues collected subject to refund were approximately $5 million. Intervenors in the proceeding also submitted filings in October 1994. These parties, which primarily represent individual or groups of customers, generally object to particular elements of the price increase and Utilities' price design proposals. Those intervenors that quantified their positions have generally argued for a price decrease, but none as large as that proposed by the OCA. Utilities expects to receive an order from the IUB in May 1995. (b) 1994 Energy Efficiency Cost Recovery Filing - The IUB has adopted rules that mandate Utilities to spend 2% of electric and 1.5% of gas gross retail operating revenues for energy efficiency programs. Under provisions of the IUB rules, in August 1994, Utilities applied to the IUB for recovery of approximately $23 million and $13 million for the electric and gas programs, respectively, related to costs incurred through 1993 for such programs. The $36 million total for the electric and gas programs is comprised of $21 million of direct expenditures and carrying costs (recorded as a "Regulatory asset" in the Consolidated Balance Sheets, including $3.6 million as current), $7 million for a return on the expenditures over the recovery period and $8 million for a reward based on a sharing of the benefits of such programs. In October 1994, the OCA and an intervenor in the proceeding filed their direct testimony. The principal difference between Utilities and the other parties is approximately $7 million in the reward calculation. Hearings in the proceeding were held in January 1995. Any increase approved by the IUB is not expected to be effective before April 1995, and recovery will be over a four-year period with a return allowed on the unrecovered portion over the recovery period. (4) LEASES: Utilities has a capital lease covering its 70% undivided interest in nuclear fuel purchased for the DAEC. Future purchases of fuel may also be added to the fuel lease. This lease provides for annual one-year extensions and Utilities intends to exercise such extensions through the DAEC's operating life. Interest costs under the lease are based on commercial paper costs incurred by the lessor. Utilities is responsible for the payment of taxes, maintenance, operating cost, risk of loss and insurance relating to the leased fuel. The lessor has an $80 million credit agreement with a bank supporting the nuclear fuel lease. The agreement continues on a year-to-year basis, unless either party provides at least a three-year notice of termination; no such notice of termination has been provided by either party. Annual nuclear fuel lease expenses include the cost of fuel, based on the quantity of heat produced for the generation of electric energy, plus the lessor's interest costs related to fuel in the reactor and administrative expenses. These expenses (included in "Fuel for production" in the Consolidated Statements of Income) for 1994-1992 were $17.8 million, $12.4 million and $12.9 million, respectively. The Company's operating lease rental expenses for 1994-1992 were $9.8 million, $8.4 million and $6.8 million, respectively. The Company's future minimum lease payments by year are as follows: Capital Operating Year Lease Leases (in thousands) 1995 $ 15,634 $ 7,023 1996 15,653 6,987 1997 12,942 4,591 1998 6,394 3,317 1999 4,176 2,544 2000 - 2002 1,267 - 56,066 $ 24,462 Less: Amount representing interest 6,335 Present value of net minimum capital lease payments $ 49,731 (5) UTILITY ACCOUNTS RECEIVABLE: Customer accounts receivable, including unbilled revenues, arise primarily from the sale of electricity and natural gas. At December 31, 1994, Utilities was serving a diversified base of residential, commercial and industrial customers consisting of approximately 330,000 electric and 173,000 gas customers. Utilities has entered into an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At December 31, 1994, $54 million was sold under the agreement. (6) INCOME TAXES: The components of Federal and state income taxes for the years ended December 31, were as follows: 1994 1993 1992 (in millions) Current tax expense $ 38.4 $ 27.5 $ 23.2 Deferred tax expense 2.2 15.4 0.3 Amortization and adjustment of investment tax credits (2.6) (4.9) (2.8) $ 38.0 $ 38.0 $ 20.7 The overall effective income tax rates shown below for the years ended December 31, were computed by dividing total income tax expense by income before income taxes. 1994 1993 1992 Statutory Federal income tax rate 35.0% 35.0% 34.0% Add (deduct): State income taxes, net of Federal benefits 6.1 5.8 5.6 Effect of property related temporary differences for which deferred taxes are not provided under rate making principles 3.2 1.5 0.5 Amortization of investment tax credits (2.7) (2.5) (4.2) Reversal through tariffs of deferred taxes provided at rates in excess of the current statutory Federal income tax rate (1.5) (1.7) (2.7) Adjustment of prior period taxes (1.9) (2.0) (2.0) Other items, net 0.1 (0.3) 0.2 Overall effective income tax rate 38.3% 35.8% 31.4% The accumulated deferred income taxes as set forth below in the Consolidated Balance Sheets at December 31, arise from the following temporary differences: 1994 1993 (in millions) Property related $ 276 $ 272 Investment tax credit related (28) (30) Decommissioning related (13) (12) Other 6 7 $ 241 $ 237 (7) BENEFIT PLANS: (a) Pension Plans - The Company has one contributory and two non-contributory retirement plans that, collectively, cover substantially all of its employees. Plan benefits are generally based on years of service and compensation during the employees' latter years of employment. Payments made from the pension funds to retired employees and beneficiaries during 1994 totaled $9.7 million. The Company's policy is to fund the pension cost at an amount that is at least equal to the minimum funding require- ments mandated by the Employee Retirement Income Security Act (ERISA) and that does not exceed the maximum tax deductible amount for the year. Pursuant to the provisions of SFAS 71, certain adjustments to Utilities' pension provision are necessary to reflect the accounting for pension costs allowed in its most recent rate cases. The components of the pension provision for the years ended December 31, were as follows: 1994 1993 1992 (in thousands) Service cost $ 5,786 $ 4,275 $ 4,439 Interest cost on projected benefit obligation 11,265 11,131 9,999 Assumed return on plans' assets (12,426) (12,177) (11,640) Amortization of unrecognized gain (180) (763) (135) Amortization of prior service cost 1,335 1,195 938 Amortization of unrecognized plans' assets as of January 1, 1987 (329) (384) (382) Pension cost 5,451 3,277 3,219 Adjustment to funding level (5,340) (2,867) 301 Total pension costs paid to the Trustees $ 111 $ 410 $ 3,520 Actual return on plans' assets $ (101) $ 12,718 $ 8,861 A reconciliation of the funded status of the plans to the amounts recognized in the Consolidated Balance Sheets at December 31, is presented below: 1994 1993 (in thousands) Fair market value of plans' assets $ 165,267 $ 174,133 Actuarial present value of benefits rendered to date - Accumulated benefits based on compensation to date, including vested benefits of $96,968,000 and $100,905,000, respectively 107,017 110,676 Additional benefits based on estimated future salary levels 39,565 42,938 Projected benefit obligation 146,582 153,614 Plans' assets in excess of projected benefit obligation 18,685 20,519 Remaining unrecognized net asset existing at January 1, 1987, being amortized over 20 years (3,792) (4,109) Unrecognized prior service cost 17,991 16,708 Unrecognized net gain (33,942) (28,830) Prepaid (accrued) pension cost recognized in the Consolidated Balance Sheets $ (1,058) $ 4,288 Assumed rate of return, all plans 8.00% 8.00% Weighted average discount rate of projected benefit obligation, all plans 8.25% 7.50% Range of assumed rates of increase in future compensation levels for the plans 4.00-5.75% 4.00-5.75% (b) Other Postemployment Benefit Plans - The Company provides certain benefits to retirees (primarily health care benefits). Through 1992, the Company expensed such costs as benefits were paid ($2.2 million for 1992), which was consistent with rate making practices at that time. Effective January 1, 1993, the Company adopted SFAS 106, which requires the accrual of the expected cost of postretirement benefits other than pensions during the employees' years of service. The IUB has adopted rules stating that postretirement benefits other than pensions will be included in Utilities' rates pursuant to the provisions of SFAS 106. The rules permit Utilities to amortize the transition obligation as of January 1, 1993, over 20 years and require that all amounts collected are to be funded into an external trust to pay benefits as they become due. Beginning in 1993, the gas portion of these costs is being recovered in Utilities' gas rates, and is funded in external trust funds. The IUB has adopted a rule that permits a deferral of the incremental electric SFAS 106 costs until the earlier of: 1) an order in an electric rate case, or 2) December 31, 1995. Accordingly, pursuant to the provisions of SFAS 71, Utilities had deferred $5.6 million of such costs at December 31, 1994. Utilities has requested recovery of these costs in the electric rate case discussed in Note 3(a). The components of postretirement benefit costs for the years ended December 31, were as follows: 1994 1993 (in thousands) Service cost $ 1,785 $ 1,685 Interest cost on accumulated postretirement benefit obligation 3,175 3,247 Actual return on plan assets (47) - Amortization of transition obligation existing at January 1, 1993 2,024 2,024 Amortization of unrecognized asset loss (13) - Amortization of unrecognized gain (4) - Amortization of prior service cost 19 - Postretirement benefit costs 6,939 6,956 Less: Deferred postretirement benefit costs 2,732 2,858 Net postretirement benefit costs $ 4,207 $ 4,098 A reconciliation of the funded status of the plans to the amounts recognized in the Consolidated Balance Sheets at December 31, is