-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DQdvaup0LytEvPZPIGrYmXfSExTgSk8Ly4Q1XtJW5kAR+H6UXus49L9BVEDB0d3i lSaflTLT+CrFvEJDw12PUQ== 0000052485-96-000008.txt : 19960515 0000052485-96-000008.hdr.sgml : 19960515 ACCESSION NUMBER: 0000052485-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04117 FILM NUMBER: 96564471 BUSINESS ADDRESS: STREET 1: 200 FIRST ST SE STREET 2: IES TOWER 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 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-4117-1 IES UTILITIES INC. (Exact name of registrant as specified in its charter) Iowa 42-0331370 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) IES Tower, Cedar Rapids, Iowa 52401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (319) 398-4411 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1996 Common Stock, $2.50 par value 13,370,788 shares IES UTILITIES INC. INDEX Page No. Part I. Financial Information. Item 1. Consolidated Financial Statements. Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3 - 4 Consolidated Statements of Income - Three and Twelve Months Ended March 31, 1996 and 1995 5 Consolidated Statements of Cash Flows - Three and Twelve Months Ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 - 17 Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition. 18 - 39 Part II. Other Information. 40 - 42 Signatures. 43 PART 1. - FINANCIAL INFORMATION ITEM 1. - CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS March 31, 1996 December 31, ASSETS (Unaudited) 1995 (in thousands) Property, plant and equipment: Utility - Plant in service - Electric $ 1,909,500 $ 1,900,157 Gas 166,248 165,825 Other 106,504 106,396 2,182,252 2,172,378 Less - Accumulated depreciation 973,304 950,324 1,208,948 1,222,054 Leased nuclear fuel, net of amortization 34,915 36,935 Construction work in progress 65,862 52,772 1,309,725 1,311,761 Other, net of accumulated depreciation and amortization of $1,261,000 and $1,166,000, respectively 5,073 5,477 1,314,798 1,317,238 Current assets: Cash and temporary cash investments 434 2,734 Accounts receivable - Customer, less reserve 27,003 18,619 Other 7,987 8,912 Production fuel, at average cost 12,313 12,155 Materials and supplies, at average cost 24,017 27,229 Regulatory assets 24,914 22,791 Prepayments and other 12,685 19,402 109,353 111,842 Investments: Nuclear decommissioning trust funds 49,543 47,028 Cash surrender value of life insurance policies 3,751 3,582 Other 561 475 53,855 51,085 Other assets: Regulatory assets 208,039 207,202 Deferred charges and other 20,902 21,268 228,941 228,470 $ 1,706,947 $ 1,708,635 CONSOLIDATED BALANCE SHEETS (CONTINUED) March 31, 1996 December 31, CAPITALIZATION AND LIABILITIES (Unaudited) 1995 (in thousands) Capitalization: Common stock - par value $2.50 per share - authorized 24,000,000 shares; 13,370,788 shares outstanding $ 33,427 $ 33,427 Paid-in surplus 279,042 279,042 Retained earnings 216,421 212,522 Total common equity 528,890 524,991 Cumulative preferred stock - par value $50 per share - authorized 466,406 shares; 366,406 shares outstanding 18,320 18,320 Long-term debt (excluding current portion) 465,513 465,463 1,012,723 1,008,774 Current liabilities: Notes payable to associated companies 3,241 8,888 Other short-term borrowings 92,000 101,000 Capital lease obligations 14,780 15,717 Maturities and sinking funds 15,140 15,140 Accounts payable 51,455 64,564 Accrued interest 9,753 8,038 Accrued taxes 68,062 50,369 Accumulated refueling outage provision 10,236 7,690 Adjustment clause balances 6,535 3,148 Environmental liabilities 5,421 5,521 Other 17,862 17,300 294,485 297,375 Long-term liabilities: Pension and other benefit obligations 43,265 41,866 Capital lease obligations 20,135 21,218 Environmental liabilities 41,053 40,905 Other 7,926 8,719 112,379 112,708 Deferred credits: Accumulated deferred income taxes 250,906 252,663 Accumulated deferred investment tax credits 36,454 37,115 287,360 289,778 Commitments and contingencies (Note 6) $ 1,706,947 $ 1,708,635 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Twelve Months Ended Months Ended March 31 March 31 1996 1995 1996 1995 (in thousands) Operating revenues: Electric $ 125,368 $ 116,577 $ 569,262 $ 529,987 Gas 69,241 53,175 153,358 127,074 Other 4,159 3,087 13,135 9,131 198,768 172,839 735,755 666,192 Operating expenses: Fuel for production 20,292 19,443 97,105 83,051 Purchased power 14,469 16,314 65,029 71,506 Gas purchased for resale 47,369 38,133 100,434 84,356 Other operating expenses 38,358 34,411 149,196 135,711 Maintenance 9,992 11,679 41,899 50,326 Depreciation and amortization 22,024 20,589 80,820 76,744 Taxes other than income taxes 12,060 12,374 44,699 43,258 164,564 152,943 579,182 544,952 Operating income 34,204 19,896 156,573 121,240 Interest expense and other: Interest expense 10,893 10,458 44,895 41,502 Allowance for funds used during construction -690 -1,115 -2,999 -4,148 Miscellaneous, net -963 8 -117 -970 9,240 9,351 41,779 36,384 Income before income taxes 24,964 10,545 114,794 84,856 Income taxes: Current 13,361 -1,985 48,812 26,717 Deferred -1,864 7,041 1,409 8,369 Amortization of investment tax credits -661 -672 -2,674 -2,657 10,836 4,384 47,547 32,429 Net income 14,128 6,161 67,247 52,427 Preferred dividend requirements 229 229 914 914 Net income available for common stock $ 13,899 $ 5,932 $ 66,333 $ 51,513 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three For the Twelve Months Ended Months Ended March 31 March 31 1996 1995 1996 1995 (in thousands) Cash flows from operating activities: Net income $ 14,128 $ 6,161 $ 67,247 $ 52,427 Adjustments to reconcile net income to net cash flows from operating activities - Depreciation and amortization 22,024 20,589 80,820 76,744 Amortization of principal under capital lease obligations 4,624 2,556 17,781 14,375 Deferred taxes and investment tax credits -2,525 6,369 -1,265 5,712 Refueling outage provision 2,546 -8,528 3,569 871 Amortization of other assets 2,913 1,056 9,247 2,740 Other 0 -263 447 -1,063 Other changes in assets and liabilities - Accounts receivable -7,459 126 -17,302 6,869 Production fuel, materials and supplies 902 -52 2,612 -2,678 Accounts payable -10,296 -4,239 -10,451 21,504 Accrued taxes 17,070 6,217 16,638 10,730 Provision for rate refunds 166 8,000 -7,728 -1,085 Adjustment clause balances 3,387 4,235 3,733 -7,071 Gas in storage 7,744 7,375 2,798 -796 Other 1,506 6,417 -6,006 10,919 Net cash flows from operating activities 56,730 56,019 162,140 190,198 Cash flows from financing activities: Dividends declared on common stock -10,000 -13,000 -40,000 -58,000 Dividends declared on preferred stock -229 -229 -914 -914 Proceeds from issuance of long-term debt 0 50,000 50,000 50,000 Reductions in long-term debt 0 -50,000 -50,140 -50,224 Net change in short-term borrowings -14,647 -11,951 51,697 43,544 Principal payments under capital lease obligations -4,913 -3,662 -15,714 -16,246 Sale of utility accounts receivable 0 10,000 -6,000 10,800 Other -86 0 -1,910 0 Net cash flows from financing activities -29,875 -18,842 -12,981 -21,040 Cash flows from investing activities: Construction and acquisition expenditures - Utility -23,374 -27,644 -121,833 -155,182 Other -197 -572 -2,965 -2,145 Deferred energy efficiency expenditures -3,667 -3,537 -18,159 -16,295 Nuclear decommissioning trust funds -1,502 -1,383 -6,219 -5,532 Other -415 -3,686 -2,039 -254 Net cash flows from investing activities -29,155 -36,822 -151,215 -179,408 Net increase (decrease) in cash and temporary cash investments -2,300 355 -2,056 -10,250 Cash and temporary cash investments at beginning of period 2,734 2,135 2,490 12,740 Cash and temporary cash investments at end of period $ 434 $ 2,490 $ 434 $ 2,490 Supplemental cash flow information: Cash paid during the period for - Interest $ 8,530 $ 8,254 $ 44,845 $ 40,281 Income taxes $ 7,138 $ 2,850 $ 33,371 $ 37,368 Noncash investing and financing activities - Capital lease obligations incurred $ 2,604 $ 1,116 $ 4,405 $ 15,217 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) March 31, 1996 (1) GENERAL: The interim Consolidated Financial Statements have been prepared by IES Utilities Inc. (Utilities) and its consolidated subsidiaries (collectively the Company), without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Utilities is a wholly-owned subsidiary of IES Industries Inc. (Industries). Utilities' wholly-owned subsidiary is IES Ventures Inc. (Ventures), which is a holding company for unregulated investments. Utilities is engaged principally in the generation, transmission, distribution and sale of electric energy and the purchase, distribution, transportation and sale of natural gas. The Company's principal markets are located in the state of Iowa. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, the Consolidated Financial Statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the results of operations and financial position. Certain prior period amounts have been reclassified on a basis consistent with the 1996 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect: 1) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and 2) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is suggested that these Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company's Form 10-K for the year ended December 31, 1995. The accounting and financial policies relative to the following items have been described in those notes and have been omitted herein because they have not changed materially through the date of this report: Summary of significant accounting policies Leases Utility accounts receivable (other than discussed in Note 4) Income taxes Benefit plans Preferred and preference stock Debt (other than discussed in Note 5) Estimated fair value of financial instruments Commitments and contingencies (other than discussed in Note 6) Jointly-owned electric utility plant Segments of business (2) PROPOSED MERGER OF INDUSTRIES: Industries, WPL Holdings, Inc. (WPLH) and Interstate Power Company (IPC) have entered into an Agreement and Plan of Merger (Merger Agreement), dated November 10, 1995, providing for: a) IPC becoming a wholly-owned subsidiary of WPLH, and b) the merger of Industries with and into WPLH, which merger will result in the combination of Industries and WPLH as a single holding company (collectively, the Proposed Merger). The new holding company will be named Interstate Energy Corporation (Interstate Energy) and Industries will cease to exist. The Proposed Merger, which will be accounted for as a pooling of interests, has been approved by the respective Boards of Directors. It is still subject to approval by the shareholders of each company as well as several federal and state regulatory agencies. The companies expect to receive the shareholder approvals in the third quarter of 1996 and regulatory approvals by the second quarter of 1997. The corporate headquarters of Interstate Energy will be in Madison, Wisconsin. The business of Interstate Energy will consist of utility operations and various non-utility enterprises. The utility subsidiaries currently serve approximately 870,000 electric customers and 360,000 natural gas customers in Iowa, Wisconsin, Illinois and Minnesota. (3) RATE MATTERS: (a) 1995 Gas Rate Case - On August 4, 1995, Utilities applied to