SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MIDAMERICAN ENERGY HOLDINGS COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
[LOGO]
MIDAMERICAN ENERGY HOLDINGS COMPANY
666 Grand Avenue
P.O. Box 657
Des Moines, Iowa 50303-0657
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
MidAmerican Energy Holdings Company which will be held on Wednesday, April 29,
1998, at 10:00 a.m., local time, at the Polk County Convention Complex, 501
Grand Avenue, Des Moines, Iowa. At this meeting you will be asked to vote on the
election of directors as set forth in the accompanying Notice of Annual Meeting
and Proxy Statement. The Board of Directors of the Company recommends a vote
"FOR" the election of all nominees.
Holders of record of MidAmerican Common Stock at the close of business on
February 20, 1998 will be entitled to one vote for each share held. MidAmerican
has over 59,000 registered holders of its Common Stock.
Parking for this year's Annual Meeting will be available at no cost at Veteran's
Memorial Auditorium at 833 Fifth Avenue in Des Moines, just a few blocks north
of the Polk County Convention Complex. Complimentary shuttle buses will trans-
port shareholders between the parking facility and the Convention Complex both
before and after the Annual Meeting. Veterans Memorial Auditorium is also
connected by skywalk with the Convention Complex. Please refer to the map on
the back cover of this Proxy Statement.
The Company's 1997 audited financial statements are contained in Appendix A to
this Proxy Statement.
Your vote is extremely important. Please make sure that your shares are
represented at the Annual Meeting whether or not you are personally able to
attend. You are encouraged to specify your choices by marking the appropriate
boxes on the enclosed proxy card. However, it is not necessary to mark any box
if you wish to vote in accordance with the Board of Directors' recommendations.
Please sign, date and return the proxy card in the enclosed postage paid
envelope.
Sincerely,
/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and
Chief Executive Officer
March 10, 1998
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
MidAmerican Energy Holdings Company:
The Annual Meeting of Shareholders of MidAmerican Energy Holdings Company will
be held on Wednesday, April 29, 1998, at the Polk County Convention Complex, 501
Grand Avenue, Des Moines, Iowa, commencing at 10:00 a.m., local time, for the
purpose of acting on the following matters:
1. To elect thirteen members to the Board of Directors; and
2. To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
Holders of MidAmerican Common Stock at the close of business on February 20,
1998 will be entitled to notice of and to vote at the meeting or at any
postponement or adjournment thereof. Even if you now expect to attend the Annual
Meeting, you are requested to please mark, sign, date and return the
accompanying proxy in the enclosed postage paid envelope. If you do attend you
may vote in person, if you wish, whether or not you have sent in your proxy.
By Order of the Board of Directors
Paul J. Leighton
Vice President and Corporate Secretary
March 10, 1998
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE MEETING.
SHAREHOLDERS ARE URGED TO PROMPTLY MARK, SIGN, DATE AND RETURN THE PROXY IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE>
[LOGO]
MIDAMERICAN ENERGY HOLDINGS COMPANY
666 Grand Avenue
P.O. Box 657
Des Moines, Iowa 50303-0657
Telephone numbers: (515) 242-4300 or (800) 247-5211
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
of the shareholders of MidAmerican Energy Holdings Company on behalf of the
Board of Directors of the Company for use at the Annual Meeting of Shareholders
to be held at the Polk County Convention Complex, 501 Grand Avenue, Des Moines,
Iowa, on Wednesday, April 29, 1998, at 10:00 a.m., local time, and at all
adjournments thereof, for the purposes set forth in the preceding Notice of
Annual Meeting of Shareholders. This Proxy Statement and accompanying form of
proxy are first being sent to the shareholders of the Company on or about March
10, 1998.
Only shareholders of record at the close of business on February 20, 1998 are
entitled to notice of and to vote at the meeting. As of the record date, there
were 95,373,613 shares of MidAmerican Common Stock outstanding. Each share of
MidAmerican Common Stock is entitled to one vote on all matters presented to the
meeting.
If a quorum is present, the affirmative vote of a majority of the votes cast is
required for the election of each director. For purposes of determining the
number of votes cast, all votes cast "for" or to "withhold authority" to vote
are included. "Non-votes," including "broker non-votes" which occur when
brokers are prohibited from exercising voting authority for beneficial owners
who have not provided voting instructions, are not counted for the purpose of
determining the number of votes cast with respect to the election of directors.
Any shareholder giving a proxy pursuant to this Proxy Statement may revoke it at
any time by filing with the Corporate Secretary of the Company an instrument
revoking it or a duly executed proxy bearing a later date, or if the shareholder
executing the proxy is present at the meeting, voting in person.
All shares represented by effective proxies will be voted at the meeting or any
adjournment thereof as specified therein by the person giving the proxy. If no
specification is made, the proxy will be voted in accordance with the Board of
Directors' recommendations.
If a shareholder is a participant in the Company's Shareholder Options Plan, the
Employee Stock Purchase Plan or the Iowa Power Inc. Payroll-Based Employee Stock
Ownership Plan, the proxy card will represent the number of shares registered in
the participant's name and the number of whole shares credited or allocated to
the participant's account under these plans. For those shares held in the plans,
the proxy card will serve as a direction to the trustee or voting agent under
the respective plan as to how the shares in the accounts are to be voted.
Fractional shares will not be voted.
<PAGE>
The entire cost of solicitation of proxies will be borne by the Company. In
addition to the original solicitation by mail, some of the officers and regular
employees of the Company may solicit proxies by personal calls, telephone or
otherwise, but without compensation in addition to their regular salaries. The
Company will reimburse brokers and other custodians, nominees and fiduciaries
for reasonable expenses incurred in forwarding proxy material to beneficial
owners. In addition, the Company has retained D. F. King & Co., Inc., a proxy
solicitation firm, to assist in the forwarding of proxy materials to brokers and
other custodians, nominees and fiduciaries at an estimated cost of $4,000 plus
disbursements.
ELECTION OF DIRECTORS
The thirteen persons named on the following pages have been nominated for
election as directors, to hold office until the next annual meeting of
shareholders and their successors are duly elected and qualified. Each has
consented to be a nominee and to serve if elected. Proxies cannot be voted for a
greater number of persons than the number of nominees named. In the event that
any nominees for directors should become unavailable, which is not anticipated,
the Board of Directors, in its discretion, may designate substitute nominees, in
which event proxies will be voted for such substitute nominees.
Information about Nominees for Directors
Certain information about each nominee, including age, principal occupation,
business experience, directorships, board committee assignments and the year in
which the nominee became a director of the Company or one of its predecessor
companies, is set forth in the following pages. All of the nominees listed are
now serving as directors of the Company. Messrs. Mel Foster, Jr. and James M.
Hoak, Jr., who have served as directors since 1972 and 1983, respectively, will
be retiring from the Board of Directors in 1998 and have therefore not been
renominated.
<TABLE>
<S> <C>
PHOTO JOHN W. AALFS (57)
President of Aalfs Manufacturing, Inc. (clothing manufacturer), Sioux
City, Iowa, since 1979. Joined the Board in 1988. Member of the Finance
and Nominating Committees. Director of Norwest Bank Sioux City, N.A.
<PAGE>
<S> <C>
PHOTO STANLEY J. BRIGHT (57)
Chairman of the Company since June 1, 1997 and President and Chief
Executive Officer of the Company since December 1, 1996. Chairman of
MidAmerican Energy Company since December 1, 1996, Chief Executive
Officer since July 1, 1996, President since 1995 and President of the
Office of the Chief Executive Officer from 1995 to July 1, 1996. Chair-
man, President and Chief Executive Officer of Iowa-Illinois Gas and
Electric Company, a predecessor company ("Iowa-Illinois"), from 1991 to
1995. Joined the Company in 1986 and the Board in 1987. Chair of the
Strategy and Executive Committees and member of the Finance Committee.