presented below: 1994 1993 (in thousands) Fair market value of plans' assets $ 1,127 $ 1,171 Accumulated postretirement benefit obligation - Active employees not yet eligible 18,216 18,325 Active employees eligible 5,119 4,130 Retirees 18,161 20,140 Total accumulated postretirement benefit obligation 41,496 42,595 Accumulated postretirement benefit obligation in excess of plans' assets (40,369) (41,424) Unrecognized transition obligation 36,439 38,463 Unrecognized net gain (5,358) (1,167) Unrecognized prior service cost 170 - Accrued postretirement benefit cost in the Consolidated Balance Sheets $ (9,118) $ (4,128) Assumed rate of return 8.00% 8.00% Weighted average discount rate of accumulated postretirement benefit obligation 8.25% 7.50% Medical trend on paid charges: Initial trend rate 11.00% 12.00% Ultimate trend rate 6.50% 6.50% The assumed medical trend rates are critical assumptions in determining the service cost and accumulated postretirement benefit obligation related to postretirement benefit costs. A 1% change in the medical trend rates, holding all other assumptions constant, would have changed the 1994 service cost by $1.0 million (20%) and the accumulated postretirement benefit obligation at December 31, 1994, by $6.6 million (16%). On January 1, 1994, the Company adopted the provisions of SFAS 112, "Employers' Accounting for Postemployment Benefits," and its adoption did not have a material effect on the Company's financial position or results of operations. (8) PREFERRED AND PREFERENCE STOCK: Utilities has 466,406 shares of Cumulative Preferred Stock, $50 par value, authorized for issuance at December 31, 1994, of which the 6.10%, 4.80% and 4.30% Series had 100,000, 146,406 and 120,000 shares, respectively, outstanding at both December 31, 1994 and 1993. These shares are redeemable at the option of Utilities upon 30 days notice at $51.00, $50.25 and $51.00 per share, respectively, plus accrued dividends. In addition, there are 700,000 shares of Utilities Cumulative Preference Stock ($100 par value) authorized for issuance, of which none were outstanding at December 31, 1994. (9) DEBT: (a) Long-Term Debt - Utilities' Indentures and Deeds of Trust securing its First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property. Utilities' Indenture and Deed of Trust securing its Collateral Trust Bonds constitutes a second lien on substantially all tangible public utility property while First Mortgage Bonds remain outstanding. Total sinking fund requirements, which Utilities intends to meet by pledging additional property under the terms of Utilities' Indentures and Deeds of Trust, and debt maturities for 1995-1999 are as follows: Debt Maturities (in thousands) Debt Issue 1995 1996 1997 1998 1999 Sinking fund requirements $ 780 $ 630 $ 550 $ 550 $ 550 Pollution control 140 140 140 140 140 Series W 50,000 - - - - Series X 50,000 - - - - Series J - 15,000 - - - 6-1/8% Series - - 8,000 - - Series Z - - - - 50,000 Total $ 100,920 $ 15,770 $ 8,690 $ 690 $ 50,690 The Company intends to refinance the majority of the debt maturities with long-term securities. (b) Short-Term Debt - At December 31, 1994, the Company had bank lines of credit aggregating $67.7 million, of which $37 million was being used to support commercial paper (weighted average interest rate of 6.13%) and $7.7 million was being used to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. In addition to the above, Utilities has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million. Rates are set at the time of borrowing and no fees are paid to maintain this facility. At December 31, 1994, there were no borrowings under this facility. Utilities also has a letter of credit in the amount of $3.4 million supporting two of its variable rate pollution control obligations. (10) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS: The estimated fair values of financial instruments at December 31, 1994, and the basis upon which they were estimated are as follows: (a) Current Assets and Current Liabilities - The carrying amount approximates fair value because of the short maturity of such financial instruments. (b) Nuclear Decommissioning Trust Funds - The carrying amount represents the fair value of these trust funds, as reported by the trustee. On January 1, 1994, the Company adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard, which applies to Utilities' nuclear decommissioning trust funds, requires that unrealized gains and losses on such investments be included in the reported balance of such investments. At December 31, 1994, the balance of the "Nuclear decommissioning trust funds" as shown in the Consolidated Balance Sheets included $0.8 million of unrealized losses on the investments held in the trust funds. The accumulated reserve for decommissioning costs was adjusted by a corresponding amount and there was no effect on net income from adopting this standard. (c) Cumulative Preferred Stock of Utilities - The estimated fair value of this stock of $10.2 million is based upon the market yield of similar securities. (d) Long-Term Debt - The carrying amount of long-term debt was $483 million compared to estimated fair value of $459 million. The estimated fair value of long-term debt is based upon quoted market prices. Since Utilities is subject to regulation, any gains or losses related to the difference between the carrying amount and the fair value of financial instruments may not be realized by the Company's parent. (11) COMMITMENTS AND CONTINGENCIES: (a) Construction Program - The Company's construction and acquisition program anticipates expenditures of approximately $163 million for 1995, and additional expenditures of approximately $13 million for mandated energy efficiency programs. The energy efficiency expenditures will be deferred pursuant to IUB rules as discussed in Note 3(b). Substantial commitments have been made in connection with all such expenditures. (b) Purchase Power Contracts - In connection with the acquisition of the UE properties discussed in Note 2, Utilities is purchasing power from UE under a firm capacity contract with a 1995 requirement of 100 Mw of delivered capacity declining to 60 Mw in 1997. Utilities will also purchase an additional annual maximum interruptible capacity of up to 54 Mw of 25 Hz power, which extends through 1998 and will continue thereafter unless either party gives a three-year notice of cancellation. The costs of capacity purchases for these contracts are reflected in "Purchased power" in the Consolidated Statements of Income. Utilities has a contract to purchase capacity of 50 Mw from the City of Muscatine for the period May 1, 1995, through October 31, 1995. Utilities has also entered into an agreement with Basin Electric Power Cooperative to purchase capacity of 50 Mw, 75 Mw, 100 Mw and 100 Mw during the annual six-month summer season for the years 1996 through 1999, respectively. Total capacity charges under all existing contracts will approximate $16.3 million, $14.3 million, $12.3 million, $4.7 million and $3.4 million for the years 1995-1999, respectively. (c) Coal Contract Commitments - Utilities has entered into coal supply contracts which expire between 1996 and 2001 for its fossil-fueled generating stations. At December 31, 1994, the contracts cover approximately $199 million of coal over the life of the contracts, which includes $50 million expected to be incurred in 1995. Utilities expects to supplement these coal contracts with spot market purchases to fulfill its future fossil fuel needs. (d) Information Technology Services - The Company entered into an agreement, expiring in 2004, with Electronic Data Systems Corporation (EDS) for information technology services. The contract is subject to declining termination fees. The Company's anticipated expenditures under the agreement for 1995 are estimated to be approximately $9.1 million. Future costs under the agreement are variable and are dependent upon the Company's level of usage of technological services from EDS. (e) Nuclear Insurance Programs - The Price-Anderson Amendments Act of 1988 (1988 Act) provides Utilities with the benefit of $8.9 billion of public liability coverage consisting of $200 million of insurance and $8.7 billion of potential retroactive assessments from the owners of nuclear power plants. Based upon its ownership of the DAEC, under the 1988 Act, Utilities could be assessed a maximum of $79.3 million per nuclear incident, with a maximum of $10 million per year (of which Utilities' 70% ownership portion would be approximately $55 million and $7 million, respectively) if losses relating to the incidents exceeded $200 million. These limits are subject to adjustments for inflation in future years. Utilities is a member of Nuclear Electric Insurance Limited (NEIL), which provides insurance coverage for the cost of certain property losses at nuclear generating stations and for the cost of replacement power during certain outages. Companies insured through NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the property damage or replacement power coverages. However, Utilities could be assessed annually a maximum of $8.5 million for certain property losses and $0.7 million for replacement power if NEIL's losses relating to accidents exceeded its accumulated reserve funds. Utilities is not aware of any losses that it believes are likely to result in an assessment. (f) Environmental Liabilities - The Company has recorded environmental liabilities of approximately $43 million, including $5.4 million as current liabilities, in its Consolidated Balance Sheets at December 31, 1994. The significant items are discussed below. Former Manufactured Gas Plant (FMGP) Sites Utilities has been named as a Potentially Responsible Party (PRP) by either the Iowa Department of Natural Resources (IDNR), the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency (EPA) for 28 FMGP sites. Utilities believes that it is not responsible for two of the sites for which it has been designated a PRP. Utilities has another FMGP site for which it has not yet been formally designated as