the Iowa Utilities Board (IUB) for an annual increase in gas rates of $8.8 million, or 6.2%. An interim increase of $8.6 million was requested and the IUB, subsequently, approved an interim increase of $7.1 million annually, effective October 11, 1995, subject to refund. On April 4, 1996, the IUB issued an order approving a settlement agreement entered into by Utilities, the Office of Consumer Advocate and all three industrial intervenor groups, which allows Utilities a $6.3 million annual increase. Utilities subsequently filed final compliance tariffs and expects them to be effective in the second quarter of 1996. Primarily because of changes in rate design, there will be little or no refund obligation. (b) Electric Price Announcements - Utilities and its Iowa-based proposed merger partner, IPC, announced in April their intentions to hold retail electric prices to their current levels until, at least, January 1, 2000. The companies made the proposal as part of their testimony in the merger-related application filed with the IUB. The companies did specify that the proposal excludes price changes due to government-mandated programs, such as energy efficiency cost recovery, or unforeseen dramatic changes in operations. Utilities, Wisconsin Power and Light Company (the utility subsidiary of WPLH) and IPC also agreed to freeze their wholesale electric prices for four years from the effective date of the merger as part of their merger filing with the Federal Energy Regulatory Commission (FERC). The Company does not expect the merger-related electric price proposals to have a material adverse effect on its financial position or results of operations. (c) Energy Efficiency Cost Recovery - The IUB has current rules that mandate Utilities to spend 2% of electric and 1.5% of gas gross retail operating revenues for energy efficiency programs. Under provisions of the IUB rules, Utilities is currently recovering the energy efficiency costs incurred through 1993 for such programs, including its direct expenditures, carrying costs, a return on its expenditures and a reward. Recovery of the costs will be over a four-year period and began on June 1, 1995. In 1996 or early 1997, under provisions of the IUB rules, the Company will file for recovery of the costs relating to its 1994 and 1995 programs ($31.6 million as of March 31, 1996). The IUB has recently proposed changes to the Iowa statute which would 1) eliminate the 2% and 1.5% spending requirements described above in favor of IUB-determined energy savings targets and 2) eliminate the delay in recovery of energy efficiency costs by allowing recovery which is concurrent with spending, eventually eliminating the regulatory asset which exists under the current rate making mechanism. This legislation has been passed by the Iowa legislature and is awaiting signature by the governor. The Company expects the governor to sign the legislation in the second quarter of 1996. (4) UTILITY ACCOUNTS RECEIVABLE: Utilities has entered into an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At March 31, 1996, $58 million was sold under the agreement. (5) DEBT: At March 31, 1996, the Company had bank lines of credit aggregating $121.1 million, of which $92 million was being used to support commercial paper (weighted average interest rate of 5.27%) and $11.1 million to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. In addition to the above, Utilities has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million. Rates are set at the time of borrowing and no fees are paid to maintain this facility. At March 31, 1996, there were no borrowings outstanding under this facility. (6) CONTINGENCIES: (a) Environmental Liabilities - The Company has recorded environmental liabilities of approximately $46.5 million in its Consolidated Balance Sheets at March 31, 1996. The significant items are discussed below. Former Manufactured Gas Plant (FMGP) Sites Utilities has been named as a Potentially Responsible Party (PRP) by various federal and state environmental agencies for 28 FMGP sites, but believes it is not responsible for two of these sites based on extensive reviews of the ownership records and historical information available for the two sites. Utilities has notified the appropriate regulatory agency that it believes it does not have any responsibility as relates to these two sites, but no response has been received from the agency on this issue. Utilities is also aware of six other sites that it may have owned or operated in the past and for which, as a result, it may be designated as a PRP in the future in the event that environmental concerns arise at these sites. Utilities is working pursuant to the requirements of the various agencies to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around the sites in order to protect public health and the environment. Utilities believes it has completed the remediation of seven sites although it is in the process of obtaining final approval from the applicable environmental agencies on this issue for each site. Utilities is in various stages of the investigation and/or remediation processes for 17 sites and expects to begin the investigation process in 1996 for the two other sites. Utilities estimates the range of additional costs to be incurred for investigation and/or remediation of the sites to be approximately $23 million to $59 million. Utilities has recorded environmental liabilities related to the FMGP sites of approximately $35 million (including $4.6 million as current liabilities) at March 31, 1996. These amounts are based upon Utilities' best current estimate of the amount to be incurred for investigation and remediation costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages or has not started. It is possible that future cost estimates will be greater than the current estimates as the investigation process proceeds and as additional facts become known; in addition, Utilities may be required to monitor these sites for a number of years upon completion of remediation, as is the case with several of the sites for which remediation has been completed. In April 1996, Utilities filed a lawsuit against certain of its insurance carriers seeking reimbursement for investigation, mitigation, prevention, remediation and monitoring costs associated with the FMGP sites. The amount of potential recovery, if any, or the regulatory treatment of any such recoveries cannot be reasonably determined at this time and, accordingly, no estimated amounts have been recorded at March 31, 1996. Regulatory assets of approximately $35 million, which reflect the future recovery that is being provided through Utilities' rates, have been recorded in the Consolidated Balance Sheets. Considering the current rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. National Energy Policy Act of 1992 The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the Duane Arnold Energy Center (DAEC), averages $1.4 million annually through 2007, of which Utilities' 70% share is $1.0 million. Utilities is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Utilities' 70% share of the future assessment, $10.9 million payable through 2007, has been recorded as a liability in the Consolidated Balance Sheets, including $0.8 million included in "Current liabilities - Environmental liabilities," with a related regulatory asset for the unrecovered amount. (b) Air Quality Issues - The Clean Air Act Amendments of 1990 (Act) requires emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act are being implemented in two phases; the Phase I requirements have been met and the Phase II requirements affect eleven other fossil units beginning in the year 2000. Utilities expects to meet the requirements of Phase II by switching to lower sulfur fuels, capital expenditures primarily related to fuel burning equipment and boiler modifications, and the possible purchase of SO2 allowances. Utilities estimates capital expenditures at approximately $20 million, including $4 million in 1996, in order to meet the acid rain requirements of the Act. The acid rain program under the Act also governs SO2 allowances. An allowance is defined as an authorization for an owner to emit one ton of SO2 into the atmosphere. Currently, Utilities receives a sufficient number of allowances annually to offset its emissions of SO2 from its Phase I units. It is anticipated that in the year 2000, Utilities may have an insufficient number of allowances annually to offset its estimated emissions and may have to purchase additional allowances, or make modifications to the plants or limit operations to reduce emissions. Utilities is reviewing its options to ensure that it will have sufficient allowances to offset its emissions in the future. Utilities believes that the potential cost of ensuring sufficient allowances will not have a material adverse effect on its financial position or results of operations. The Act also requires the United States Environmental Protection Agency (EPA) to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to NOx, ozone transport and mercury. Currently, the impacts of these potential regulations are too speculative to quantify. In 1995, the EPA published the Sulfur Dioxide Network Design Review for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst- case modeling method suggests that the Cedar Rapids area could be classified as "nonattainment" for the National Ambient Air Quality Standard (NAAQS) established for SO2. The worst-case modeling study suggested that two of Utilities' generating facilities contribute to the modeled exceedences and recommended that additional monitors be located near Utilities' sources to assess actual ambient air quality. In the event that Utilities' facilities contribute excessive emissions, Utilities would be required to reduce emissions, which would primarily entail capital expenditures for modifications to the facilities. Utilities is planning to repower one of the generating facilities that was contributing to the modeled exceedences which will have the added inherent benefit of reducing SO2 emissions. Utilities is proposing to resolve the remainder of EPA's nonattainment concerns by installing a new stack at the other generating facility contributing to the modeled exceedences at a potential capital cost of up to $4.5 million over the next four years. (c) FERC Order No. 636 - Pursuant to FERC Order No. 636 (Order 636), which transitions the natural gas supply business to a less regulated environment, Utilities has enhanced access to competitively priced gas supply and more flexible transportation services. However, under Order 636, Utilities is required to pay certain transition costs incurred and billed by its pipeline suppliers. Utilities began paying the transition costs in 1993 and at March 31, 1996, has recorded a liability of $4.7 million for those transition costs that have been incurred, but not yet billed, by the pipelines to date, including $1.9 million expected to be billed through March 1997. Utilities is currently recovering the transition costs from its customers through its Purchased Gas Adjustment Clauses as such costs are billed by the pipelines. Transition costs, in addition to the recorded liability, that may ultimately be charged to Utilities