Director of Norwest Bank Iowa, N.A. and Utilx Corporation.
PHOTO ROSS D. CHRISTENSEN (57)
Orthodontist in private practice in Waterloo, Iowa, since 1968 and with
Drs. Christensen and Bigelow, P.C. since 1974. Partner in JoRo, Inc.
(real estate development) and Heartland Midwest Management, Inc. (real
estate management) since 1984. Joined the Board in 1983. Vice Chair of
the Nominating Committee and member of the Strategy Committee. Director
of Community National Bancorporation.
PHOTO RUSSELL E. CHRISTIANSEN (62)
Chairman of the Company from December 1, 1996 until retirement on May
31, 1997. Chairman of MidAmerican Energy Company from 1995 to December
1, 1996 and Chairman of the Office of the Chief Executive Officer from
1995 to July 1, 1996. Chairman and Chief Executive Officer of Midwest
Resources Inc., a predecessor company ("Midwest Resources"), from 1992
to 1995 and President from 1990 to 1995. Joined the Board in 1983.
Vice Chair of the Executive Committee and member of the Strategy Com-
mittee.
<PAGE>
PHOTO JOHN W. COLLOTON (67)
Vice President for Statewide Health Services, University of Iowa (health
care administration), Iowa City, Iowa, since 1993. Director and Chief
Executive Officer of the University of Iowa Hospitals and Clinics from
1971 to 1993. Joined the Board in 1992. Member of the Compensation and
Nominating Committees. Director of Baxter International Inc., Iowa State
Bank and Trust Company, OncorMed, Inc. and Wellmark, Inc.
PHOTO FRANK S. COTTRELL (55)
Vice President of Deere & Company (manufacturing), Moline, Illinois,
since 1993 and General Counsel since 1991. Joined the Board in 1992.
Chair of the Audit Committee and member of the Strategy Committee.
PHOTO JACK W. EUGSTER (52)
Chairman and Chief Executive Officer of Musicland Stores Corp.
(specialty retailer), Minneapolis, Minnesota, since 1986 and President
since 1981. Joined the Board in 1987. Chair of the Compensation Com-
mittee and member of the Executive Committee. Director of Damark, Inc.,
Donaldson Company, Inc., Josten's, Inc. and ShopKo Stores, Inc.
PHOTO NOLDEN GENTRY (60)
Partner in the law firm of Brick, Gentry, Bowers, Swartz, Stoltze,
Schuling & Levis, P.C., Des Moines, Iowa, since 1983. Joined the Board
in 1988. Vice Chair of the Strategy Committee and member of the Audit
Committee.
<PAGE>
PHOTO RICHARD L. LAWSON (68)
President and Chief Executive Officer of the National Mining Associa-
tion (all minable resources), Washington, D. C., since 1995. President
of the National Coal Association, a predecessor organization, and member
of its Board of Directors and Executive Committee from 1987 to 1995.
Joined the Board in 1989. Vice Chair of the Audit Committee and member
of the Compensation Committee. Retired from the United States Air
Force in 1986 as a four star general. Formerly Deputy Commander and
Chief of the U. S. European Command and Chief of Staff, Supreme Head-
quarters Allied Powers, Europe.
PHOTO ROBERT L. PETERSON (65)
Chairman and Chief Executive Officer of IBP, Inc. (meat processor),
Dakota City, Nebraska, since 1980, President since 1977 and Director
since 1976. Joined the Board in 1990. Member of the Executive and
Nominating Committees.
PHOTO NANCY L. SEIFERT (68)
Executive Vice President of James F. Seifert & Sons L.L.C. (retail),
Cedar Rapids, Iowa, since 1993. Joined the Board in 1985. Vice Chair of
the Compensation Committee and member of the Strategy Committee.
PHOTO W. SCOTT TINSMAN (65)
Co-Founder and Vice President of Twin-State Engineering and Chemical
Company (engineering services and chemical manufacturing), Davenport,
Iowa, since 1958. Joined the Board in 1988. Chair of the Finance
Committee and member of the Audit Committee.
<PAGE>
PHOTO LEONARD L. WOODRUFF (69)
President of Woodruff Construction Company (contractor), Fort Dodge,
Iowa, since 1979. Joined the Board in 1972. Member of the Executive and
Finance Committees.
</TABLE>
Organization of the Board of Directors
The Board of Directors has established the following committees to perform
various delegated functions.
The Audit Committee considers matters pertaining to financial reporting and
internal accounting controls and held five meetings. The Executive Committee
exercises certain authority of the Board of Directors on behalf of the entire
Board and held six meetings. The Finance Committee considers matters pertaining
to the Company's financing plans, its nonregulated businesses and pension, trust
and other investment activities and held four meetings. The Compensation
Committee considers matters pertaining to compensation of officers and directors
and management succession and administers certain executive officer and director
compensation plans and held seven meetings. The Strategy Committee advises the
Board of Directors on strategic matters pertaining to the Company and its
operations. Since matters pertaining to the long-term strategic plans for and
the strategic direction of the Company were the subject of discussion at
meetings of the entire Board of Directors, the Strategy Committee did not meet
in 1997.
The Nominating Committee recommends candidates for annual election to the Board
of Directors and to fill vacancies on the Board of Directors that may arise from
time to time. The Nominating Committee held three meetings. Candidates will be
selected without regard to race, creed, color, sex or national origin and must
be a citizen of the United States and have demonstrated outstanding business and
civic accomplishments. The Nominating Committee will consider all candidates
recommended by shareholders in accordance with the procedure established in the
Company's Bylaws which requires recommendations to be submitted in writing
ninety days in advance of the annual meeting of shareholders. Such
recommendations should include the name and address of the shareholder and the
candidate pursuant to which the recommendation is being made, such other
information about the candidate as is required to be included in the Company's
proxy statement and the consent of the candidate to serve as a director if
elected. Recommendations should be sent to the Corporate Secretary, MidAmerican
Energy Holdings Company, P.O. Box 657, Des Moines, Iowa 50303-0657.
The Board of Directors of the Company held six meetings during 1997. All
directors attended at least 75% of the aggregate number of meetings of the Board
of Directors and the Board Committees on which they served.
<PAGE>
Directors' Compensation
The Board of Directors believes it is important that its members have an equity
interest in the Company. As a result, the Board of Directors has adopted a
policy that each director must own at least 1,000 shares of MidAmerican Common
Stock at the time the director becomes a member of the Board of Directors. In
addition, a portion of each non-employee director's compensation for service as
a director of the Company is paid in restricted shares of MidAmerican Common
Stock pursuant to the 1995 Long-Term Incentive Plan. In 1997, the plan was
amended to provide that upon the initial election of each non-employee director
to the Board of Directors, whether at an annual election or to fill a vacancy,
1,200 restricted shares of MidAmerican Common Stock will be granted to each such
director. In addition, effective this year, additional grants of 1,200
restricted shares of MidAmerican Common Stock will be made annually on May 1 to
each director who continues on the Board of Directors. Previously, a new
director received an initial grant of 800 shares and each non-employee director
received annual grants of 800 restricted shares of MidAmerican Common Stock. The
directors are restricted from disposing of such restricted shares of MidAmerican
Common Stock until such time as the director ceases to be a director of the
Company.
In addition to the restricted stock component of non-employee director
compensation, directors each receive an annual retainer fee of $12,000.