a PRP. Utilities is working pursuant to the requirements of the IDNR, MPCA and EPA to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around the remaining 27 sites in order to protect public health and the environment. In addition, Utilities has recently become aware that two additional sites may exist, but it has not yet been able to determine if any liability may exist. Utilities has completed the remediation of three sites and is in various stages of the investigation and/or remediation processes for 22 sites. The investigation process is scheduled to begin in 1995 or 1996 for the two other sites. In 1994, Utilities received updated investigation reports on a number of sites, which, at some sites, indicated a greater volume of contaminated soil, surface and ground water needing treatment, and a greater volume of substances requiring higher cost incineration, than was anticipated in prior estimates. It is possible that future cost estimates will be greater than the current estimates as the investigation process proceeds and as additional facts become known. Utilities has recorded environmental liabilities related to the FMGP sites of $31 million (including $4.3 million as current liabilities) at December 31, 1994. These amounts are based upon Utilities' best current estimate of the amount to be incurred for investigation and remediation costs for those sites where the investigation process has been or is substantially completed. For those sites where the investigation is in its earlier stages or has not started, the liability represents the minimum of the estimated cost range. All investigations are expected to be completed by 1999 and site-specific remediations, based on recommendations from the IDNR, MPCA and EPA, are anticipated to be completed within three years after the completion of the investigations of each site. Utilities may be required to monitor these sites for a number of years upon completion of remediation, as is the case with the three sites for which remediation has been completed. Utilities has begun pursuing coverage for investigation, mitigation, prevention, remediation and monitoring costs from its insurance carriers and is investigating the potential for third party cost sharing for FMGP investigation and clean-up costs. The amount of shared costs, if any, cannot be reasonably determined and, accordingly, no potential sharing has been recorded at December 31, 1994. Regulatory assets of $31.0 million have been recorded in the Consolidated Balance Sheets, which reflect the future recovery that is being provided through Utilities' rates. Considering the rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. National Energy Policy Act of 1992 The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the DAEC, averages $1.4 million annually through 2007, of which Utilities' 70% share is $1.0 million. Utilities is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Utilities' 70% share of the future assessment, $12.0 million payable through 2007, has been recorded as a liability in the Consolidated Balance Sheets, including $0.8 million included in "Current liabilities - Environmental liabilities," with a related regulatory asset for the unrecovered amount. (g) Clean Air Act - The Clean Air Act Amendments Act of 1990 (Act) requires emission reductions of sulfur dioxide and nitrogen oxides to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act will be implemented in two phases with Phase I affecting two of Utilities' units beginning in 1995 and Phase II affecting all units beginning in the year 2000. Utilities is in the process of completing the modifications necessary to meet the Phase I requirements. Utilities expects to meet the requirements of Phase II by switching to lower sulfur fuels and through capital expenditures primarily related to fuel burning equipment and boiler modifications. Utilities estimates capital expenditures at approximately $22.5 million, including $4.4 million in 1995, in order to meet the requirements of the Act. (h) FERC Order No. 636 - The FERC issued Order No. 636 (Order 636) in 1992. Order 636, as modified on rehearing: 1) requires Utilities' pipeline suppliers to unbundle their services so that gas supplies are obtained separately from transportation service, and transportation and storage services are operated and billed as separate and distinct services; 2) requires the pipeline suppliers to offer "no notice" transportation service under which firm transporters (such as Utilities) can receive delivery of gas up to their contractual capacity level on any day without prior scheduling; 3) allows pipelines to abandon long-term (one year or more) transportation service provided to a customer under an expiring contract whenever the customer fails to match the highest rate and longest term (up to 20 years) offered to the pipeline by other customers for the particular capacity; and 4) provides for a mechanism under which pipelines can recover prudently incurred transition costs associated with the restructuring process. Utilities has enhanced access to competitively priced gas supply and more flexible transportation services as a result of Order 636. However, under Order 636, Utilities is required to pay certain transition costs incurred and billed by its pipeline suppliers. Utilities' three pipeline suppliers have made filings with the FERC to begin collecting their respective transition costs, and additional filings are expected. Utilities began paying the transition costs in 1993, and, at December 31, 1994, has recorded a liability of $8.0 million for those transition costs that have been incurred by the pipelines to date, including $3.0 million expected to be billed through 1995. Utilities is currently recovering the transition costs from its customers through its Purchased Gas Adjustment Clauses as such costs are billed by the pipelines. Transition costs, in addition to the recorded liability, that may ultimately be charged to Utilities could approximate $10 million. The ultimate level of costs to be billed to Utilities depends on the pipelines' filings with the FERC and other future events, including the market price of natural gas. However, Utilities believes any transition costs that the FERC would allow the pipelines to collect from Utilities would be recovered from its customers, based upon regulatory treatment of these costs currently and similar past costs by the IUB. Accordingly, regulatory assets, in amounts corresponding to the recorded liabilities, have been recorded to reflect the anticipated recovery. (12) JOINTLY-OWNED ELECTRIC UTILITY PLANT: Under joint ownership agreements with other Iowa utilities, Utilities has undivided ownership interests in jointly-owned electric generating stations and related transmission facilities. Each of the respective owners is responsible for the financing of its portion of the construction costs. Kilowatt-hour generation and operating expenses are divided on the same basis as ownership with each owner reflecting its respective costs in its Statements of Income. Information relative to Utilities' ownership interest in these facilities at December 31, 1994 is as follows: Ottumwa Neal DAEC Unit 1 Unit 3 ($ in millions) Utility plant in service $ 490.8 $ 187.9 $ 55.5 Accumulated depreciation $ 242.4 $ 80.6 $ 25.7 Construction work in progress $ 5.3 $ - $ 1.3 Plant capacity - Mw 515 716 515 Percent ownership 70% 48% 28% In-service date 1974 1981 1975 (13) SEGMENTS OF BUSINESS: The principal business segments of the Company are the generation, transmission, distribution and sale of electric energy and the purchase, distribution and sale of natural gas by Utilities. Certain financial information relating to the Company's significant segments of business is presented below: Year Ended December 31 1994 1993 1992 (in thousands) Operating results: Revenues - Electric $ 537,327 $ 550,521 $ 462,999 Gas 139,033 154,318 139,455 Operating income - Electric 125,487 128,994 90,891 Gas 8,135 13,750 8,367 Other information: Depreciation and amortization - Electric 68,640 63,832 59,707 Gas 6,214 5,186 4,024 Construction and acquisition expenditures - Electric 99,543 84,720 154,902 Gas 12,719 12,582 17,308 Assets - Identifiable assets - Electric 1,347,024 1,288,505 1,226,614 Gas 186,911 164,773 141,801 1,533,935 1,453,278 1,368,415 Other corporate assets 111,433 93,700 72,476 Total consolidated assets $ 1,645,368 $ 1,546,978 $ 1,440,891 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following discussion analyzes significant changes in the components of net income and financial condition from the prior periods for IES Utilities Inc. (Utilities) and its consolidated subsidiaries (the Company). Utilities' consolidated subsidiaries, IES Ventures Inc. and IES Midland Development Inc., were formed in December 1994 and had no operations in 1994. RESULTS OF OPERATIONS The Company's net income available for common stock decreased $6.8 million during 1994 and increased $23.5 million during 1993. The 1994 results were affected by milder than normal weather, particularly during the summer months. The 1993 results reflect Utilities' acquisition of the Iowa service territory of Union Electric Company (UE) (as discussed in Note 2 of the Notes to Consolidated Financial Statements) and a return to more normal weather conditions in Utilities' service territory from that experienced in 1992. The 1992 results were adversely affected by extremely cool summer weather and a mild winter in Utilities' service territory. The Company's operating income decreased $7.7 million during 1994 and increased $43.0 million during 1993. Reasons for the changes in the results of operations are explained in the following discussion. ELECTRIC REVENUES Electric revenues and Kwh sales for Utilities increased or (decreased) as compared with the prior year as follows: 1994 1993 ($ in millions) Electric revenues $ (13.2) $ 87.5 Electric sales (excluding off-system sales): Residential and Rural (1.4%) 17.1% Commercial 3.4% 17.4% Industrial 9.3% 40.6% Total 4.3% 24.9% The 1994 Kwh sales were adversely affected by milder than normal