could approximate $5.0 million. The ultimate level of costs to be billed to Utilities depends on the pipelines' future filings with the FERC and other future events, including the market price of natural gas. However, Utilities believes any transition costs that the FERC would allow the pipelines to collect from Utilities would be recovered from its customers, based upon regulatory treatment of these costs currently and similar past costs by the IUB. Accordingly, regulatory assets, in amounts corresponding to the recorded liabilities, have been recorded to reflect the anticipated recovery. (d) Nuclear Insurance Programs - Public liability for nuclear accidents is governed by the Price Anderson Act of 1988 which sets a statutory limit of $8.9 billion for liability to the public for a single nuclear power plant incident and requires nuclear power plant operators to provide financial protection for this amount. As required, Utilities provides this financial protection for a nuclear incident at the DAEC through a combination of liability insurance ($200 million) and industry-wide retrospective payment plans ($8.7 billion). Under the industry-wide plan, each operating licensed nuclear reactor in the United States is subject to an assessment in the event of a nuclear incident at any nuclear plant in the United States. Based on its ownership of the DAEC, Utilities could be assessed a maximum of $79.3 million per nuclear incident, with a maximum of $10 million per incident per year (of which Utilities' 70% ownership portion would be approximately $55 million and $7 million, respectively) if losses relating to the incident exceeded $200 million. These limits are subject to adjustments for changes in the number of participants and inflation in future years. Utilities is a member of Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL). These companies provide $1.9 billion of insurance coverage on certain property losses at DAEC for property damage, decontamination and premature decommissioning. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair and premature decommissioning. NEIL also provides separate coverage for the cost of replacement power during certain outages. Owners of nuclear generating stations insured through NML and NEIL are subject to retroactive premium adjustments if losses exceed accumulated reserve funds. NML and NEIL's accumulated reserve funds are currently sufficient to more than cover its exposure in the event of a single incident under the primary and excess property damage or replacement power coverages. However, Utilities could be assessed annually a maximum of $3.0 million under NML, $9.8 million for NEIL property and $0.7 million for NEIL replacement power if losses exceed the accumulated reserve funds. Utilities is not aware of any losses that it believes are likely to result in an assessment. In the unlikely event of a catastrophic loss at DAEC, the amount of insurance available may not be adequate to cover property damage, decontamination and premature decommissioning. Uninsured losses, to the extent not recovered through rates, would be borne by Utilities and could have a material adverse effect on Utilities' financial position and results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Consolidated Financial Statements include the accounts of IES Utilities Inc. (Utilities) and its consolidated subsidiaries (collectively the Company). Utilities is a wholly-owned subsidiary of IES Industries Inc. (Industries). Utilities' wholly-owned subsidiary is IES Ventures Inc. (Ventures), which is a holding company for unregulated investments. PROPOSED MERGER OF INDUSTRIES Industries, WPL Holdings, Inc. (WPLH) and Interstate Power Company (IPC) have entered into an Agreement and Plan of Merger (Merger Agreement), dated November 10, 1995, providing for: a) IPC becoming a wholly-owned subsidiary of WPLH, and b) the merger of Industries with and into WPLH, which merger will result in the combination of Industries and WPLH as a single holding company (collectively, the Proposed Merger). The new holding company will be named Interstate Energy Corporation (Interstate Energy) and Industries will cease to exist. The Proposed Merger, which will be accounted for as a pooling of interests, has been approved by the respective Boards of Directors. It is still subject to approval by the shareholders of each company as well as several federal and state regulatory agencies. The companies expect to receive the shareholder approvals in the third quarter of 1996 and regulatory approvals by the second quarter of 1997. The corporate headquarters of Interstate Energy will be in Madison, Wisconsin. The business of Interstate Energy will consist of utility operations and various non-utility enterprises. The utility subsidiaries currently serve approximately 870,000 electric customers and 360,000 natural gas customers in Iowa, Wisconsin, Illinois and Minnesota. RESULTS OF OPERATIONS The following discussion analyzes significant changes in the components of net income available for common stock and financial condition from the prior periods for the Company: The Company's net income available for common stock increased $8.0 million and $14.8 million during the three and twelve month periods, respectively. The Company estimates that favorable weather conditions increased net income available for common stock during the three and twelve month periods ended March 31, 1996, by approximately $1 million and $7.7 million, respectively. Milder than normal weather during the prior periods, a gas price increase implemented in October 1995 and electric and gas sales growth also contributed to the increased earnings during both periods. The three month period comparison also benefited from an out-of-period rate reserve recorded at Utilities in the first quarter of 1995. These items were partially offset by increased operating expenses, interest expense, and a higher effective income tax rate during both periods and the impact of lower electric prices during the twelve month period. The Company's operating income increased $14.3 million and $35.3 million during the three and twelve month periods, respectively. Reasons for the changes in the results of operations are explained in the following discussion. Electric Revenues Electric revenues and Kwh sales (before off-system sales) for Utilities increased or (decreased) as compared with the prior year as follows: Three Twelve Months Months ($ in millions) Total electric revenues $ 8.8 $ 39.3 Change in off-system sales revenues .6 (0.5) Electric revenues (excluding off-system sales) $ 8.2 $ 39.8 Electric sales (excluding off-system sales): Residential and Rural 6.0% 11.3% General Service 4.8 7.5 Large General Service 5.5 6.4 Total 5.6 7.0 Weather had a significant impact on sales during both periods. The largest effect of weather for both periods was on sales to residential and rural customers. Under historically normal weather conditions, total sales (excluding off-system sales) during the three and twelve month periods would have increased 3.5% and 4.0%, respectively. Sales during the twelve month period also benefited from the effect of Utilities' annual true up adjustment to unbilled sales. The growth in general service and large general service sales continues to reflect the underlying strength of the economy as industrial expansions in Utilities' service territory continued during both periods. Utilities' electric tariffs include energy adjustment clauses (EAC) that are designed to currently recover the costs of fuel and the energy portion of purchased power billings to customers. The increase in the electric revenues during the three month period was primarily due to the increased sales (excluding off-system sales), the impact of a reserve for rate refund recorded in the first quarter of 1995 which included $3.5 million for revenues collected during 1994 and the recovery of expenditures for energy efficiency programs pursuant to an Iowa Utilities Board (IUB) order. The twelve month increase was primarily due to the increased sales (excluding off-system sales), higher fuel costs collected through the EAC, the recovery of expenditures for energy efficiency programs and the unbilled revenue adjustment. These items were partially offset by a reduction in revenues of approximately $7 million as a result of the IUB price reduction order received in 1995. The increased sales during both periods were attributable to the impacts of the weather as well as sales growth, with the weather the dominant factor during the twelve month period. Refer to note 3(b) of the Notes to Consolidated Financial Statements for a discussion of merger-related retail and wholesale electric price proposals that Utilities has announced. Gas Revenues Gas revenues increased $16.1 million and $26.3 million for the three and twelve month periods, respectively. Utilities' gas sales and transported volumes in therms increased or (decreased) for the periods ended March 31, 1996, as compared with the prior periods, as follows: Three Months Twelve Months Residential 17.9% 17.0% Commercial 15.4 13.5 Industrial (2.6) (17.7) Sales to consumers 15.6 11.2 Transported volumes 1.3 11.6 Total 12.9 11.3 Under historically normal weather conditions, Utilities' gas sales and transported volumes would have increased 4.5% and 3.0% during the three and twelve month periods, respectively. Utilities' gas tariffs include purchased gas adjustment clauses (PGA) that are designed to currently recover the cost of gas sold. On August 4, 1995, Utilities applied to the IUB for an annual increase in gas rates of $8.8 million, or 6.2%. An interim increase of $8.6 million was requested and the IUB, subsequently, approved an interim increase of $7.1 million annually, effective October 11, 1995, subject to refund. On April 4, 1996, the IUB issued an order approving a settlement agreement entered into by Utilities, the Office of Consumer Advocate and all three industrial intervenor groups, which allows Utilities a $6.3 million annual increase. Utilities subsequently filed final compliance tariffs and expects them to be effective in the second quarter of 1996. Primarily because of changes in rate design, there will be little or no refund obligation. Utilities' gas revenues increased during both the three and twelve month periods primarily because of higher gas costs recovered through the PGA, the interim rate increase, recovery of expenditures for the energy efficiency programs and increased sales to ultimate consumers (largely on account of colder than normal weather). Other Revenues Other revenues increased $1.1 million and $4.0 million during the three and twelve month periods, respectively, primarily due to new industrial steam customers. Operating Expenses Fuel for production increased $0.8 million and $14.1 million during the three and twelve month periods, respectively. The three month increase was due to increased Kwh generation partially offset by lower fuel costs recovered through the EAC which are included in fuel for production expense. The twelve month increase was due to higher average fuel prices, increased Kwh generation and higher fuel costs recovered through the EAC. Generation at Utilities' generating stations increased during both periods