Directors who are not also employees of the Company each receive a fee of $750
for attendance at each regular or special meeting of the Board of Directors and
each meeting of a Committee of the Board of Directors.
Although a predecessor company maintained a nonqualified retirement plan for
directors, the Board of Directors has elected not to adopt a retirement plan for
directors. The predecessor company entered into agreements with those directors
continuing as directors of the Company after the merger of Iowa-Illinois and
Midwest Resources (including Messrs. Aalfs, Christensen, Christiansen, Eugster,
Gentry, Lawson and Peterson) whereby the Company agreed to vest accrued benefits
for each such director as of June 30, 1995. The accrued benefit for each such
director was determined by multiplying the number of months of service as a
director by one-twelfth of the then annual retainer ($15,000). The maximum total
benefit is based on 120 months of service as a director and the minimum service
requirement was waived. The accrued benefit is payable quarterly in cash out of
general corporate funds when the respective director ceases to be a director of
the Company in accordance with the terms of such retirement plan.
Directors have the opportunity to make an election prior to the commencement of
each year to defer a portion or all of their cash compensation received for
service as a director of the Company pursuant to the Directors Deferred
Compensation Plan. Amounts previously deferred or earned under predecessor
companies' deferred compensation plans will be distributed in accordance with
each such plan's respective provisions upon termination of a director's service
as a director.
<PAGE>
Certain Transactions and Other Relationships
Effective with his retirement on May 31, 1997 as Chairman of the Company, Mr.
Christiansen's employment agreement provides that his service in an advisory
capacity to the Company would commence on June 1, 1997 and continue through June
1, 2000. Mr. Christiansen receives annual compensation of $50,000 for this
service.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table shows the beneficial ownership, reported to the Company as
of February 20, 1998, of MidAmerican Common Stock of each director and nominee,
the chief executive officer of the Company, and the four other most highly
compensated executive officers and, as a group, directors, nominees and
executive officers. No member of the group owned any of the preferred stock of
MidAmerican Energy Company. To the Company's knowledge, no single entity owns of
record or beneficially more than five percent of any class of the outstanding
voting securities of the Company.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class
- ------------------------ ----------------------------- ----------
John W. Aalfs 5,480 *
Stanley J. Bright 100,480(2) *
Ross D. Christensen 16,096(3) *
Russell E. Christiansen 87,594(4) *
John W. Colloton 3,279 *
Frank S. Cottrell 3,870 *
Jack W. Eugster 5,480 *
Nolden Gentry 4,865(5) *
Richard L. Lawson 4,126(6) *
Robert L. Peterson 4,268 *
Nancy L. Seifert 4,750(7) *
W. Scott Tinsman 4,899 *
Leonard L. Woodruff 26,123 *
Philip G. Lindner 11,155(8) *
John A. Rasmussen, Jr. 17,055(9) *
Ronald W. Stepien 19,854(10) *
Beverly A. Wharton 38,596(11) *
Directors and executive officers
as a group (21 persons) 385,104(12) *
*Less than one percent of the shares of MidAmerican Common Stock outstanding.
<PAGE>
(1) Beneficial ownership of each of the shares of MidAmerican Common Stock
listed in the foregoing table is comprised of sole voting power and sole
investment power, unless otherwise noted. The shares reported for the
non-employee directors and nominees includes 2,400 shares of restricted
stock (800 for Mr. Christiansen) granted in accordance with the 1995
Long-Term Incentive Plan. See "Directors' Compensation" for a discussion
of these grants.
(2) Includes 50,000 shares which Mr. Bright has the right to acquire within
60 days upon the exercise of stock options, 6,879 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997 and
1,697 shares beneficially owned by Mr. Bright and his spouse.
(3) Includes 8,480 shares held by Dr. Christensen and his partner in a profit
sharing trust and 5,000 shares held in an individual retirement account.
(4) Includes 45,000 shares which Mr. Christiansen has the right to acquire
within 60 days upon the exercise of stock options, 7,955 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997, nine
shares beneficially owned by Mr. Christiansen and his spouse, and 8,000
shares beneficially owned by a family trust of which Mr. Christiansen is
a trustee.
(5) Includes 1,457 shares held in an individual retirement account.
(6) Includes 1,726 shares beneficially owned by General Lawson and his
spouse.
(7) Includes 2,350 shares held by a trust of which Mrs. Seifert is trustee.
(8) Includes 138 shares beneficially owned by Mr. Lindner and his spouse.
(9) Includes 2,700 shares beneficially owned by Mr. Rasmussen and his spouse
and 3,267 shares held in a Section 401(k) defined contribution plan as of
December 31, 1997.
(10) Includes 5,000 shares which Mr. Stepien has the right to acquire within
60 days upon the exercise of stock options and 1,679 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997.
(11) Includes 15,000 shares which Mrs. Wharton has the right to acquire within
60 days upon the exercise of stock options, 1,420 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997, 5,316
shares beneficially owned by Mrs. Wharton and her spouse and 986 shares
beneficially owned in a custodial account for a minor child.
(12) Includes 115,000 shares which the executive officers have the right to
acquire within 60 days upon the exercise of stock options, shares held in
defined contribution plans as of December 31, 1997 and shares
beneficially owned jointly with and individually by family members of
directors and executive officers.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation for services in all capaci-
ties to the Company (including predecessor companies) and its subsidiaries for
the fiscal years ended December 31, 1997, 1996 and 1995 of those persons who
were (i) during the year ended December 31, 1997, the chief executive officer,
(ii) at December 31, 1997, the other four most highly compensated executive
officers of the Company and (iii) an additional individual who would have been
included in category (ii) but for the fact that the individual was not serving
as an executive officer of the Company at the end of 1997 ("named executive
officers").
Summary Compensation Table
<TABLE>
Annual Compensation Long-Term Compensation (4)
------------------- --------------------------
<CAPTION>
Awards Payouts
------ -------
Other Annual Securities LTIP All Other
Name and Salary Bonus Compensation Underlying Payouts Compensation
Principal Position Year ($) ($) ($) Options(#)(2) ($) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C>
Stanley J. Bright 1997 487,000 399,000 0 0 -- 35,690
Chairman, President and 1996 443,750 0 0 0 -- 28,845
Chief Executive Officer 1995 356,000 105,000 53,525 150,000 -- 5,850
Russell E. Christiansen 1997 220,333 187,650 0 0 -- 38,564
Retired Chairman (1) 1996 475,000 0 0 0 -- 37,358
1995 427,500 148,000 60,267 150,000 -- 26,370
Ronald W. Stepien 1997 260,417 158,859 0 0 -- 14,240
Executive Vice 1996 198,333 0 0 20,000 -- 11,136
President 1995 176,000 33,900 13,500 40,000 -- 4,584
Philip G. Lindner 1997 215,000 103,200 0 0 -- 12,925
Senior Vice President 1996 189,167 0 0 0 -- 10,950
1995 177,500 46,575 0 40,000 -- 7,065
John A. Rasmussen, Jr. 1997 200,000 96,000 0 0 -- 11,440
Senior Vice President 1996 185,833 0 0 0 -- 9,950
and General Counsel 1995 170,000 44,550 0 40,000 -- 6,885
Beverly A. Wharton 1997 240,000 129,600 0 0 -- 8,990
Senior Vice President 1996 218,333 0 0 0 -- 8,050
1995 191,450 56,550 0 60,000 -- 4,918
</TABLE>
(1) Mr. Christiansen retired from the position of Chairman of the Board of
Directors on May 31, 1997.