weather, particularly during the summer months. The largest effect of weather was on sales to residential and rural customers. Under normal weather conditions, 1994 sales would have been flat and total sales (excluding off-system sales) would have increased 4.8%, compared to 1993 actual sales. The growth in commercial and industrial sales continues to reflect the underlying strength of the economy as several major industrial expansions in Utilities' service territory were announced in 1994. The 1993 sales increases are attributable to the acquisition of the UE territory and a return to more normal weather conditions. After adjusting for these items, underlying total electric sales (excluding off-system sales) increased 6% in 1993, which reflects the economic growth in the industrial and commercial customer base. Utilities' electric tariffs include energy adjustment clauses (EAC) that are designed to currently recover the costs of fuel and the energy portion of purchased power billings to customers. See Note 1(j) of the Notes to Consolidated Financial Statements for discussion of the EAC. The decrease in the 1994 electric revenues is attributable to lower fuel costs collected through the EAC, lower off-system sales to other utilities and the effect of the mix of sales between lower margin industrial customers and higher margin residential and rural customers. Increased total sales (excluding off-system sales) partially offset the effects of the above items. The increase in electric revenues for 1993 is primarily because of the higher sales and increased recovery of fuel costs through the EAC. See Note 3(a) of the Notes to Consolidated Financial Statements for a discussion of Utilities' 1994 electric rate case. GAS REVENUES Utilities' gas revenues decreased $15.3 million during 1994 and increased $14.9 million during 1993. Gas sales in therms (including transported volumes), which also reflect the effects of weather, decreased 2.7% in 1994 and increased 5.3% in 1993. Adjusting for the effects of weather, gas sales decreased 1.8% and 1.5% in 1994 and 1993, respectively. Utilities' gas tariffs include purchased gas adjustment clauses (PGA) that are designed to currently recover the cost of gas sold. See Note 1(j) of the Notes to Consolidated Financial Statements for discussion of the PGA. Utilities' gas revenues decreased in 1994 primarily because of lower gas costs recovered through the PGA and, to a lesser extent, the effect of the lower sales. Gas revenues increased in 1993 substantially because of increased costs of gas recovered through the PGA, the effect of gas rate increases that became effective in September 1992 and the sales increase. OTHER REVENUES Other revenues increased $0.1 million and $1.1 million during 1994 and 1993, respectively, primarily due to increased steam sales. OPERATING EXPENSES Despite an increase in the amount of Kwh generation from a year ago, fuel for production decreased $1.8 million in 1994 largely because of lower average fuel prices and the effect of lower fuel cost recoveries through the EAC, which are included in fuel for production. Generation at Utilities' generating stations increased because of the increase in electric Kwh sales and because of increased availability of Utilities' nuclear generating station, the Duane Arnold Energy Center (DAEC), which was down for part of 1993 because of a scheduled refueling outage. There were refueling outages in 1993 and 1992, but no such outage in 1994. Fuel for production increased $14.3 million in 1993 because of increased availability of Utilities' fossil-fueled generating stations, which experienced extended maintenance outages in 1992, and because of increased sales. Purchased power decreased $24.7 million in 1994 because of lower off-system sales to other utilities, increased generation at Utilities' generating stations and the expiration, in April 1993, of a purchase power agreement with the City of Muscatine. Purchased power increased $18.7 million in 1993, of which approximately $14.7 million represents increased energy purchases and approximately $4.0 million is a net increase in capacity charges. The increase in energy purchases is because of the increased Kwh sales. The increased capacity costs reflect the contracts associated with the acquisition of the UE service territory, partially offset by the expiration of the purchase power agreement with the City of Muscatine. (See Note 11(b) of the Notes to Consolidated Financial Statements). Gas purchased for resale decreased $13.8 million in 1994 because of lower gas costs and lower gas sales at Utilities. Gas purchased for resale increased $7.5 million during 1993 primarily because of increased per unit gas costs at Utilities and the increased sales. Other operating expenses increased $9.1 million and $3.6 million in 1994 and 1993, respectively. The 1994 increase is primarily attributable to increases in labor and benefits costs, nuclear operating costs, former manufactured gas plant (FMGP) clean-up costs and information technology costs at Utilities. The 1993 increase is primarily because of increased labor and benefits costs and higher electric and gas transmission and distribution costs, partially offset by lower non-labor costs at the DAEC. Maintenance expenses increased $3.3 million and $6.6 million during 1994 and 1993, respectively. The 1994 increase is primarily because of increased labor costs and maintenance at the DAEC, partially offset by lower maintenance at Utilities' fossil-fueled generating stations. The 1993 increase is primarily because of increased maintenance at Utilities' fossil-fueled generating stations and the DAEC. Depreciation and amortization increased during both years because of increases in utility plant in service and, in 1993, the acquisition of the UE territory on December 31, 1992. An increase in the average gas utility property depreciation rate, resulting from an updated depreciation study, also contributed to the 1993 increase. Depreciation and amortization expenses for all years include $5.5 million for the DAEC decommissioning provision, which is collected through rates. The staff of the Securities and Exchange Commission (SEC) has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in the financial statements of electric utilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the accounting for removal costs, including decommissioning. If current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase, (2) the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation, and (3) trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction to decommissioning expense. If such changes are required, Utilities believes that there would not be an adverse effect on its financial position or results of operations based on current rate making practices. (See Note 1(g) of the Notes to Consolidated Financial Statements for a discussion of Utilities' proposal for collection of decommissioning costs included in its current rate filing). Taxes other than income taxes increased $1.2 million and $4.5 million during 1994 and 1993, respectively, largely because of increased property taxes. The 1993 increase is related, in part, to the acquisition of the UE service territory. INTEREST EXPENSE AND OTHER Interest expense increased $1.4 million and $0.5 million during 1994 and 1993, respectively, primarily because of an increase in the average amount of debt outstanding. A reduction in the average interest rate in 1993 substantially offset the effect of the higher average outstanding debt. The lower average interest rate reflects the refinancing of certain long-term debt issues at lower rates and lower cost short-term borrowings outstanding for interim periods between the redemption of certain long-term debt series and the issuance of their long-term replacements. Federal and state income taxes were constant in 1994 and increased $17.2 million in 1993. A decrease in income before income taxes in 1994 was offset by a higher effective income tax rate (see Note 6 of the Notes to Consolidated Financial Statements). The 1993 increase results from an increase in taxable income and an increase of 1% in the Federal statutory income tax rate. Adjustments of $1.5 million, recorded in the second quarter of 1992, to previously recorded tax reserves also affected the comparability of 1993 with the prior period. OTHER MATTERS The National Energy Policy Act of 1992 addresses several matters designed to promote competition in the electric wholesale power generation market, including mandated open access to the electric transmission system and greater encouragement of independent power production and cogeneration. Although various states throughout the country are currently exploring the possibility of expanded competition in the retail electric energy market, there is no significant activity underway in Iowa. The Company cannot predict the long-term consequences of these competitive issues on its results of operations or financial condition. The Company's strategy for dealing with these emerging issues includes seeking growth opportunities, continuing to offer quality customer service, on-going cost reductions and productivity enhancements. The Company recently initiated a major project to review and redesign its business processes with the primary goals being reduced operating costs, increased efficiency and enhanced customer service. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily attributable to its construction programs, debt maturities and sinking fund requirements. The Company's pre-tax ratio of earnings to fixed charges was 3.39, 3.64 and 2.71 in 1994- 1992, respectively. In 1994, cash flows from operating activities were $195 million. These funds were primarily used for construction and acquisition expenditures, for energy efficiency program costs mandated by the Iowa Utilities Board (IUB) and to pay dividends. The Company anticipates that future capital requirements will be met by cash generated from operations and external financing. The level of cash generated from operations is partially dependent upon economic conditions, legislative activities, environmental matters and timely rate relief for Utilities. (See Notes 3 and 11 of the Notes to Consolidated Financial Statements). Access to the long-term and short-term capital and credit markets is necessary for obtaining funds externally. Utilities' debt ratings are as follows: Moody's Standard & Poor's Long-term debt A1 A Short-term debt P1 A1 Utilities' liquidity and capital resources will be affected by environmental and legislative issues, including the ultimate disposition of remediation issues surrounding the FMGP issue, the Clean Air Act as amended, the National Energy Policy Act of 1992 and Federal Energy Regulatory Commission (FERC) Order 636, as discussed in Note 11 of the Notes to Consolidated Financial Statements. Consistent with rate making principles of the IUB, management believes that the costs incurred for the above matters will not have a material adverse effect on the financial position or results of operations of the Company. The IUB has adopted rules which require Utilities to spend 2% of electric and 1.5% of gas gross retail operating revenues annually for energy efficiency programs. Energy efficiency costs in excess of the amount in the most recent electric and gas rate cases are being recorded as regulatory assets by Utilities. At December 31, 1994, Utilities had $35 million of such costs recorded as regulatory assets. Under provisions of the IUB rules, Utilities made its initial filing for recovery of the costs in August 1994. See Note 3(b) of the Notes to Consolidated Financial Statements for a discussion of the filing. CONSTRUCTION AND ACQUISITION PROGRAM The Company's construction and acquisition program anticipates expenditures of approximately $163 million for 1995, of which approximately 32% represents expenditures for electric transmission and distribution facilities, 23% represents fossil-fueled generation expenditures, 15% represents expenditures for steam distribution plant and 9% represents nuclear generation expenditures. The remaining 21% represents miscellaneous electric, gas and general expenditures. In addition to the $163 million, Utilities anticipates expenditures of $13 million in connection with mandated energy efficiency programs. Substantial commitments have been made in connection with all such expenditures. The Company's levels of construction and acquisition expenditures are projected to be $167 million in 1996, $146 million in 1997, $170 million in 1998 and $182 million in 1999. It is estimated that approximately 80% of construction expenditures will be provided by cash from operating activities (after payment of dividends) for the five-year period 1995-1999. Capital expenditure and investment and financing plans are subject to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition opportunities, the availability of alternate energy and purchased power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. LONG-TERM FINANCING Other than Utilities' periodic sinking fund requirements, which Utilities intends to meet by pledging additional property, approximately $174 million of long-term debt will mature prior to December 31, 1999. The Company intends to refinance the majority of the debt maturities with long-term securities. In order to provide an up-to-date instrument for the issuance of bonds, notes or other evidence of indebtedness, Utilities has entered into an Indenture of Mortgage and Deed of Trust dated September 1, 1993 (New Mortgage). The lien of the New Mortgage is subordinate to the lien of Utilities' first mortgages until such time as all bonds issued under the first mortgages have been retired and such mortgages satisfied. The New Mortgage provides for the issuance of Collateral Trust Bonds upon the basis of, among other things, First Mortgage Bonds being issued by Utilities. Accordingly, to the extent that Utilities issues Collateral Trust Bonds on the basis of First Mortgage Bonds, it must comply with the requirements for the issuance of First Mortgage Bonds under Utilities' first mortgages. Under the terms of the New Mortgage, Utilities has covenanted not to issue any additional First Mortgage Bonds under its first mortgages except to provide the basis for issuance of Collateral Trust Bonds. The Indentures pursuant to which Utilities issues First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property and contain covenants which restrict the amount of additional bonds which may be issued. At December 31, 1994, such restrictions would have allowed Utilities to issue $320 million of additional First Mortgage Bonds. Utilities has received authority from the FERC to issue $250 million of long-term debt and is currently authorized by the SEC to issue $50 million of long-term debt under an existing registration statement. Utilities expects to replace two series of First Mortgage Bonds that mature in 1995 with other long-term securities. The Articles of Incorporation of Utilities authorize and limit the aggregate amount of additional shares of Cumulative Preferred Stock and Cumulative Preference Stock which may be issued. At December 31, 1994, Utilities could have issued an additional 700,000 shares of Cumulative Preference Stock and 100,000 additional shares of Cumulative Preferred Stock. The Company's capitalization ratios at December 31, 1994 and 1993, were as follows: Long-term debt 48% Preferred stock 2 Common equity 50 100% The 1994 ratios include $100 million of Utilities' First Mortgage Bonds maturing in 1995 that are classified as a current liability in the Consolidated Balance Sheets, but which are expected to be refinanced with long-term securities. SHORT-TERM FINANCING For interim financing, Utilities is authorized by the FERC to issue, through 1996, up to $200 million of short-term notes. In addition to providing for ongoing working capital needs, this availability of short-term financing provides Utilities flexibility in the issuance of long-term securities. At December 31, 1994, Utilities had outstanding short-term borrowings of $55.5 million, including $18.5 million of notes payable to associated companies. Utilities has an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At December 31, 1994, Utilities had sold $54 million under the agreement. At December 31, 1994, the Company had bank lines of credit aggregating $67.7 million, of which $37 million was being used to support commercial paper (weighted average interest rate of 6.13%) and $7.7 million was being used to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. In addition to the above, Utilities has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million. Rates are set at the time of borrowing and no fees are paid to maintain this facility. At December 31, 1994, there were no borrowings under this facility. Utilities also has a letter of credit in the amount of $3.4 million supporting two of its variable rate pollution control obligations. ENVIRONMENTAL MATTERS Utilities has been named as a Potentially Responsible Party (PRP) by either the Iowa Department of Natural Resources (IDNR), the Minnesota Pollution Control Agency (MPCA) or the United States Environmental Protection Agency (EPA) for 28 FMGP sites. Utilities believes that it is not responsible for two of the sites for which it has been designated a PRP. Utilities has another FMGP site for which it has not yet been formally designated as a PRP. Utilities is working pursuant to the requirements of the IDNR, MPCA and EPA to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around the remaining 27 sites in order to protect public health and the environment. In addition, Utilities has recently become aware that two additional sites may exist, but it has not yet been able to determine if any liability may exist. Utilities has completed the remediation of three sites and is in various stages of the investigation and/or remediation processes for 22 sites. The investigation process is scheduled to begin in 1995 or 1996 for the two other sites. In 1994, Utilities received updated investigation reports on a number of sites, which, at some sites, indicated a greater volume of contaminated soil, surface and ground water needing treatment, and a greater volume of substances requiring higher cost incineration, than was anticipated in prior estimates. It is possible that future cost estimates will be greater than the current estimates as the investigation process proceeds and as additional facts become known. Utilities has recorded environmental liabilities related to the FMGP sites of $31 million (including $4.3 million as current liabilities) at December 31, 1994. These amounts are based upon Utilities' best current estimate of the amount to be incurred for investigation and remediation costs for those sites where the investigation process has been or is substantially completed. For those sites where the investigation is in its earlier stages or has not started, the liability represents the minimum of the estimated cost range. All investigations are expected to be completed by 1999 and site-specific remediations, based on recommendations from the IDNR, MPCA and EPA, are anticipated to be completed within three years after the completion of the investigations of each site. Utilities may be required to monitor these sites for a number of years upon completion of remediation, as is the case with the three sites for which remediation has been completed. Utilities has begun pursuing coverage for investigation, mitigation, prevention, remediation and monitoring costs from its insurance carriers and is investigating the potential for third party cost sharing for FMGP investigation and clean-up costs. The amount of shared costs, if any, can not be reasonably determined and, accordingly, no potential sharing has been recorded at December 31, 1994. Regulatory assets of $31.0 million have been recorded in the Consolidated Balance Sheets, which reflect the future recovery that is being provided through Utilities' rates. Considering the rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. The Clean Air Act Amendments Act of 1990 (Act) requires emission