because of the increased sales and the increased availability of the Duane Arnold Energy Center (DAEC), Utilities' nuclear generating plant, which was down during early 1995 for a scheduled refueling outage. Purchased power decreased ($1.8) million and ($6.5) million during the three and twelve month periods, respectively. The three month decrease was because of decreased energy purchases, as a result of the increased Kwh generation discussed above, and lower capacity costs. The twelve month decrease was substantially due to a ($5.6) million decrease in capacity costs and, to a lesser extent, lower energy purchases. Gas purchased for resale increased $9.2 million and $16.1 million during the three and twelve month periods, respectively, due to higher natural gas costs recovered through the PGA and the increased gas sales. Other operating expenses increased $3.9 million and $13.5 million during the three and twelve month periods, respectively. Increased labor and benefits costs, the amortization of previously deferred energy efficiency expenditures (which are currently being recovered through rates), costs associated with a project to review and redesign Utilities' major business processes and costs relating to the Proposed Merger contributed to the increases in both periods. These increases were partially offset by decreased nuclear operating costs. Maintenance expenses decreased ($1.7) million and ($8.4) million during the three and twelve month periods, respectively, primarily due to less required maintenance activities at the DAEC and at Utilities' fossil-fueled generating stations. Depreciation and amortization increased during both periods because of increases in utility plant in service. These increases were partially offset by lower depreciation rates implemented at Utilities as a result of the IUB electric price reduction order. Depreciation and amortization expenses for all periods included a provision for decommissioning the DAEC, which is collected through rates. The annual recovery level was increased to $6.0 million in 1995 from $5.5 million, as a result of Utilities' recent electric rate case. During the first quarter of 1996, the Financial Accounting Standards Board (FASB) issued an Exposure Draft on Accounting for Liabilities Related to Closure and Removal of Long-Lived Assets which deals with, among other issues, the accounting for decommissioning costs. If current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase relative to 1995 and (2) the estimated cost for decommissioning could be recorded as a liability, rather than as accumulated depreciation, with recognition of an increase in the recorded amount of the related DAEC plant. If such changes are required, Utilities believes that there would not be an adverse effect on its financial position or results of operations based on current rate making practices. Taxes other than income taxes increased $1.4 million during the twelve month period, largely because of increased property taxes at Utilities caused by increases in assessed property values. Interest Expense and Other Interest expense increased $3.4 million during the twelve month period, primarily because of an increase in the average amount of short-term debt outstanding and interest related to Utilities' electric rate refund. Lower average interest rates, attributable to refinancing $100 million of long-term debt at lower rates and the mix of long-term and short-term debt, partially offset the increase. Income taxes increased $6.5 million and $15.1 million for the three and twelve month periods, respectively. The increases for both periods were due to an increase in pre-tax income and a higher effective tax rate. The higher effective tax rate for each period is due to: 1) the effect of property related temporary differences for which deferred taxes had not been provided, pursuant to rate making principles, that are now becoming payable and are being recovered from ratepayers, and 2) the effect of prior period audit adjustments. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily attributable to its construction programs and debt maturities. The Company's pre-tax ratio of times interest earned was 3.56 and 3.04 for the twelve months ended March 31, 1996 and March 31, 1995, respectively. Cash flows from operating activities for the twelve months ended March 31, 1996 and March 31, 1995 were $162 million and $190 million, respectively. The decrease was primarily due to expenditures related to the effect of the 1995 DAEC refueling outage and other changes in working capital. The Company anticipates that future capital requirements will be met by cash generated from operations and external financing. The level of cash generated from operations is partially dependent upon economic conditions, legislative activities, environmental matters and timely rate relief for Utilities. See Notes 3 and 6 of the Notes to Consolidated Financial Statements. Access to the long-term and short-term capital and credit markets is necessary for obtaining funds externally. The Company's debt ratings are as follows: Moody's Standard & Poor's Long-term debt A2 A Short-term debt P1 A1 The Company's liquidity and capital resources will be affected by environmental and legislative issues, including the ultimate disposition of remediation issues surrounding the Company's environmental liabilities and the Clean Air Act as amended, as discussed in Note 6 of the Notes to Consolidated Financial Statements, and the National Energy Policy Act of 1992 as discussed in the Other Matters section. Consistent with rate making principles of the IUB, management believes that the costs incurred for the above matters will not have a material adverse effect on the financial position or results of operations of the Company. It is not certain if, and how, the Proposed Merger may affect the Company's debt ratings. The IUB has current 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 March 31, 1996, Utilities had approximately $51 million of such costs recorded as regulatory assets. On June 1, 1995, Utilities began recovery of those costs incurred through 1993. See Note 3(c) of the Notes to Consolidated Financial Statements for a discussion of the timing of the filings for the recovery of these costs under IUB rules. The IUB has recently proposed changes to the Iowa statute which would 1) eliminate the 2% and 1.5% spending requirements described above in favor of IUB-determined energy savings targets and 2) eliminate the delay in recovery of energy efficiency costs by allowing recovery which is concurrent with spending, eventually eliminating the regulatory asset which exists under the current rate making mechanism. This legislation has been passed by the Iowa legislature and is awaiting signature by the governor. The Company expects the governor to sign the legislation in the second quarter of 1996. Under provisions of the Merger Agreement, there are restrictions on the amount of long-term debt the Company can issue pending the merger. The Company does not expect the restrictions to have a material effect on its ability to meet its future capital requirements. CONSTRUCTION AND ACQUISITION PROGRAM The Company's construction and acquisition program anticipates expenditures of approximately $164 million for 1996, of which approximately 55% represents expenditures for electric, gas and steam transmission and distribution facilities, 19% represents fossil-fueled generation expenditures, 13% represents information technology expenditures and 5% represents nuclear generation expenditures. The remaining 8% represents miscellaneous electric and general expenditures. In addition to the $164 million, Utilities anticipates expenditures of $13 million in connection with mandated energy efficiency programs. The Company had expenditures of approximately $24 million for the three months ended March 31, 1996. The Company's levels of construction and acquisition expenditures are projected to be $185 million in 1997, $176 million in 1998, $161 million in 1999 and $137 million in 2000. It is estimated that approximately 80% of these construction and acquisition expenditures will be provided by cash from operating activities (after payment of dividends) for the five-year period 1996-2000. Capital expenditure and investment and financing plans are subject to continual review and change. The capital expenditure and investment programs may be revised significantly as a result of many considerations including changes in economic conditions, variations in actual sales and load growth compared to forecasts, requirements of environmental, nuclear and other regulatory authorities, acquisition opportunities, the availability of alternate energy and purchased power sources, the ability to obtain adequate and timely rate relief, escalations in construction costs and conservation and energy efficiency programs. Under provisions of the Merger Agreement, there are restrictions on the amount of construction and acquisition expenditures the Company can make pending the merger. The Company does not expect the restrictions to have a material effect on its ability to implement its anticipated construction and acquisition program. LONG-TERM FINANCING Other than Utilities' periodic sinking fund requirements, which Utilities intends to meet by pledging additional property, approximately $140 million of long term debt will mature prior to December 31, 2000. The Company intends to refinance the majority of the debt maturities with long-term securities. Utilities has entered into an Indenture of Mortgage and Deed of Trust dated September 1, 1993 (New Mortgage). The New Mortgage provides for, among other things, the issuance of Collateral Trust Bonds upon the basis of First Mortgage Bonds being issued by Utilities. The lien of the New Mortgage is subordinate to the lien of Utilities' first mortgages until such time as all bonds issued under the first mortgages have been retired and such mortgages satisfied. Accordingly, to the extent that Utilities issues Collateral Trust Bonds on the basis of First Mortgage Bonds, it must comply with the requirements for the issuance of First Mortgage Bonds under Utilities' first mortgages. Under the terms of the New Mortgage, Utilities has covenanted not to issue any additional First Mortgage Bonds under its first mortgages except to provide the basis for issuance of Collateral Trust Bonds. The indentures pursuant to which Utilities issues First Mortgage Bonds constitute direct first mortgage liens upon substantially all tangible public utility property and contain covenants which restrict the amount of additional bonds which may be issued. At March 31, 1996, such restrictions would have allowed Utilities to issue at least $261 million of additional First Mortgage Bonds. In order to provide an instrument for the issuance of unsecured subordinated debt securities, Utilities entered into an Indenture dated December 1, 1995 (Subordinated Indenture). The Subordinated Indenture provides for, among other things, the issuance of unsecured subordinated debt securities. Any debt securities issued under the Subordinated Indenture are subordinate to all senior indebtedness of Utilities, including First Mortgage Bonds and Collateral Trust Bonds. Utilities has received authority from the Federal Energy Regulatory Commission (FERC) and the SEC to issue up to $250 million of long-term debt, and has $250 million of remaining authority under the current FERC docket through April 1998, and $200 million of remaining authority under the current SEC shelf registration. Utilities expects to replace one series of First Mortgage Bonds that matures in 1996 with other long-term securities. The Articles of Incorporation of Utilities authorize and limit the aggregate amount of additional shares of Cumulative Preference Stock and Cumulative Preferred Stock that may be issued. At March 31, 1996, 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 March 31, were as follows: 1996 1995 Long-term debt 46% 48% Preferred stock 2 2 Common equity 52 50 100% 100% Under provisions of the Merger Agreement, there are restrictions on the amount of long-term debt the Company can issue pending the merger. The Company does not expect the restrictions to have a material effect on its ability to meet its future capital requirements. SHORT-TERM FINANCING For interim financing, Utilities is authorized by the FERC to issue, through 1996, up to $200 million of short-term notes. 