(2) Consists of options granted pursuant to the 1995 Long-Term Incentive
Plan.
(3) Amounts for 1997 consist of (i) contributions by the Company to defined
contribution plans of $6,240 for each of Messrs. Bright, Stepien,
Rasmussen and Mrs. Wharton, $1,564 for Mr. Christiansen, and $6,175 for
Mr. Lindner and (ii) $29,450, $37,000 $8,000, $6,750 and $5,200 for
Messrs. Bright, Christiansen, Stepien, Lindner and Rasmussen,
respectively, and $2,750 for Mrs. Wharton for supplemental life
insurance.
(4) As of December 31, 1997, Messrs. Bright, Christiansen, Stepien, Lindner
and Rasmussen, and Mrs. Wharton held 41,903, 27,150, 13,175, 11,017,
10,543, and 15,872 restricted shares of MidAmerican Common Stock,
respectively, having a value of $921,866, $597,300, $289,850, $242,374,
$231,946 and $349,184, respectively, based on the closing price of
MidAmerican Common Stock at December 31, 1997. The restricted stock was
granted as performance shares pursuant to the 1995 Long-Term Incentive
Plan. See the "Compensation Committee Report on Executive Compensation"
and the table of "Long-Term Incentive Plans-Awards in Last Fiscal
Year."
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
And Fiscal Year-end Option Values
<TABLE>
<CAPTION>
Number of Value of
Securities underlying Unexercised In-the
Unexercised Options/ Money Options/
SARs at Fiscal SARs at Fiscal
Year-End (#) (1) Year-End($)(2)
---------------------- ------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley J. Bright 25,000 154,688 50,000 75,000 375,000 562,500
Russell E. Christiansen 30,000 225,000 45,000 75,000 337,500 562,500
Ronald W. Stepien 20,000 96,250 5,000 35,000 31,250 243,750
Philip G. Lindner 20,000 110,000 0 20,000 0 150,000
John A. Rasmussen 20,000 96,250 0 20,000 0 150,000
Beverly A. Wharton 15,000 115,313 15,000 30,000 112,500 225,000
</TABLE>
(1) The options shown in the foregoing table were granted pursuant to the
1995 Long-Term Incentive Plan and may be exercised during a period that
begins one year after the date of grant and ends ten years after the
date of the grant. During the exercise period the recipient of the
option grant may exercise 25% of the total options granted after one
year from the date of the grant, 50% after two years from the date of
the grant, 75% after three years from the date of the grant and all of
the options after four years from the date of the grant. Options become
fully exercisable in the event of termination of employment with the
Company by reason of disability, retirement at age 55 and after five
years of service with the Company, death or a change in control as
defined in the plan.
(2) Represents the difference between the option exercise price and the
closing market price for the Company's stock on December 31, 1997. The
in-the-money options at December 31, 1997 pertain to the market-priced
option grants in October of 1995 with an exercise price of $14.50 and
the market-priced option grant in October of 1996 with an exercise
price of $15.75. The closing market price for the Company's stock at
the end of the 1997 fiscal year was $22.00.
<PAGE>
Long-Term Incentive Plans--Awards in Last Fiscal Year
Number of Shares, Performance or
Units or Other Other Period until
Name Rights(#)(1) Maturation or Payout
---- ---------------------- --------------------
Stanley J. Bright 16,462 6/30/2000
Russell E. Christiansen 0 6/30/2000
Ronald W. Stepien 6,498 6/30/2000
Philip G. Lindner 4,347 6/30/2000
John A. Rasmussen 4,043 6/30/2000
Beverly A. Wharton 5,545 6/30/2000
(1) The restricted stock awards shown in the foregoing table were made
pursuant to the 1995 Long-Term Incentive Plan and are subject to
achievement of specific performance measures during a three-year
performance period ending June 30, 2000. During this performance
period, the holder of the restricted stock will be entitled to receive
the dividends on the restricted stock and vote the stock; however, the
stock will not be vested until the achievement of the performance
measures. A participant whose employment is terminated due to
retirement will receive a pro rata portion of such participant's total
award based on the participant's service as an employee during the
performance period or as otherwise determined by the Board of Directors
in its sole discretion. The performance shares will vest, however, in
the event of termination of employment with the Company by reason of
disability, death or a change in control as defined in the plan. See
the "Compensation Committee Report on Executive Compensation" for a
discussion of the restricted stock awards.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors has furnished the following
report on executive compensation.
The Compensation Committee is comprised of directors who are not current or
former officers or employees of the Company or any of its subsidiaries. The
Committee has the following responsibilities:
o Review and recommend to the Board of Directors the election of
officers of the Company annually and at such other times as may be
recommended by the Chief Executive Officer of the Company.
o Review not less than annually the performance of the Chief
Executive Officer and recommend to the Board of Directors the
criteria to be used in determining senior management compensation.
The Compensation Committee shall review and approve all elements of
compensation, including base salary and annual and long-term
incentive award opportunities, for each officer of the Company,
except for the Chief Executive Officer, in which case the Compensa-
tion Committee shall recommend approval by the Board of Directors.
o Review and recommend to the Board of Directors the adoption of and
significant amendments to all nonqualified compensation plans,
including annual and long-term incentive compensation, stock
option, supplemental retirement and deferred compensation plans.
o Periodically review plans for management development and succession
to assure proficiency and continuity in the Company's management.
<PAGE>
Since 1995 the Company's compensation policy has been designed to compensate
management with salary, incentives and benefits at the top quartile level
commensurate with top quartile performance of the Company as compared to utility
companies. The measurement of top quartile performance is in terms of total
shareholder return as discussed in this report. Company performance that does
not achieve top quartile performance will not result in management compensation
at top quartile levels. Comparative utility companies consist of electric, gas
and combination utilities, some of which may also be included in the published
industry index referenced in the shareholder return performance graph. The
industry index referenced in the shareholder return performance graph is the Dow
Jones Utilities Index which consists of 15 public utility companies, many of
which are larger than MidAmerican in terms of revenues and assets. In order to
provide a broad comparison of utility industry compensation, the Committee
reviewed compensation surveys (some utilities may appear on more than one
survey) made available by the Edison Electric Institute (approximately 115
surveyed utility companies), the American Gas Association (approximately 95
surveyed utility companies) and the Company's compensation consultant
(approximately 25 surveyed utility companies).
Incentive plans and performance review processes are intended to encourage and
reward outstanding performance at the top quartile level. In addition to
aligning compensation levels with the Company's performance in terms of
shareholder value, the compensation policy and the goals set for incentive plans
are designed to attract and retain highly qualified and capable executives. As a
result, the policy places a portion, ranging from approximately one-fourth to
one-half, of total compensation at risk in recognition of the importance placed
on increasing shareholder value.
The Committee has established a policy of annually reviewing executive
compensation for the purpose of determining base salaries for the next year. As
part of its review, the Committee evaluates overall corporate performance,
including earnings, comparative utility and general industry compensation levels
and salary recommendations made by the Chief Executive Officer of the Company.
The Committee then recommends the base salary of the Chief Executive Officer to
the Board of Directors and reviews and approves base salaries for all other
officers of the Company. The Committee also sets targets and goals for the
annual and long-term incentive compensation plans and evaluates the attainment
of these targets and goals in order to determine the level of incentive awards
to be made, if any.
Base Salaries. Base salaries for the named executive officers are targeted at
the midpoint of the applicable salary band which has a one hundred percentage
point range between the band minimum and the band maximum. The midpoint of the
salary band is determined by taking the average of competitive market data
available in the utility industry for comparative companies, including companies
having nonregulated operations, as determined through compensation surveys
prepared by the Company's compensation consultant. While it is the policy of the
Company to use the salary band midpoint as the target for annual salary levels,
individual and business unit performance are also considered in determining
actual base salaries.