reductions of sulfur dioxide and nitrogen oxides to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act will be implemented in two phases with Phase I affecting two of Utilities' units beginning in 1995 and Phase II affecting all units beginning in the year 2000. Utilities is in the process of completing the modifications necessary to meet the Phase I requirements. Utilities expects to meet the requirements of Phase II by switching to lower sulfur fuels and through capital expenditures primarily related to fuel burning equipment and boiler modifications. Utilities estimates capital expenditures at approximately $22.5 million, including $4.4 million in 1995, in order to meet the requirements of the Act. The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the DAEC, averages $1.4 million annually through 2007, of which Utilities' 70% share is $1.0 million. Utilities is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Utilities' 70% share of the future assessment, $12.0 million payable through 2007, has been recorded as a liability in the Consolidated Balance Sheets, including $0.8 million included in "Current liabilities - Environmental liabilities," with a related regulatory asset for the unrecovered amount. The Nuclear Waste Policy Act of 1982 assigned responsibility to the U.S. Department of Energy (DOE) to establish a facility for the ultimate disposition of high level waste and spent nuclear fuel and authorized the DOE to enter into contracts with parties for the disposal of such material beginning in January 1998. Utilities entered into such a contract and has made the agreed payments to DOE. The DOE, however, has experienced significant delays in its efforts and material acceptance is now expected to occur no earlier than 2010. Utilities has been storing spent nuclear fuel on-site since plant operations began in 1974 and has current on-site capability to store spent fuel until 2002. Utilities is aggressively reviewing options for additional spent nuclear fuel storage capability, including expanding on- site storage, pursuing other off-site storage and supporting legislation to resolve the lack of progress by the DOE. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated that each state must take responsibility for the storage of low-level radioactive waste produced within its borders. The State of Iowa has joined the Midwest Interstate Low-Level Radioactive Waste Compact Commission (Compact), which is planning a storage facility to be located in Ohio to store waste generated by the Compact's six member states. At December 31, 1994, Utilities has prepaid costs of approximately $1 million to the Compact for the building of such a facility. Currently, Utilities is storing its low- level radioactive waste generated at the DAEC on-site until new disposal arrangements are finalized among the Compact members. A Compact disposal facility is anticipated to be in operation in approximately ten years. On-site storage capability currently exists for low-level radioactive waste expected to be generated until the Compact facility is able to accept waste materials. The possibility that exposure to electric and magnetic fields emanating from power lines, household appliances and other electric sources may result in adverse health effects has been the subject of increased public, governmental and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing in order to resolve scientific uncertainties. EFFECTS OF INFLATION Under the rate making principles prescribed by the regulatory commissions to which Utilities is subject, only the historical cost of plant is recoverable in revenues as depreciation. As a result, Utilities has experienced economic losses equivalent to the current year's impact of inflation on utility plant. In addition, the regulatory process imposes a substantial time lag between the time when operating and capital costs are incurred and when they are recovered. Utilities does not expect the effects of inflation at current levels to have a significant effect on its results of operations. Selected Consolidated Quarterly Financial Data (unaudited) The following unaudited consolidated quarterly data, in the opinion of the Company, includes adjustments, which are normal and recurring in nature, necessary for the fair presentation of the results of operations and financial position. The quarterly amounts were affected by seasonal weather conditions. In addition, increased operating expenses in the fourth quarter of 1994 affected the comparability of the fourth quarter amounts. Quarter Ended March June September December 31 30 30 31 (in thousands) 1994 Operating revenues $ 192,013 $ 148,019 $ 179,477 $ 165,857 Operating income 34,248 24,777 51,777 24,789 Net income 14,944 9,255 25,733 11,278 Net income available for common stock 14,715 9,026 25,504 11,051 1993 Operating revenues $ 193,785 $ 148,919 $ 187,392 $ 183,654 Operating income 32,974 24,523 54,497 31,335 Net income 14,423 10,491 26,214 16,842 Net income available for common stock 14,194 10,262 25,985 16,615 Prior period operating income figures have been restated on a basis consistent with the current presentation as the income statement format was revised as a result of the formation in December 1994 of Utilities' non-utility subsidiaries, IES Ventures Inc. and IES Midland Development Inc. EX-3 2 BYLAWS AS AMENDED EXHIBIT 3 OF IES UTILITIES INC. (Amended Through February 7, 1995) ARTICLE I OFFICES SECTION 1.1. PRINCIPAL OFFICE. - The principal office shall be established and maintained in the ie: Tower, 200 First Street, S.E., in the City of Cedar Rapids, in the County of Linn, in the State of Iowa. SECTION 1.2. OTHER OFFICES. - The Corporation may have other offices, either within or without the State of Iowa, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may re quire. The registered office of the Corporation required by the Iowa Business Corporation Act to be maintained in the State of Iowa may be, but need not be identical with the principal office in the State of Iowa, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II SHAREHOLDERS SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders for the election of directors and the transaction of other business shall be held, in each year, on the third Tuesday in May at three o'clock in the afternoon unless such day is a holiday, in which event the annual meeting will be held at such time on the next succeeding business day. SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting or any special meeting of shareholders shall be held at the principal office of the Corporation or any place, within the State of Iowa, as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the shareholders may be called by the Chairman of the Board, the President, the Board of Directors, or the holders of not less than ten percent of all the shares entitled to vote at the meeting. SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed notice, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Board of Directors, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at the address appearing on the stock transfer books of the Corporation, with postage thereon prepaid. SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. - For the purpose of determining shareholders entitled to notice of, or to vote at, any special meeting of shareholders, or at any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case not to be more than 70 days, and in the case of a meeting of shareholders not less than 10 days, prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 2.6. VOTING RECORD. - The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least 10 days prior to each meeting of shareholders, a complete record of the shareholders en titled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours for a period of 10 days prior to such meeting. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence of the identity of the shareholders entitled to examine such record or transfer books or to vote at any meeting of shareholders. SECTION 2.7. QUORUM. - A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment only if a quorum is represented throughout. SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders shall be presided over by one of the following officers in the order of seniority if present and acting - the Chairman of the Board, the President, the Secretary, or if none of the foregoing is in office and present and acting, by a chairperson to be chosen by the shareholders. The Secretary of the Corporation, or if absent, an Assistant Secretary, shall act as secretary of the meeting, but if neither the Secretary nor an Assistant Secretary is present, or if the Secretary is presiding over the meeting and the Assistant Secretary is not present, the Chairman of the meeting shall appoint a secretary of the meeting. SECTION 2.9. PROXIES. - At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provi sion, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE III BOARD OF DIRECTORS SECTION 3.1. GENERAL POWERS. - The business and affairs of the Corporation shall be managed by its Board of Directors. SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND RE MOVAL. - The number of Directors of the Corporation shall be twelve. Each Director shall hold office until the next annual meeting of shareholders and until the Director's successor shall have been elected and qualified, unless removed at a meeting called expressly for that purpose by a vote of a majority of the shares then entitled to vote at an election of Directors. A Director may only be removed upon a showing of cause. Directors need not be residents of the State of Iowa or shareholders of the Corporation. Not more than three Directors shall be officers or employees of the Corporation or its subsidiaries. No person who has reached the age of 70 years shall be eligible for election or reelection to the Board of Directors. SECTION 3.3. REGULAR MEETINGS. - An annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. Unless otherwise provided by resolution of the Board of Directors, regular meetings of the Board of Directors, additional to the annual meeting, shall be held on the first Tuesday of February, May, and August, and on the first Wednesday of November of each year, at the principal office or any place within or without the State of Iowa as shall be designated by the Board of Directors without notice other than such resolution. SECTION 3.4. SPECIAL MEETINGS. - Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, President or any two Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place either within or without the State of Iowa, whether in person or by telecommunications, as the place for holding any special meeting of the Board of Directors called by them. SECTION 3.5. NOTICE. - Notice of any special meeting shall be given at least three days prior to the meeting by written notice delivered personally or mailed to each Director at the Director's business address, by telegram, or orally by telephone. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so ad dressed, with postage prepaid. If notice be given by tele gram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any busi ness because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 3.6. QUORUM. - A majority of the number of Directors fixed by Section 3.2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 3.7. MANNER OF ACTING. - The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. A Direc tor shall be considered present at a meeting of the Board of Directors or of a committee designated by the Board if the Director participates in such meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. SECTION 3.8. INFORMAL ACTION. Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent shall be entered in the minutes of the meeting, or (c) the Director shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 3.10. VACANCIES. - Any vacancy occurring in the board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. Notwithstanding the foregoing, during the Five Year Period (as such term is defined in the Agreement and Plan of Merger between IE Industries Inc. and Iowa Southern Inc. dated February 27, 1991), if any of the Company Directors (as such term is defined in the Agreement and Plan of Merger between IE Industries Inc. and Iowa Southern Inc. dated February 27, 1991) are removed, resign or cease to serve, unless a majority of the remaining Company Directors elects not to fill such vacancy or vacancies, then the vacancy or vacancies resulting therefrom will be filled by a person selected by the Board of Directors; provided that such person is acceptable to at least three of the remaining Company Directors as evidenced by such Company Directors' votes or written consents therefor. A Director so elected shall be elected for the unexpired term of the vacant directorship or the full term of such new directorship. Failure to attend three consecutive regular meetings of the Board of Directors shall disqualify a Director from further service as a Director during the year in which the third delinquency occurs and shall make such Director ineligible for re-election, unless such failure to attend be determined by the affirmative vote of two-thirds of the remaining Directors holding office to be due to circumstances beyond the control of such Director. A resignation may be tendered by any Director at any meeting of the shareholders or of the Board of Directors, who shall at such meeting accept the same. SECTION 3.11. COMPENSATION. - The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or may receive a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3.12. EXECUTIVE COMMITTEE. - The Board of Directors shall, at each annual meeting thereof, appoint from its number an Executive Committee of not less than three (3) nor more than five (5) members, including the Chairman of the Board and the Chief Executive Officer of the Corporation, to serve, subject to the pleasure of the Board, for the year next ensuing and until their successors are appointed by the Board. The Board of Directors at such time shall also fix the compen sation to be paid to the members of the Executive Committee. No member of the Executive Committee shall continue to be a member after ceasing to be a Director of the Corporation. The Board of Directors shall have the power at any time to in crease or decrease the number of members of the Executive Committee, to fill vacancies, to change any member, and to change the functions or terminate the Committee's existence. SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The Execu tive Committee appointed by the Board of Directors as above provided shall possess all the power and authority of the Board of Directors when said Board is not in session, but the Executive Committee shall not have the power to: (1) declare dividends or distributions, (2) approve or recommend directly to the shareholders actions required by law to be approved by shareholders, (3) fill vacancies on the Board of Directors or designate directors for purposes of proxy solicitation, (4) amend the Articles, (5) adopt, amend, or repeal Bylaws, (6) approve a plan of merger not requiring shareholders approval, (7) authorize reacquisition of shares unless pursuant to a method specified by the Board, or (8) authorize the sale or issuance of shares or designate the terms of a series of a class of shares, except pursuant to a method specified by the Board, to the extent permitted by law. SECTION 3.14. PROCEDURE: MEETINGS: QUORUM. - Regular meetings of the Executive Committee may be held at least once in each month on such day as the Committee shall elect and special meetings may be held at such other times as the Chairman of the Board, the President, or any two members of the Executive Committee may designate. Notice of special meetings of the Executive Committee shall be given by letter, telegram, or cable delivered for transmission not later than during the second day immediately preceding the day for such meeting or by word of mouth or telephone not later than the day immediately preceding the date for such meeting. No such notice need state the business to be transacted at the meet ing. No notice need be given of an adjourned meeting. The Executive Committee may fix its own rules of procedure. It shall keep a record of its proceedings and shall report these proceedings to the Board of Directors at the regular meeting thereof held next after the meeting of the Executive Commit tee. Attendance at any meeting of the Executive Committee at a special meeting shall constitute a waiver of notice of such special meeting. At its last meeting preceding the annual meeting of the Board of Directors, the Executive Committee shall make to the Board its recommendation of officers of the Corporation to be elected by the Board for the ensuing year. The Chairman of the Board shall act as Chairman at all meetings of the Executive Committee, and if the Chairman is absent, the President shall act as such Chairman. The Secre tary of the Corporation shall act as Secretary of the meeting. In case of the absence from any meeting of the Executive Committee of the Chairman of the Board and the President, or the Secretary of the Corporation, the Executive Committee shall appoint a chairman or secretary, as the case may be, of the meeting. The Executive Committee may hold its meetings within or without the State of Iowa, as it may from time to time by resolution determine. A majority of the Executive Committee shall be necessary to constitute a quorum for the transaction of any business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the Executive Committee. The members of the Executive Committee shall act only as a committee, and the individual members shall have no power as such. SECTION 3.15. OTHER COMMITTEES. - The Board of Directors may appoint by resolution adopted by a majority of the full Board of Directors from among its members, other committees, temporary or permanent, and, to the extent permitted by law and these Bylaws, may designate the duties, powers, and authorities of such committees subject to the same restriction of powers as provided in Section 3.13. ARTICLE IV OFFICERS SECTION 4.1. OFFICERS. - The officers of the Corporation shall be a Chairman of the Board, a President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers, including vice presidents, general counsel and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more of the offices may be held by the same person if so decided by the Board of Directors. SECTION 4.2. ELECTION AND TERM OF OFFICE. - The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board at its annual meeting held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as may be conve nient. A vacancy in any office for any reason may be filled by the Board of Directors for the unexpired portion of the term. SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or ap pointment of an officer shall not of itself create contract rights. SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board shall be the Chief Executive Officer of the Corporation, shall preside at all meetings of the Board of Directors, shall be a member of the Executive Committee, and shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4.5. PRESIDENT. - The President shall be the Chief Operating Officer of the Corporation and shall have general supervision of and be accountable for the control of the Corporation's business affairs, properties and management and otherwise shall have the general powers and duties usually vested with the office of President of a corporation, subject, however, to the control of the Board of Directors and the Executive Committee. The President shall see that all resolutions and orders of the Board of Directors or the Executive Committee are carried into effect and shall exercise such other powers and perform such other duties as may be designated by the Board of Directors and the Executive Committee. SECTION 4.6. VICE-PRESIDENTS. - A Vice President (if one or more be elected or appointed) shall have such powers and perform such duties as the Board of Directors may from time to time prescribe or as the Chairman of the Board