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 March 31, 1996, Utilities had outstanding short-term borrowings of $95.2 million, including $3.2 million of notes payable to associated companies. Utilities has entered into an agreement, which expires in 1999, with a financial institution to sell, with limited recourse, an undivided fractional interest of up to $65 million in its pool of utility accounts receivable. At March 31, 1996, $58 million was sold under the agreement. At March 31, 1996, the Company had bank lines of credit aggregating $121.1 million, of which $92 million was being used to support commercial paper (weighted average interest rate of 5.27%) and $11.1 million to support certain pollution control obligations. Commitment fees are paid to maintain these lines and there are no conditions which restrict the unused lines of credit. In addition to the above, Utilities has an uncommitted credit facility with a financial institution whereby it can borrow up to $40 million. Rates are set at the time of borrowing and no fees are paid to maintain this facility. At March 31, 1996, there were no borrowings outstanding under this facility. ENVIRONMENTAL MATTERS Utilities has been named as a Potentially Responsible Party (PRP) by various federal and state environmental agencies for 28 FMGP sites, but believes it is not responsible for two of these sites based on extensive reviews of the ownership records and historical information available for the two sites. Utilities has notified the appropriate regulatory agency that it believes it does not have any responsibility as relates to these two sites, but no response has been received from the agency on this issue. Utilities is also aware of six other sites that it may have owned or operated in the past and for which, as a result, it may be designated as a PRP in the future in the event that environmental concerns arise at these sites. Utilities is working pursuant to the requirements of the various agencies to investigate, mitigate, prevent and remediate, where necessary, damage to property, including damage to natural resources, at and around the sites in order to protect public health and the environment. Utilities believes it has completed the remediation of seven sites although it is in the process of obtaining final approval from the applicable environmental agencies on this issue for each site. Utilities is in various stages of the investigation and/or remediation processes for 17 sites and expects to begin the investigation process in 1996 for the two other sites. Utilities estimates the range of additional costs to be incurred for investigation and/or remediation of the sites to be approximately $23 million to $59 million. Utilities has recorded environmental liabilities related to the FMGP sites of approximately $35 million (including $4.6 million as current liabilities) at March 31, 1996. These amounts are based upon Utilities' best current estimate of the amount to be incurred for investigation and remediation costs for those sites where the investigation process has been or is substantially completed, and the minimum of the estimated cost range for those sites where the investigation is in its earlier stages or has not started. It is possible that future cost estimates will be greater than the current estimates as the investigation process proceeds and as additional facts become known; in addition, Utilities may be required to monitor these sites for a number of years upon completion of remediation, as is the case with several of the sites for which remediation has been completed. In April 1996, Utilities filed a lawsuit against certain of its insurance carriers seeking reimbursement for investigation, mitigation, prevention, remediation and monitoring costs associated with the FMGP sites. The amount of potential recovery, if any, or the regulatory treatment of any such recoveries cannot be reasonably determined at this time and, accordingly, no estimated amounts have been recorded at March 31, 1996. Regulatory assets of approximately $35 million, which reflect the future recovery that is being provided through Utilities' rates, have been recorded in the Consolidated Balance Sheets. Considering the current rate treatment allowed by the IUB, management believes that the clean-up costs incurred by Utilities for these FMGP sites will not have a material adverse effect on its financial position or results of operations. The Clean Air Act Amendments of 1990 (Act) requires emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx) to achieve reductions of atmospheric chemicals believed to cause acid rain. The provisions of the Act are being implemented in two phases; the Phase I requirements have been met and the Phase II requirements affect eleven other fossil units beginning in the year 2000. Utilities expects to meet the requirements of Phase II by switching to lower sulfur fuels, capital expenditures primarily related to fuel burning equipment and boiler modifications and the possible purchase of SO2 allowances. Utilities estimates capital expenditures at approximately $20 million, including $4 million in 1996, in order to meet the acid rain requirements of the Act. The acid rain program under the Act also governs SO2 allowances. An allowance is defined as an authorization for an owner to emit one ton of SO2 into the atmosphere. Currently, Utilities receives a sufficient number of allowances annually to offset its emissions of SO2 from its Phase I units. It is anticipated that in the year 2000, Utilities may have an insufficient number of allowances annually to offset its estimated emissions and may have to purchase additional allowances, or make modifications to the plants or limit operations to reduce emissions. Utilities is reviewing its options to ensure that it will have sufficient allowances to offset its emissions in the future. Utilities believes that the potential cost of ensuring sufficient allowances will not have a material adverse effect on its financial position or results of operations. The Act also requires the United States Environmental Protection Agency (EPA) to study and regulate, if necessary, additional issues that potentially affect the electric utility industry, including emissions relating to NOx, ozone transport and mercury. Currently, the impacts of these potential regulations are too speculative to quantify. In 1995, the EPA published the Sulfur Dioxide Network Design Review for Cedar Rapids, Iowa, which, based on the EPA's assumptions and worst- case modeling method suggests that the Cedar Rapids area could be classified as "nonattainment" for the National Ambient Air Quality Standard (NAAQS) established for SO2. The worst-case modeling study suggested that two of Utilities' generating facilities contribute to the modeled exceedences and recommended that additional monitors be located near Utilities' sources to assess actual ambient air quality. In the event that Utilities' facilities contribute excessive emissions, Utilities would be required to reduce emissions, which would primarily entail capital expenditures for modifications to the facilities. Utilities is planning to repower one of the generating facilities that was contributing to the modeled exceedences which will have the added inherent benefit of reducing SO2 emissions. Utilities is proposing to resolve the remainder of EPA's nonattainment concerns by installing a new stack at the other generating facility contributing to the modeled exceedences at a potential capital cost of up to $4.5 million over the next four years. The National Energy Policy Act of 1992 requires owners of nuclear power plants to pay a special assessment into a "Uranium Enrichment Decontamination and Decommissioning Fund." The assessment is based upon prior nuclear fuel purchases and, for the DAEC, averages $1.4 million annually through 2007, of which Utilities' 70% share is $1.0 million. Utilities is recovering the costs associated with this assessment through its electric fuel adjustment clauses over the period the costs are assessed. Utilities' 70% share of the future assessment, $10.9 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 with the possibility of further delay being likely. Utilities has been storing spent nuclear fuel on-site since plant operations began in 1974 and has current on- site capability to store spent fuel until 2002. Utilities is aggressively reviewing options for additional spent nuclear fuel storage capability, including expanding on-site storage and supporting legislation currently before the U.S. Congress, to resolve the lack of progress by the DOE. The Low-Level Radioactive Waste Policy Amendments Act of 1985 mandated that each state must take responsibility for the storage of low- level radioactive waste produced within its borders. The State of Iowa has joined the Midwest Interstate Low-Level Radioactive Waste Compact Commission (Compact), which is planning a storage facility to be located in Ohio to store waste generated by the Compact's six member states. At March 31, 1996, Utilities has prepaid costs of approximately $1.1 million to the Compact for the building of such a facility. A Compact disposal facility is anticipated to be in operation in approximately ten years after approval of new enabling legislation by the member states. Such legislation has been approved by five of the states and is still pending with the sixth, and final state. Approval by the U.S. Congress will also be required before it is effective. On- site storage capability currently exists for low-level radioactive waste expected to be generated until the Compact facility is able to accept waste materials. In addition, the Barnwell, South Carolina disposal facility has reopened for an indefinite time period and Utilities is in the process of shipping to Barnwell the majority of the low-level radioactive waste it has accumulated on-site, and intends to ship the waste it produces in the future as long as the Barnwell site remains open, thereby minimizing the amount of low-level waste stored on-site. The