<PAGE>
Base salaries for 1997 for the named executive officers were not adjusted during
1997, except in the instance where an individual named executive officer assumed
greater management responsibilities.
Annual Incentive Compensation. In 1995, the Company adopted a Key Employee Short
Term Incentive Compensation Plan for key employees, including the named
executive officers. Since the corporate performance goals for 1997 were
achieved, awards under the plan were made to plan participants, including Mr.
Bright and the other named executive officers, for the year 1997.
Long-Term Incentive Compensation. The 1995 Long-Term Incentive Plan was adopted
by the Board of Directors in 1995 and approved by the shareholders in April
1996. Under the plan, officers and other key employees, including the named
executive officers, may be awarded incentive stock options, non-statutory stock
options, stock appreciation rights, restricted stock, bonus stock and
performance shares, individually or in combination. Upon the recommendation of
the Committee, the Board of Directors approved the grant of stock options to the
named executive officers in the amounts shown in the Summary Compensation Table.
In addition, the Committee recommended and the Board of Directors approved the
grant of restricted shares of MidAmerican Common Stock to the named executive
officers in the amounts shown on the table of Long-Term Incentive Plan Awards
for the performance period ending June 30, 2000. Under the plan, it is contem-
plated that restricted stock will be granted at the beginning of each three year
performance period; however, the shares are not earned or distributed to the
participant unless the performance targets for that period have been met. The
performance target for this performance period is total shareholder return (as
measured by growth in stock price and dividends) by the Company that is in the
top quartile of electric and combination gas and electric utilities included in
the Value Line Investment Survey. During the performance period, the participant
has the right to vote the shares and receive dividends thereon.
Chief Executive Officer Compensation. Although the minimum base salary for Mr.
Bright, Chairman, President and Chief Executive Officer, is specified in his
employment contract, his total compensation, including base salary, annual and
long-term incentive compensation, is determined by the Board of Directors upon
the recommendation of the Committee in accordance with the policies described
above. The measures of the Company's performance upon which Mr. Bright's total
1997 compensation was based were the achievement of certain financial goals,
including total shareholder return and earnings per share, the effective
management of issues related to the restructuring of the company's regulated and
nonregulated operations in preparation for a more competitive environment and
overall leadership of the Company.
<PAGE>
On June 1, 1997 Mr. Bright assumed the additional duties of Chairman of the
Board of Directors of the Company following the retirement of Mr. Christiansen
as Chairman and an employee of the Company effective May 31, 1997. Mr.
Christiansen's 1997 annual base salary was adjusted in connection with his
retirement.
As stated above, Mr. Bright received a short-term incentive award for 1997 since
the corporate performance goals relating to shareholder return and earnings per
share were achieved.
Mr. Bright received an award of restricted shares of MidAmerican Common Stock in
1997 as disclosed in the table of Long-Term Incentive Plans-Awards in Last
Fiscal Year. This award was made pursuant to the 1995 Long-Term Incentive Plan
and in accordance with the Company's policy of more closely aligning executive
compensation with shareholder value. The restricted stock award is subject to
the achievement of the total shareholder return performance goal at the end of
the three-year performance period. Mr. Bright did not receive an award of stock
options in 1997.
The Committee believes that executive compensation for 1997 reflects its policy
of aligning executive compensation with shareholder value and ensuring that the
Company's goals and performance are consistent with the interests of the
shareholders.
Compensation Committee
J. W. Eugster, Chair
N. L. Seifert, Vice Chair
J. W. Colloton
M. Foster, Jr. (retiring as a director in 1998)
J. M. Hoak, Jr. (retiring as a director in 1998)
R. L. Lawson
Shareholder Return Performance Graph
The following is a line graph comparing the yearly change in the cumulative
total shareholder return on MidAmerican Common Stock to the cumulative total
return of the S&P 500 Index and the Dow Jones Utilities Index (which does not
include the Company) for the five-year period commencing December 31, 1992 and
ending December 31, 1997.
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG MIDAMERICAN ENERGY HOLDINGS COMPANY, THE S & P 500 INDEX
AND THE DOW JONES UTILITIES AVERAGE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MIDAMERICAN ENERGY DOW JONES
HOLDINGS COMPANY S&P 500 UTILITIES AVERAGE
Dec-92 100 100 100
Dec-93 120 110 110
Dec-94 101 112 93
Dec-95 135 153 123
Dec-96 138 189 134
Dec-97 204 252 164
*Assumes that the value of the investment in MidAmerican Common Stock and each
index was $100 on December 31, 1992 and that all dividends were reinvested.
Information shown for the Company prior to July 1, 1995 is a pro forma
calculation based on an investment in each of the predecessor companies
amounting to $56 for Midwest Resources and $44 for Iowa-Illinois on December 31,
1992.
Retirement Plans
The Company maintains a Supplemental Retirement Plan for Designated Officers
("Supplemental Plan") to provide additional retirement benefits to designated
participants, as determined by the Board of Directors. Messrs. Bright,
Christiansen, Stepien, Lindner and Rasmussen and Mrs. Wharton are participants
in the Supplemental Plan. The Supplemental Plan provides retirement benefits up
to sixty-five percent of a participant's Total Cash Compensation in effect
immediately prior to retirement. "Total Cash Compensation" means the highest
amount payable to a participant as annual base salary during the five years
immediately prior to retirement plus the average of the participant's last three
years' awards under an annual incentive bonus program. Participants must be
credited with five years service in order to be eligible to receive benefits
under the Supplemental Plan. Each of the named executive officers has or will
have five years of credited service with the Company as of their respective
normal retirement age and will be eligible to receive benefits under the
Supplemental Plan. A participant who elects early retirement is entitled to
reduced benefits under the Supplemental Plan. A survivor benefit is payable to a
surviving spouse under the Supplemental Plan. Benefits from the Supplemental
Plan will be paid out of general corporate funds, however, the Company, through
a rabbi trust, maintains life insurance on the participants in amounts expected
to be sufficient to fund the after-tax cost of the projected benefits. Deferred
compensation is considered part of the salary covered by the Supplemental Plan.
The supplemental retirement benefit will be reduced by the amount of the
participant's regular retirement benefit under the MidAmerican Energy Company
Cash Balance Retirement Plan ("MidAmerican Retirement Plan") which became
effective January 1, 1997, and by benefits under the Iowa-Illinois Gas and
Electric Company Supplemental Retirement Plan ("Iowa-Illinois Supplemental
Plan"), the Midwest Resources Inc. Supplemental Executive Retirement Plan ("MWR
Supplemental Plan") or the Iowa Resources Inc. and Subsidiaries Supplemental
<PAGE>
Retirement Income Plan ("IOR Supplemental Plan"), as applicable.
The MidAmerican Retirement Plan replaced retirement plans of predecessor
companies which were structured as traditional, defined benefit plans. Under the
MidAmerican Retirement Plan, each participant has an account, for record keeping
purposes only, to which credits are allocated each payroll period based upon a
percentage of the participant's salary paid in the current pay period. In
addition, all balances in the accounts of participants earn a fixed rate of
interest which is credited annually. The interest rate for a particular year is
based on the one-year U. S. Treasury Bill plus one percentage point. At
retirement or other termination of employment, an amount equal to the vested
balance then credited to the account is payable to the participant in the form
of a lump sum or a form of annuity for the entire benefit under the MidAmerican
Retirement Plan.