or the Presi dent may from time to time delegate. SECTION 4.7. TREASURER. - The Treasurer shall have the custody of the funds and securities of the Corporation. Whenever necessary or proper, the Treasurer shall (1) endorse, on behalf of the Corporation, checks, notes or other obliga tions and deposit the same to the credit of the Corporation in such bank or banks or depositories as the Board of Directors may designate; (2) sign receipts or vouchers for payments made to the Corporation which shall also be signed by such other officer as may be designated by the Board of Directors; (3) disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements; and (4) render to the Board of Directors, the Executive Committee, the Chairman of the Board and the President at the regular meetings of the Board or Executive Committee, or whenever any of them may require it, an account of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond with one or more sureties satisfactory to the board, for the faithful performance of the duties of this office, and for the resto ration to the Corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in posses sion or under control of the Treasurer. SECTION 4.8. SECRETARY. - The Secretary shall record the votes and proceedings of the Shareholders, the Board of Directors and the Executive Committee in a book or books kept for that purpose, and shall serve notices of and attend all meetings of the Directors, the Executive Committee and share holders. In the absence of the Secretary or an Assistant Secretary from any meeting of the Board of Directors, the proceedings of such meeting shall be recorded by such other person as may be appointed for that purpose. The Secretary shall keep in safe custody the seal of the Corporation, and duplicates, if any, and when requested by the Board of Directors, or when any instrument shall have been first signed by the Chairman of the Board, the President or a Vice President duly authorized to sign the same, or when necessary to attest any proceedings of the shareholders or directors, shall affix it to any instrument requiring the same, and shall attest the same. The Secretary shall, with the Chairman of the Board or the President, sign certificates of stock of the Corporation and affix a seal of the Corpora tion or cause such seal to be imprinted or engraved thereon, subject, however, to the provisions providing for the use of facsimile signatures on stock certificates under certain conditions. The Secretary shall have charge of such books and papers as properly belong to such office, or as may be commit ted to the Secretary's care by the Board of Directors or by the Executive Committee, and shall perform such other duties as pertain to such office, or as may be required by the Board of Directors, the Executive Committee or the Chairman of the Board. SECTION 4.9. ASSISTANT TREASURERS. - Each Assistant Treasurer (if one or more Assistant Treasurers be elected or appointed) shall assist the Treasurer and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman of the Board or the President may from time to time delegate. At the request of the Treasurer, any Assistant Treasurer may perform temporarily the duties of Treasurer in the case of the Treasurer's absence or inability to act. In the case of the death of the Treasurer, or in the case of absence or inability to act without having designated an Assistant Treasurer to perform temporarily the duties of Treasurer, an Assistant Treasurer shall be designated by the Chairman of the Board or the President to perform the duties of the Treasurer. Each Assistant Treasurer shall, if required by the Board of Directors, give the Corporation a bond with such surety or sureties as may be ordered by the Board of Directors, for the faithful performance of the duties of such office and for the restoration to the Corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind belonging to the Corporation in the possession or under control of such Assistant Treasurer. SECTION 4.10. ASSISTANT SECRETARIES. - Each Assistant Secretary (if one or more Assistant secretaries be elected or appointed) shall assist the Secretary and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman of the Board or the President may from time to time delegate. At the request of the Secretary, any Assistant Secretary may perform temporarily the duties of Secretary in the case of the Secretary's absence or inability to act. In the case of the death of the Secretary, or in the case of absence or inability to act without having designated an Assistant Secretary to perform temporarily the duties of Secretary, the Assistant Secretary to perform the duties of the Secretary shall be designated by the Chairman of the Board or the President. SECTION 4.11. GENERAL COUNSEL. - The General Counsel shall be responsible for the management of the Legal Department in its support of all other operations of the Corporation including management guidance to assure responsible decisions, information for all employees concerning the legal and judicial environment and recommended changes of law as deemed advisable. In addition, the General Counsel shall be responsible for the coordination of outside counsel activities in all instances as well as the prosecution of charges against the Corporation or other judicial or regulatory activities. This shall include full information for the management and employees of judicial, regulatory or other administrative body rulings and their impact on the Corporation. The duties shall include approval of all legal and contractual documents of the Corporation, prior to their authorization, and full support to various departments to assist in the development of these documents. The General Counsel shall perform such other duties as may be assigned from time to time by the Board of Directors, the Executive Committee, the Chairman of the Board or the President. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the face (a) that the Corporation is organized under the laws of the State of Iowa, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles. If a certificate is countersigned by a transfer agent, or registered by a registrar, the signatures of the persons signing for such transfer agent or registrar also may be facsimiles. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 2.11 of Article II of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or inter est in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 2.11 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the share holders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify its directors, officers, employees and agents to the full extent permitted by the Iowa Business Corporation Act, as amended from time to time. The Corporation shall purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a direc tor, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provi sions of this section. SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. SECTION 6.3. SEAL. - The corporate seal shall be circu lar in form and shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL IOWA". Said seal may be used by causing it or a facsimile thereof to be im pressed or affixed or reproduced or otherwise. SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation; and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other deposito ries as the Board of Directors may authorize. SECTION 6.5. DIVIDENDS. - Subject to the provisions of the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem condu cive to the interests of the Corporation. SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required to be given to any shareholder or Director of the Corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Iowa Business Corporation Act, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the President of the Corporation if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the President, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the President or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. EX-12 3 EXHIBIT 12 IES UTILITIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Year Ended December 31, 1990 1991 1992 1993 1994 (in thousands, except ratio of earnings to fixed charges) Net income 45,969 47,563 45,291 67,970 61,210 Federal and state income taxes 22,364 23,494 20,723 37,963 37,966 Net income before income taxes 68,333 71,057 66,014 105,933 99,176 Interest on long-term debt 28,853 31,171 35,689 34,926 37,942 Other interest 4,704 5,595 3,939 5,243 3,630 Estimated interest component of rents 7,936 6,594 4,567 3,729 3,970 Fixed charges as defined 41,493 43,360 44,195 43,898 45,542 Earnings as defined 109,826 114,417 110,209 149,831 144,718 Ratio of earnings to fixed charges (unaudited) 2.65 2.64 2.49 3.41 3.18 For the purposes of computation of these ratios (a) earnings have been calculated by adding fixed charges and Federal and state income taxes to net income; (b) fixed charges consist of interest (including amortization of debt expense, premium and discount) on long-term and other debt and the estimated interest component of rents. EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into IES Utilities Inc.'s previously filed Form S-3 Registration Statement (File No. 33-68796) for the registration of long- term debt. ARTHUR ANDERSEN LLP Chicago, Illinois, March 15, 1995 EX-27 5
UT The schedule contains summary financial information extracted from the Consolidated Balance Sheet at December 31, 1994 and the Consolidated Statement of Income and the Consolidated Statement of Cash Flows for the twelve months ended December 31, 1994 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1994 DEC-31-1994 PER-BOOK 1,284,361 39,603 119,210 9,239 192,955 1,645,368 33,427 279,042 197,158 509,627 0 18,320 380,404 18,495 0 37,000 100,140 0 35,346 14,385 531,651 1,645,368 685,366 37,966 549,775 549,775 135,591 5,157 140,748 41,572 61,210 914 60,296 52,000 37,276 194,888 0 0 Income tax expense is not included in Operating Expense in the Consolidated Statements of Income for IES Utilities Inc.
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