possibility that exposure to electric and magnetic fields (EMF) emanating from power lines, household appliances and other electric sources may result in adverse health effects has been the subject of increased public, governmental, industry and media attention. A considerable amount of scientific research has been conducted on this topic without definitive results. Research is continuing in order to resolve scientific uncertainties. The Company cannot predict the outcome of this research. OTHER MATTERS Competition As legislative, regulatory, economic and technological changes occur, electric utilities are faced with increasing pressure to become more competitive. Such competitive pressures could result in loss of customers and an incurrence of stranded costs (i.e. the cost of assets rendered unrecoverable as the result of competitive pricing). To the extent stranded costs cannot be recovered from customers, they would be borne by security holders. The National Energy Policy Act of 1992 addresses several matters designed to promote competition in the electric wholesale power generation market. In April 1996, the FERC issued final rules, largely confirming earlier proposals, requiring electric utilities to open their transmission lines to other wholesale buyers and sellers of electricity. The rules will take effect 60 days after they are published in the Federal Register. The key provisions of the rules are: 1) utilities must act as "common carriers" of electricity, reserving capacity on their lines for other wholesale buyers and sellers of electricity and charging competitors no more than they pay themselves for use of the lines; 2) utilities must establish electronic bulletin boards to share information about transmission capacity; and 3) utilities can recover "stranded costs" by charging large wholesale customers a fee for switching to a new supplier. Utilities filed conforming pro-forma open access transmission tariffs with the FERC on July 24, 1995. The tariffs were accepted by the FERC and became effective October 1, 1995. The geographic position of Utilities' transmission system could provide revenue opportunities in the open access environment. The Company cannot predict the long-term consequences of these rules on its results of operation or financial condition. The final FERC rules do not provide for the recovery of stranded costs resulting from retail competition. The various states retain jurisdiction over whether to permit retail competition, the terms of such retail competition and the recovery of any stranded costs resulting therefrom. The IUB initiated a Notice of Inquiry (Docket No. NOI-95-1) in early 1995 on the subject of "Emerging Competition in the Electric Utility Industry." A one-day roundtable discussion was held to address all forms of competition in the electric utility industry and to assist the IUB in gathering information and perspectives on electric competition from all persons or entities with an interest or stake in the issues. Additional discussions were held in December 1995. In January 1996, the IUB created its own timeline for evaluating industry restructuring in Iowa. Included in the IUB's process was the creation of a 22-member advisory panel, of which Utilities is a member. The IUB has established a self-imposed deadline of October 1, 1996, for publishing their recommendations for restructuring. Utilities is subject to the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71). If a portion of Utilities' operations become no longer subject to the provisions of SFAS 71, as a result of competitive restructurings or otherwise, a write-down of related regulatory assets would be required, unless some form of transition cost recovery is established by the appropriate regulatory body. Utilities believes that it still meets the requirements of SFAS 71. The Company cannot predict the long-term consequences of these competitive issues on its results of operations or financial condition. The Company's strategy for dealing with these emerging issues includes seeking growth opportunities, continuing to offer quality customer service, ongoing cost reductions and productivity enhancements. The Company is attempting to accomplish some of these tasks through Process Redesign. Process Redesign is an effort undertaken by Utilities to improve service levels, to reduce its cost structure and to become more market-focused and customer-oriented. The major objective is to allow Utilities to better prepare for a competitive, deregulated electric utility industry. Process Redesign is examining the major business processes within Utilities, which are: Customer Service Fulfillment, Fossil-Fueled Energy Supply, Nuclear Energy Supply, Non-Electric Fuel Supply Chain, Transmission and Distribution Energy Delivery, and Planning, Budgeting & Performance Management. These areas were examined during Phase I of the effort, which lasted from January 1995 through May 1995. Phase I recommendations were made to change the way work was performed and results were achieved in each of the processes, although the recommendations were not at a very detailed level. Management accepted the recommendations and, in June 1995, initiated Phase II of the project. The detailed designs resulting from Phase II were substantially completed in November 1995 and pilot programs began. Implementation of these changes will be substantially completed in 1996, however, certain results will not be achieved until 1997. In addition, the Company must give consideration to the potential effects of the Proposed Merger as part of the implementation process so that duplication of efforts are avoided. Examples of the Process Redesign changes include, but are not limited to: managing the business in business unit form, rather than functionally; formation of alliances with vendors of certain types of material rather than opening most purchases to a bidding process; changing standards and construction practices in transmission and distribution areas; changing certain work practices in power plants; and improving the method by which service is delivered to customers in all customer classes. The specific recommendations range from simple improvements in current operations to radical changes in the way work is performed and service is delivered. Utilities currently intends to implement all of the recommendations of the Process Redesign teams, although the pilot stage or potential effects of the Proposed Merger could prove that some of the recommendations are not efficient or effective. Accounting Pronouncements SFAS 121, issued in March 1995 by the FASB and effective for 1996, establishes accounting standards for the impairment of long-lived assets. SFAS 121 also requires that regulatory assets that are no longer probable of recovery through future revenues be charged to earnings. The Company adopted this standard on January 1, 1996, and the adoption had no effect on the financial position or results of operations of the Company. 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 financial position or results of operations. PART II. - OTHER INFORMATION Item 1. Legal Proceedings. On April 30, 1996, Utilities filed suit, IES Utilities Inc. v. Home Ins. Co., et al., No. 4-96-CV-10343 (S.D. Iowa filed Apr. 30, 1996), against various insurers who had sold comprehensive general liability policies to Iowa Southern Utilities Company (ISU) and Iowa Electric Light and Power Company (IE) (Utilities was formed as the result of a merger of ISU and IE). The suit seeks judicial determination of the respective rights of the parties, a judgment that each defendant is obligated under its respective insurance policies to pay in full all sums that the Company has become or may become obligated to pay in connection with its defense against allegations of liability for property damage at and around FMGP sites, and indemnification for all sums that it has or may become obligated to pay for the investigation, mitigation, prevention, remediation and monitoring of damage to property, including damage to natural resources like groundwater, at and around the FMGP sites. Reference is made to Notes 3 and 6 of the Notes to Consolidated Financial Statements for a discussion of rate matters and environmental matters, respectively, and Item 2. Management's Discussion and Analysis of the Results of Operations and Financial Condition - Environmental Matters. Item 2. Changes in the Rights of the Company's Security Holders. None. Item 3. Default Upon Senior Securities. None. Item 4. Results of Votes of Security Holders. None. Item 5. Other Information. (a) The Company has calculated the ratio of earnings to fixed charges pursuant to Item 503 of Regulation S-K of the Securities and Exchange Commission as follows: For the twelve months ended: March 31, 1996 3.31 December 31, 1995 3.04 December 31, 1994 3.18 December 31, 1993 3.41 December 31, 1992 2.49 December 31, 1991 2.64 (b) In light of the decision by the Board of Directors to reduce its size, Dr. George Daly, Director of IES Utilities Inc., resigned effective April 3, 1996. (c) In light of the decision by the Board of Directors to reduce its size, G. Sharp Lannom, IV, Director of IES Utilities Inc., resigned effective April 12, 1996. (d) Richard A. Gabbianelli, Controller & Chief Accounting Officer of IES Utilities Inc., resigned effective May 8, 1996. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - *3(a) Bylaws of Registrant, as amended May 7, 1996. *12 Ratio of Earnings to Fixed Charges. *27 Financial Data Schedule. * Exhibits designated by an asterisk are filed herewith. (b) Reports on Form 8-K - Items Reported Financial Statements Date of Report 5,7 None February 9, 1996 (1) 5,7 None April 3, 1996 (2) 5,7 None April 12, 1996 (3) (1) The Form 8-K report was filed on February 20, 1996 with the earliest event reported occurring on February 9, 1996. (2) The Form 8-K report was filed on April 8, 1996 with the earliest event reported occurring on April 3, 1996. (3) The Form 8-K report was filed on April 18, 1996 with the earliest event reported occurring on April 12, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IES UTILITIES INC. (Registrant) Date: May 14, 1996 By /s/ Stephen W. Southwick (Signature) Stephen W. Southwick Vice President, General Counsel & Secretary By /s/ Dennis B. Vass (Signature) Dennis B. Vass Treasurer & Principal Financial Officer EX-3 2 Exhibit 3(a) BYLAWS AS AMENDED OF IES UTILITIES INC. (Amended Through May 7, 1996) ARTICLE I OFFICES SECTION 1.1. PRINCIPAL OFFICE. - The principal office shall be established and maintained in the ie: Tower, 200 First Street, S.E., in the City of Cedar Rapids, in the County of Linn, in the State of Iowa. SECTION 1.2. OTHER OFFICES. - The Corporation may have other offices, either within or without the State of Iowa, at such place or places as the Board of Directors may from time to time appoint or the business of the Corporation may require. The registered office of the Corporation required by the Iowa Business Corporation Act to be maintained in the State of Iowa may be, but need not be identical with the principal office in the State of Iowa, and the address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II SHAREHOLDERS SECTION 2.1. ANNUAL MEETING. - The annual meeting