The Iowa-Illinois Supplemental Plan provides for retirement benefits equal to
sixty-five percent of a participant's highest annual total cash compensation
during the three years prior to retirement reduced by the participant's
MidAmerican Retirement Plan benefit. A participant who elects early retirement
is entitled to reduced benefits under the plan. A survivor benefit is payable to
a surviving spouse. Deferred compensation is considered a part of salary covered
by the Iowa- Illinois Supplemental Plan.
The MWR Supplemental Plan provides a participant, upon retirement at age 65 with
thirty or more years of service, an annual retirement benefit equal to sixty
percent of final average annual earnings which is defined as the average of
salary plus bonus for the five highest consecutive years during the
participant's employment with the Company. A participant who elects early
retirement is entitled to reduced benefits under the plan. A survivor benefit is
payable to a surviving spouse. Deferred compensation is considered a part of
salary covered by the MWR Supplemental Plan.
Part A of the IOR Supplemental Plan provides retirement benefits up to
sixty-five percent of a participant's highest annual salary during the five
years prior to retirement reduced by the participant's MidAmerican Retirement
Plan benefit. The percentage applied is based on years of credited service. A
participant who elects early retirement is entitled to reduced benefits under
the plan. A survivor benefit is payable to a surviving spouse. Benefits are
adjusted annually for inflation. Part B of the IOR Supplemental Plan provides
that an additional one hundred-fifty percent of annual salary is to be paid out
to participants at the rate of ten percent per year over fifteen years, except
in the event of a participant's death, in which event the unpaid balance would
be paid to the participant's beneficiary or estate. Deferred compensation is
considered part of the salary covered by the IOR Supplemental Plan.
The table below shows the estimated aggregate annual benefits payable under the
Supplemental Plan and the MidAmerican Retirement Plan. The amounts exclude
Social Security and are based on a straight life annuity and retirement at ages
55, 60 and 65. Federal law limits the amount of benefits payable to an
individual through the tax qualified defined benefit and contribution plans, and
benefits exceeding such limitation are payable under the Supplemental Plan.
<PAGE>
Pension Plan Table
Estimated Annual Benefit
Total Cash
Compensation Age at Retirement
at Retirement 55 60 65
- ------------- ------------- ------------- -------------
$350,000 192,500 210,000 227,500
400,000 220,000 240,000 260,000
450,000 247,500 270,000 292,500
500,000 275,000 300,000 325,000
550,000 302,500 330,000 357,500
600,000 330,000 360,000 390,000
650,000 357,500 390,000 422,500
700,000 385,000 420,000 455,000
750,000 412,500 450,000 487,500
800,000 440,000 480,000 520,000
850,000 467,500 510,000 552,500
900,000 495,000 540,000 585,000
950,000 522,500 570,000 617,500
Employment Agreements
Pursuant to his Employment Agreement, Mr. Bright will serve as Chairman of the
Board of Directors and Chief Executive Officer of the Company until July 1,
2000. The Employment Agreement provides that Mr. Bright is to receive an annual
base salary of not less than $350,000, executive officer benefits and management
bonuses based on the achievement of corporate goals and objectives.
The Employment Agreement provides that the Company may terminate the employment
of Mr. Bright (i) in the event of a breach of the Employment Agreement in any
material respect as determined by the vote of not less than two-thirds of the
entire Board of Directors of the Company, (ii) for cause as determined by an
affirmative vote of not less than two-thirds of the entire Board of Directors of
the Company or (iii) upon the affirmative vote of not less than two-thirds of
the entire Board of Directors of the Company, provided that in the case of
(iii), the Company will be obligated to make all salary and bonus payments and
to provide all benefits specified in the Employment Agreement through the end of
the Employment Agreement's term, notwithstanding its termination.
<PAGE>
If Mr. Bright's employment is terminated for cause or due to breach of the
Employment Agreement, he will receive earned and unpaid salary accrued through
the end of the month in which such termination occurs. In the event of his death
during the term of the Employment Agreement, salary payments will terminate on
the date death benefits are made available to Mr. Bright's beneficiaries under
the Company's benefit plans.
On November 1, 1996, the MidAmerican Energy Company Severance Plan for Specified
Officers (the "Severance Plan") became effective. The Severance Plan provides
for Severance Benefits (as defined hereinafter) to eligible participants in the
event of a Qualifying Termination. Under the Severance Plan, a Qualifying
Termination means a termination of employment of a Specified Officer either (i)
involuntarily for any reason (except in the instance of a felony) or (ii)
voluntarily within 24 months after a Change in Control (defined hereinafter),
should a Specified Officer's (a) job reporting location be changed by more than
30 miles, (b) total cash compensation opportunity be reduced or (c) duties and
responsibilities be substantially reduced. Termination of employment due, in
whole or in part, to the commission of a felony by a Specified Officer will not
constitute a Qualifying Termination under the Severance Plan. All Severance
Benefits for a Specified Officer charged with a felony will be suspended until
such time as a felony charge is finally disposed. Conviction of a felony will be
sufficient to disqualify the Specified Officer for Severance Benefits. A plea of
no contest to a felony will not be sufficient to disqualify the Specified
Officer for Severance Benefits.
A "Change in Control" means either (i) the closing date of the restructuring of
the Company as a result of a merger, consolidation, takeover or reorganization
unless at least 60% of the members of the board of directors of the Company
resulting from such merger, consolidation, takeover or reorganization were
members of the incumbent MidAmerican Board of Directors, or (ii) any occurrence
or any other event that is designated as being a "Change in Control" by a
majority vote of the incumbent MidAmerican Board of Directors who are not also
employees of MidAmerican.
"Severance Benefits" under the Severance Plan include: (i) an amount equal to
two times the Specified Officer's highest Total Cash Compensation (defined as
annual salary plus bonus) payable in a lump sum on the effective date of the
Qualifying Termination; (ii) the Specified Officer's accrued vacation pay
through the effective date of the Qualifying Termination, payable in a lump sum
on such date; (iii) continuation of the welfare benefits of health insurance,
disability insurance and group term life insurance for a period of 24 full
calendar months after the effective date of the Qualifying Termination; and (iv)
standard outplacement services for a period of 24 full calendar months after the
effective date of the Qualifying Termination (the cost of such services not to
exceed 20% of the Specified Officer's Total Cash Compensation). In addition,
Specified Officers are eligible to receive a cash "gross-up" payment equal to
the federal excise tax, if any, due on the total severance package.
In consideration of the waiver and release of the right to receive any prior
severance benefits under any prior severance plans, the Company agreed to an
irrevocable grant of three years additional service or age for the purpose of
determining benefits under the Supplemental Plan and a phantom stock retention
bonus equal to one year's annual base salary in effect on November 1, 1996 to
vest in three equal installments on each January 1 commencing in 1998 and
conditioned upon the continued employment of the eligible participant on such
dates. Of the eligible participants who are named executive officers, Messrs.
Stepien, Lindner and Rasmussen and Mrs. Wharton have agreed to the waiver and
release.
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P. ("Coopers"),
accountants and auditors, to examine the books, accounts and records of the
Company for the year 1998 and to render their auditors' report thereon. A repre-
sentative of Coopers is expected to be present at the annual meeting with the
opportunity to make a statement if so desired and to be available to respond to
appropriate questions.
On April 14, 1997, management of MidAmerican informed Arthur Andersen LLP
("Andersen") of a plan to recommend a change in independent accountants for 1997
for MidAmerican and its subsidiaries. At its regularly scheduled meeting on
April 22, 1997, the Audit Committee recommended, and at its regularly scheduled
meeting on April 23, 1997, the full Board of Directors approved the appointment
of Coopers as independent accountants for the Company for 1997. On April 23,
1997, Company management informed Andersen that the firm would no longer be
engaged as independent accountants for the Company for accounting periods subse-
quent to the fiscal year ended December 31, 1996.