of shareholders for the election of directors and the transaction of other business shall be held, in each year, on the third Tuesday in May at two o'clock in the afternoon (if such day is a holiday, the annual meeting will be held at such time on the next succeeding business day) or any other date specified by the Board of Directors. SECTION 2.2. PLACE OF SHAREHOLDERS' MEETING. - The annual meeting or any special meeting of shareholders shall be held at the principal office of the Corporation or any place, within the State of Iowa, as shall be designated by the Board of Directors and stated in the notice of the meeting. SECTION 2.3. SPECIAL MEETINGS. - Special meetings of the shareholders may be called by the Chairman of the Board, the President, the Board of Directors, or the holders of not less than ten percent of all the shares entitled to vote at the meeting. SECTION 2.4. NOTICE OF MEETINGS. - WAIVER. - Written or printed notice, stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Board of Directors, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at the address appearing on the stock transfer books of the Corporation, with postage thereon prepaid. SECTION 2.5. CLOSING OF TRANSFER BOOKS; FIXING OF RECORD DATE. - For the purpose of determining shareholders entitled to notice of, or to vote at, any special meeting of shareholders, or at any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, 60 days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case not to be more than 70 days, and in the case of a meeting of shareholders not less than 10 days, prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. SECTION 2.6. VOTING RECORD. - The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least 10 days prior to each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order with the address of and the number of shares held by each, which record shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours for a period of 10 days prior to such meeting. Such record shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence of the identity of the shareholders entitled to examine such record or transfer books or to vote at any meeting of shareholders. SECTION 2.7. QUORUM. - A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment only if a quorum is represented throughout. SECTION 2.8. CONDUCT OF MEETING. - Meetings of the shareholders shall be presided over by one of the following officers in the order of seniority if present and acting - the Chairman of the Board, the President, the Secretary, or if none of the foregoing is in office and present and acting, by a chairperson to be chosen by the shareholders. The Secretary of the Corporation, or if absent, an Assistant Secretary, shall act as secretary of the meeting, but if neither the Secretary nor an Assistant Secretary is present, or if the Secretary is presiding over the meeting and the Assistant Secretary is not present, the Chairman of the meeting shall appoint a secretary of the meeting. SECTION 2.9. PROXIES. - At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by a duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 2.10. VOTING OF SHARES. - Each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. - Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into that person's name. Shares standing in the name of a trustee may be voted by such trustee, either in person or by proxy, without a transfer of such shares into the trustee's name. The Corporation may request evidence of such fiduciary status with respect to the vote, consent, waiver, or proxy appointment. Shares standing in the name of a receiver or trustee in bankruptcy may be voted by such receiver or trustee, and shares held by or under the control of a receiver may be voted by such receiver without the transfer of the shares into such person's name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A pledgee, beneficial owner, or attorney-in-fact of the shares held in the name of a shareholder shall be entitled to vote such shares. The Corporation may request evidence of such signatory's authority to sign for the shareholder with respect to the vote, consent, waiver, or proxy appointment. Neither treasury shares nor shares held by another corporation, if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by the Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. ARTICLE III BOARD OF DIRECTORS SECTION 3.1. GENERAL POWERS. - The business and affairs of the Corporation shall be managed by its Board of Directors. SECTION 3.2. NUMBER, TENURE, QUALIFICATIONS AND REMOVAL. - The number of Directors of the Corporation shall be 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 addressed, with postage prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 3.6. QUORUM. - A majority of the number of Directors fixed by Section 3.2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 3.7. MANNER OF ACTING. - The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. A Director shall be considered present at a meeting of the Board of Directors or of a committee designated by the Board if the Director participates in such meeting by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. SECTION 3.8. INFORMAL ACTION. Any action required or permitted to be taken at any meeting of the Directors of the Corporation or of any committee of the Board may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the Directors or all of the members of the committee of Directors, as the case may be. Such consent shall have the same force and effect as a unanimous vote at a meeting and shall be filed with the Secretary of the Corporation to be included in the official records of the Corporation. SECTION 3.9. PRESUMPTION OF ASSENT. - A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) the Director objects at the beginning of the meeting or promptly upon arrival to the holding of or transacting business at the meeting, (b) the Director's dissent shall be entered in the minutes of the meeting, or (c) the Director shall file a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 3.10. VACANCIES. - Any vacancy occurring in the board of Directors and any directorship to be filled by reason of an increase in the number of Directors may be filled by the affirmative vote of a majority of the Directors then in office, even if less than a quorum of the Board of Directors. 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 compensation to be paid to the members of the Executive Committee. No member of the Executive Committee shall continue to be a member after ceasing to be a Director of the Corporation. The Board of Directors shall have the power at any time to increase or decrease the number of members of the Executive Committee, to fill vacancies, to change any member, and to change the functions or terminate the Committee's existence. SECTION 3.13. POWERS OF EXECUTIVE COMMITTEE. - The 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 meeting. No notice need be given of an adjourned meeting. The Executive Committee may fix its own rules of procedure. It shall keep a record of its proceedings and shall report these proceedings to the Board of Directors at the regular meeting thereof held next after the meeting of the Executive Committee. Attendance at any meeting of the Executive Committee at a special meeting shall constitute a waiver of notice of such special meeting. At its last meeting preceding the annual meeting of the Board of Directors, the Executive Committee shall make to the Board its recommendation of officers of the Corporation to be elected by the Board for the ensuing year. The Chairman of the Board shall act as Chairman at all meetings of the Executive Committee, and if the Chairman is absent, the President shall act as such Chairman. The Secretary of the Corporation shall act as Secretary of the meeting. In case of the absence from any meeting of the Executive Committee of the 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 convenient. A vacancy in any office for any reason may be filled by the Board of Directors for the unexpired portion of the term. SECTION 4.3. REMOVAL OF OFFICERS. - Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer shall not of itself create contract rights. SECTION 4.4. CHAIRMAN OF THE BOARD. - The Chairman of the Board shall be the Chief Executive Officer and Chief Operating Officer of the Corporation, shall preside at all meetings of the Board of Directors, and shall be a member of the Executive Committee. The Chairman of the Board shall have general supervision of and be accountable for the control of the Corporation's business affairs, properties and management subject, however, to the control of the Board of Directors and the Executive Committee. The Chairman of the Board shall see that all resolutions and orders of the Board of Directors or Executive Committee are carried into effect and shall exercise such other powers and perform such other duties as may be delegated by the Board of Directors and the Executive Committee. SECTION 4.5. PRESIDENT. - The President shall have such powers and perform such duties as the Chairman of the Board, the Board of Directors or the Executive Committee may from time to time prescribe or delegate. 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 pre scribe or as the Chairman of the Board or the President may from time to time delegate. SECTION 4.7. TREASURER. - The Treasurer shall have the custody of the funds and securities of the Corporation. Whenever necessary or proper, the Treasurer shall (1) endorse, on behalf of the Corporation, checks, notes or other obligations and deposit the same to the credit of the Corporation in such bank or banks or depositories as the Board of Directors may designate; (2) sign receipts or vouchers for payments made to the Corporation which shall also be signed by such other officer as may be designated by the Board of Directors; (3) disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements; and (4) render to the Board of Directors, the Executive Committee, the Chairman of the Board and the President at the regular meetings of the Board or Executive Committee, or whenever any of them may require it, an account of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond with one or more sureties satisfactory to the board, for the faithful performance of the duties of this office, and for the restoration to the Corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in possession or under control of the Treasurer. SECTION 4.8. SECRETARY. - The Secretary shall record the votes and proceedings of the Shareholders, the Board of Directors and the Executive Committee in a book or books kept for that purpose, and shall serve notices of and attend all meetings of the Directors, the Executive Committee and shareholders. In the absence of the Secretary or an Assistant Secretary from any meeting of the Board of Directors, the proceedings of such meeting shall be recorded by such other person as may be appointed for that purpose. The Secretary shall keep in safe custody the seal of the Corporation, and duplicates, if any, and when requested by the Board of Directors, or when any instrument shall have been first signed by the Chairman of the Board, the President or a Vice President duly authorized to sign the same, or when necessary to attest any proceedings of the shareholders or directors, shall affix it to any instrument requiring the same, and shall attest the same. The Secretary shall, with the Chairman of the Board or the President, sign certificates of stock of the Corporation and affix a seal of the Corporation or cause such seal to be imprinted or engraved thereon, subject, however, to the provisions providing for the use of facsimile signatures on stock certificates under certain conditions. The Secretary shall have charge of such books and papers as properly belong to such office, or as may be committed to the Secretary's care by the Board of Directors or by the Executive Committee, and shall perform such other duties as pertain to such office, or as may be required by the Board of Directors, the Executive Committee or the Chairman of the Board. SECTION 4.9. ASSISTANT TREASURERS. - Each Assistant Treasurer (if one or more Assistant Treasurers be elected or appointed) shall assist the Treasurer and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman of the Board or the President may from time to time delegate. At the request of the Treasurer, any Assistant Treasurer may perform temporarily the duties of Treasurer in the case of the Treasurer's absence or inability to act. In the case of the death of the Treasurer, or in the case of absence or inability to act without having designated an Assistant Treasurer to perform temporarily the duties of Treasurer, an Assistant Treasurer shall be designated by the Chairman of the Board or the President to perform the duties of the Treasurer. Each Assistant Treasurer shall, if required by the Board of Directors, give the Corporation a bond with such surety or sureties as may be ordered by the Board of Directors, for the faithful performance of the duties of such office and for the restoration to the Corporation, in case of death, resigna tion, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind belonging to the Corporation in the possession or under control of such Assistant Treasurer. SECTION 4.10. ASSISTANT SECRETARIES. - Each Assistant Secretary (if one or more Assistant secretaries be elected or appointed) shall assist the Secretary and shall perform such other duties as the Board of Directors may from time to time prescribe or the Chairman of the Board or the President may from time to time delegate. At the request of the Secretary, any Assistant Secretary may perform temporarily the duties of Secretary in the case of the Secretary's absence or inability to act. In the case of the death of the Secretary, or in the case of absence or inability to act without having designated an Assistant Secretary to perform temporarily the duties of Secretary, the Assistant Secretary to perform the duties of the Secretary shall be designated by the Chairman of the Board or the President. SECTION 4.11. GENERAL COUNSEL. - The General Counsel shall be responsible for the management of the Legal Department in its support of all other operations of the Corporation including management guidance to assure responsible decisions, information for all employees concerning the legal and judicial environment and recommended changes of law as deemed advisable. In addition, the General Counsel shall be responsible for the coordination of outside counsel activities in all instances as well as the prosecution of charges against the Corporation or other judicial or regulatory activities. This shall include full information for the management and employees of judicial, regulatory or other administrative body rulings and their impact on the Corporation. The duties shall include approval of all legal and contractual documents of the Corporation, prior to their authorization, and full support to various departments to assist in the development of these documents. The General Counsel shall perform such other duties as may be assigned from time to time by the Board of Directors, the Executive Committee, the Chairman of the Board or the President. ARTICLE V CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 5.1. CERTIFICATES FOR SHARES. - Each certificate representing shares of the Corporation shall state upon the face (a) that the Corporation is organized under the laws of the State of Iowa, (b) the name of the person to whom issued, (c) the number and class of shares, and the designation of the series, if any, which such certificate represents, and (d) the par value of each share, if any, and each such certificate shall otherwise be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board or the President and by the Secretary or an Assistant Secretary and shall be sealed with the corporate seal or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles. If a certificate is countersigned by a transfer agent, or registered by a registrar, the signatures of the persons signing for such transfer agent or registrar also may be facsimiles. In case any officer or other authorized person who has signed or whose facsimile signature has been placed upon such certificate for the Corporation shall have ceased to be such officer or employee or agent before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer or employee or agent at the date of its issue. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe. SECTION 5.2. TRANSFER OF SHARES. - Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by such person's legal representative, who shall furnish proper evidence of authority to transfer, or authorized attorney, by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. Subject to the provisions of Section 2.11 of Article II of these Bylaws, the person in whose name shares stand on the books of the Corporation shall be treated by the Corporation as the owner thereof for all purposes, including all rights deriving from such shares, and the Corporation shall not be bound to recognize any equitable or other claim to, or interest in, such shares or rights deriving from such shares, on the part of any other person, including (without limitation) a purchaser, assignee or transferee of such shares, or rights deriving from such shares, unless and until such purchaser, assignee, transferee or other person becomes the record holder of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such purchaser, assignee, transferee or other person. Except as provided in said Section 2.11 hereof, no such purchaser, assignee, transferee or other person shall be entitled to receive notice of the meetings of shareholders, to vote at such meetings, to examine the complete record of the shareholders entitled to vote at meetings, or to own, enjoy or exercise any other property or rights deriving from such shares against the Corporation, until such purchaser, assignee, transferee or other person has become the record holder of such shares. ARTICLE VI MISCELLANEOUS PROVISIONS SECTION 6.1. INDEMNIFICATION. - The Corporation shall indemnify its directors, officers, employees and agents to the full extent permitted by the Iowa Business Corporation Act, as amended from time to time. The Corporation shall purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against and incurred by such person in any such capacity or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this section. SECTION 6.2. FISCAL YEAR. - The fiscal year of the Corporation shall be the calendar year. SECTION 6.3. SEAL. - The corporate seal shall be circular in form and shall have inscribed thereon the name of the Corporation and the words "CORPORATE SEAL IOWA". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 6.4. CONTRACTS, CHECKS, DRAFTS, LOANS AND DEPOSITS. - - All contracts, checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. The Board may authorize by resolution any officer or officers to enter into and execute any contract or instrument of indebtedness in the name of the Corporation; and such authority may be general or confined to specific instances. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Board of Directors may authorize. SECTION 6.5. DIVIDENDS. - Subject to the provisions of the Articles of Incorporation, the Board of Directors may, at any regular or special meeting, declare dividends upon the capital stock of the Corporation payable out of surplus (whether earned or paid-in) or profits as and when they deem expedient. Before declaring any dividend there may be set apart out of surplus or profits such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for such other purposes as the directors shall deem conducive to the interests of the Corporation. SECTION 6.6. WAIVER OF NOTICE. - Whenever any notice is required to be given to any shareholder or Director of the Corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or under the provisions of the Iowa Business Corporation Act, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. SECTION 6.7. VOTING OF SHARES OWNED BY THE CORPORATION. - Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of such other corporation by the President of the Corporation if present, or if absent by any other officer of the Corporation who may be present. Whenever, in the judgment of the President, or if absent, of any officer, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned by the Corporation, such proxy or consent shall be executed in the name of the Corporation by the President or one of the officers of the Corporation and shall be attested by the Secretary or an Assistant Secretary of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by such other corporation and owned by the Corporation in the same manner as such share or shares might be voted by the Corporation. SECTION 6.8. AMENDMENTS. - These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. EX-12 3 EXHIBIT 12 IES UTILITIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Year Ended December 31, Ended 1991 1992 1993 1994 1995 March 31, 1996 (in thousands, except ratio of earnings to fixed charges) Net income $ 47,563 $ 45,291 $ 67,970 $ 61,210 $ 59,278 $ 67,247 Federal and state income taxes 23,494 20,723 37,963 37,966 41,095 47,547 Net income before income taxes 71,057 66,014 105,933 99,176 100,373 114,794 Interest on long-term debt 31,171 35,689 34,926 37,942 36,375 36,105 Other interest 5,595 3,939 5,243 3,630 8,085 8,790 Estimated interest component of rents 6,594 4,567 3,729 3,970 4,637 4,758 Fixed charges as defined 43,360 44,195 43,898 45,542 49,097 49,653 Earnings as defined $ 114,417 $ 110,209 $ 149,831 $ 144,718 $ 149,470 $ 164,447 Ratio of earnings to fixed charges (unaudited) 2.64 2.49 3.41 3.18 3.04 3.31 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-27 4
UT The schedule contains summary financial information extracted from the Consolidated Balance Sheet at March 31, 1996 and the Consolidated Statement of Income and the Consolidated Statement of Cash Flows for the three months ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1996 MAR-31-1996 PER-BOOK 1,309,725 58,928 109,353 20,902 208,039 1,706,947 33,427 279,042 216,421 528,890 0 18,320 465,513 3,241 0 92,000 15,140 0 20,135 14,780 548,928 1,706,947 198,768 10,836 164,564 164,564 34,204 1,653 35,857 10,893 14,128 229 13,899 10,000 35,229 56,730 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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