Andersen's reports on the Company's financial statements for the two most recent
fiscal years ended December 31, 1995 and 1996 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
During the two fiscal years ended December 31, 1995 and 1996, and during subse-
quent interim periods through April 23, 1997, there were no disagreements with
Andersen on any matter of accounting principles or practices, financial state-
ment disclosures, or auditing scope or procedures, which disagreements, if not
resolved to the satisfaction of Andersen, would have caused it to make a refer-
ence to the subject matter of the disagreements in connection with its audit
reports.
During the two fiscal years ended December 31, 1995 and 1996, and during subse-
quent interim periods through April 23, 1997, there were no reportable events
(as defined in Securities and Exchange Commission ("SEC") Regulation S-K Item
304(a)(1)(v)).
The Company requested Andersen to furnish a letter addressed to the SEC stating
whether it agrees with the above statements. Andersen's letter dated April 24,
1997 is filed as an exhibit to the Company's Form 8-K dated April 23, 1997.
During the two fiscal years ending December 31, 1996 and through April 23, 1997,
the Company did not consult Coopers regarding any of the matters or events set
forth in SEC Regulation S-K Item 304(a)(2)(i) and (ii).
<PAGE>
1999 SHAREHOLDER PROPOSALS
In order for proposals of MidAmerican Energy Holdings Company Common
Shareholders intended to be presented at the annual meeting of shareholders to
be held in 1999 to be considered for inclusion in the MidAmerican Energy
Holdings Company Proxy Statement and form of proxy relating to that meeting,
such proposals must be received by the Company on or before November 17, 1998.
Proposals should be sent to the Corporate Secretary, MidAmerican Energy Holdings
Company, P.O. Box 657, Des Moines, Iowa 50303-0657.
MidAmerican's Bylaws establish advance notice procedures as to business to be
brought before an annual meeting of shareholders other than by or at the
direction of the Board of Directors. A shareholder may bring business before an
annual meeting only by delivering notice to the Company 120 days in advance of
such meeting, or if less than 120 days disclosure of the meeting date is
provided, not later than the seventh day following the date such disclosure of
the meeting date is made. Such notice must include a description of and the
reasons for bringing the proposed business before the meeting, any material
interest of the shareholder in such business and certain other information about
the shareholder. The 1999 annual meeting of shareholders is expected to be held
on April 28, 1999. A shareholder proposal intended to be brought before the 1999
annual meeting must be received on or prior to December 30, 1998.
These requirements are separate and apart from and in addition to the SEC's
requirements that a shareholder must meet in order to have a shareholder pro-
posal included in the Company's proxy statement pursuant to SEC Rule 14a-8. Any
shareholder who wishes to take such action should obtain a copy of these Bylaws
and may do so by written request addressed to the Corporate Secretary of the
Company at the address listed above.
OTHER MATTERS
The audited financial statements of MidAmerican Energy Holdings Company for the
year ended December 31, 1997 are included as Appendix A to this Proxy Statement.
Additional copies of such financial information will be mailed to any
shareholder upon request. Copies of MidAmerican Energy Holdings Company's Annual
Report on Form 10-K will be available to shareholders upon request and without
charge after its filing with the SEC on or before March 31, 1998.
The Board of Directors does not know of any other matter to be presented at the
meeting. If, however, any other matter properly comes before the meeting, it is
the intention of the persons named in the proxies to vote thereon in accordance
with their judgment.
By Order of the Board of Directors
Paul J. Leighton
Vice President and Corporate Secretary
Des Moines, Iowa
March 10, 1998
<PAGE>
Appendix A
[LOGO]
MidAmerican Energy Holdings Company
1997 Financial Information
Table of Contents
Management's Discussion and Analysis...................A-1
Consolidated Statements of Income......................A-22
Consolidated Balance Sheets............................A-23
Consolidated Statements of Cash Flows..................A-24
Consolidated Statements of Capitalization..............A-25
Consolidated Statements of Retained Earnings...........A-26
Notes to Consolidated Financial Statements.............A-27
Report of Management...................................A-54
Report of Independent Accountants......................A-55
Selected Consolidated Financial Data...................A-56
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
------------
COMPANY STRUCTURE
MidAmerican Energy Holdings Company (Holdings or the Company) is an exempt
public utility holding company headquartered in Des Moines, Iowa. Effective
December 1, 1996, Holdings became the parent company of MidAmerican Energy
Company (MidAmerican), MidAmerican Capital Company (MidAmerican Capital) and
Midwest Capital Group, Inc. (Midwest Capital). Prior to December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.
MidAmerican was formed on July 1, 1995, as a result of the merger of
Iowa-Illinois Gas and Electric Company, Midwest Resources Inc. (Resources) and
Midwest Power Systems Inc., the utility subsidiary of Resources.
MidAmerican is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital and Midwest
Capital are Holdings' nonregulated subsidiaries. Midwest Capital functions as a
regional business development company in MidAmerican's utility service
territory. MidAmerican Capital manages marketable securities and passive
investment activities, nonregulated wholesale and retail natural gas businesses,
security services and other energy-related, nonregulated activities.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The MidAmerican merger was accounted for as a pooling-of-interests, and
consolidated financial statements are presented as if the merger occurred as of
the beginning of the earliest period presented. Portions of the following
discussion provide information related to material changes in the financial
condition and results of operations of Holdings and MidAmerican for the periods
presented based on the combined historical information of the predecessor
companies. It is not necessarily indicative of what would have occurred had the
predecessor companies actually merged at the beginning of the earliest period.
Management's Discussion and Analysis (MD&A) addresses the financial
statements of Holdings and MidAmerican. Information related to MidAmerican also
relates to Holdings. Information related to MidAmerican Capital and Midwest
Capital pertains only to the discussion of the financial condition and results
of operations of Holdings. To the extent necessary, certain discussions have
been segregated to allow the reader to identify information applicable only to
Holdings.
A-1
<PAGE>
FORWARD-LOOKING STATEMENTS
From time to time, the Company or one of its subsidiaries individually may
make forward-looking statements within the meaning of the federal securities
laws that involve judgments, assumptions and other uncertainties beyond the
control of the Company or any of its subsidiaries individually. These
forward-looking statements may include, among others, statements concerning
revenue and cost trends, cost recovery, cost reduction strategies and
anticipated outcomes, pricing strategies, changes in the utility industry,
planned capital expenditures, financing needs and availability, statements of
the Company's expectations, beliefs, future plans and strategies, anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such statements are not a guarantee of future performance of the Company
and that such forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in, or
implied by, such statements. Some, but not all, of the risks and uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory, interest rates,
inflation and federal and state regulatory actions.
RESULTS OF OPERATIONS
---------------------
The following tables provide a summary of the earnings contributions of the
Company's operations for each of the periods presented:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Income (in millions)
Continuing operations
Electric utility $100.9 $122.7 $111.9
Gas utility 18.6 32.0 12.6
------ ------ ------
Total 119.5 154.7 124.5
Nonregulated operations 19.8 (11.0) (4.8)
Discontinued operations (4.2) (12.7) 3.1
------ ------ ------
Consolidated earnings $135.1 $131.0 $122.8
====== ====== ======
Earnings Per Common Share
Continuing operations
Electric utility $ 1.03 $ 1.22 $ 1.11
Gas utility 0.19 0.32 0.13
------ ------ ------
Total 1.22 1.54 1.24
Nonregulated operations 0.20 (0.11) (0.05)
Discontinued operations (0.04) (0.13) 0.03
------ ------ ------
Consolidated earnings $ 1.38 $ 1.30 $ 1.22
====== ====== ======
</TABLE>
A-2
<PAGE>
EARNINGS DISCUSSION
Earnings per share for 1997 and 1996 each increased 8 cents compared to
their prior year. Some of the significant factors resulting in the increases are
listed below, on a Holdings per-share basis. The discussion that follows
addresses these factors as well as other items affecting the Company's results
of operations.
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
------------ ------------
<S> <C> <C>
MidAmerican
Net reduction in electric and gas
gross margin due to -
Variation in the effect of weather $ (0.03) $ (0.09)
Customer growth 0.08 0.09
Electric retail rate changes (0.07) (0.01)
Improvements due to other factors 0.10 0.05
Nuclear O&M expenses (0.07) 0.02
1995 merger and restructuring costs - 0.24
Other O&M expenses (0.40) 0.09
1996 merger proposal costs 0.05 (0.05)
Gas procurement program awards
and 1996 storage gas sale - 0.03
Nonregulated subsidiaries
Write-downs of certain assets
(primarily alternative energy projects) 0.07 0.01
Realized gain on sale of McLeodUSA
Incorporated common stock 0.05 -
Gains on sales of certain assets 0.06 (0.05)
Interest on long-term debt 0.07 0.02
Other continuing operations 0.07 (0.04)
Discontinued operations 0.09 (0.16)
</TABLE>
The Company continued its strategic realignment of utility and nonregulated
operations which began in 1996. Earnings of nonregulated subsidiaries have been
significantly affected by such realignment. During 1997, the Company divested a
number of its interests in nonregulated assets which did not align with the
corporate vision of becoming the leading regional provider of energy and
complementary services. Earnings for 1997 include 6 cents per share from the
sale of assets of its railcar leasing and repair businesses. Losses from
discontinued operations reduced earnings in 1996 and 1997, though to a lesser
degree in 1997. Cash proceeds from the sale of discontinued operations allowed
the Company to pay off long-term debt, significantly reducing its interest
expense compared to 1996.
In addition, 1997 earnings include 5 cents per share from the sale of a
portion of the Company's interest in McLeodUSA Incorporated (McLeodUSA).
Although utility earnings for 1997 were lower than in the prior year, a
reduction was anticipated because of the electric pricing settlements achieved
in 1996 and 1997 in Iowa and Illinois. Additionally, utility operating expenses
increased as the Company continued strategic realignment which included
strengthening its marketing and customer service capabilities and adding to its
information technology resources.
A-3
<PAGE>
In the past three years, the Company's evaluation of its nonregulated
investments has resulted in write-downs of certain assets, primarily investments
in alternative energy projects. The write-downs, which reflect declines in the
value of those nonregulated investments, reduced earnings by approximately $2.0
million, or 2 cents per share, $9.4 million, or 9 cents per share, and $10.2
million, or 10 cents per share, in 1997, 1996 and 1995, respectively.
Discontinued Operations -
Holdings:
- ---------
During 1996, the Company discontinued some of its nonregulated operations.
The income or loss from those operations and the losses on disposal are
reflected as discontinued operations in each of the periods presented in the
Consolidated Statements of Income. Net assets of the discontinued operations are
separately presented in the Consolidated Balance Sheets as Investment in
Discontinued Operations.
In the fourth quarter of 1996, the Company and KCS Energy, Inc. (KCS) of
Edison, New Jersey, signed a definitive agreement to sell a portion of the
Company's nonregulated operations to KCS for $210 million in cash and warrants
to purchase KCS common stock. The sale, which included the Company's oil and gas
exploration and development operations, was completed in January 1997. The
Company recorded an after-tax loss of $7.1 million for the transaction in 1996
and an additional $0.9 million in 1997.
In October 1997, the Company also divested a subsidiary that developed and
operated a computerized information system which facilitated real-time exchange
of power in the electric industry. The Company recorded a $4.0 million
anticipated after-tax loss on disposal of those operations in September 1996 and
an additional $3.2 million after-tax loss on disposal in September 1997.
MidAmerican:
- ------------
MidAmerican received $15.3 million in cash in 1996 as final settlement for
the sale of a former coal mining subsidiary which was reflected as discontinued
operations in 1982 by one of MidAmerican's predecessors. The final settlement
included reacquisition by the buyer of preferred equity issued to MidAmerican
and the settlement of reclamation reserves. MidAmerican recorded an after-tax
loss on disposal of $3.3 million for the transaction in September 1996. This
transaction is included in discontinued operations in the consolidated financial
statements Holdings.
A-4
<PAGE>
UTILITY GROSS MARGIN
<TABLE>
<CAPTION>
Electric Gross Margin:
----------------------
1997 1996 1995
------ ------ ------
(in millions)
<S> <C> <C> <C>
Operating revenues $1,126 $1,099 $1,095
Cost of fuel, energy and capacity 236 234 230
------ ------ ------
Electric gross margin $ 890 $ 865 $ 865
====== ====== ======
</TABLE>
A variety of factors contributed to the increase in MidAmerican's electric
gross margin for 1997 compared to 1996. An increase in electric retail sales
volumes, additional recovery of energy efficiency costs and an increase in
transmission revenues all contributed to the improvement in gross margin. Rate
reductions partially offset the increases.
Retail sales of electricity increased 2.6% compared to 1996 sales due
primarily to a moderate but steady growth in the number of customers. The
increase in sales resulting from customer growth contributed $11 million to the
increase in electric gross margin. Also, compared to 1996, sales and gross
margin improved due to the impact of temperatures in the Company's service
territory. Although temperatures were milder than normal in both years,
comparatively, margin for 1997 increased $2 million over 1996 margin due to the
effect of weather. When compared to normal, the impact of temperatures resulted
in a $13 million reduction in electric gross margin in 1997 compared to a $15
million reduction in the 1996 margin.
Prior to July 11, 1997, MidAmerican was allowed to recover its energy costs
from most of its electric utility customers through energy adjustment clauses
(EACs) included in revenues. Effective July 11, 1997, the EAC was eliminated for
Iowa customers as part of a new Iowa pricing plan. Previously, variations in
revenues collected through the EACs did not affect gross margin or net income
due to corresponding increases in energy costs. With the elimination of the Iowa
EAC, fluctuations in energy costs now have an impact on gross margin and net
income. Energy costs per unit since July 11, 1997, were below the amount
recovered in rates under the new Iowa pricing plan and resulted in an increase
to gross margin.
In October 1996, the Illinois Commerce Commission (ICC) ordered MidAmerican
to reduce electric retail rates for its Illinois customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A negotiated termination
of the rate reduction proceeding left in place the initial $13.1 million annual
reduction and included a second price reduction of $2.4 million annually
effective on June 1, 1997. In Iowa, MidAmerican reduced its electric retail
rates by $8.7 million effective November 1, 1996. The reduction lowered rates to
levels proposed by MidAmerican in its pricing plan filed in June 1996. With
implementation of the approved settlement in July 1997, rates for Iowa
residential customers were reduced an additional $10.0 million annually. The
Iowa rate reductions are partially offset by a new tracking mechanism (Cooper
Tracker) for capital improvement costs at the Cooper Nuclear Station (Cooper).
Net of the effect of the Cooper Tracker, rate reductions reduced electric gross
margin by $17.3 million compared to 1996. Refer to "Rate Matters" in Liquidity
and Capital Resources later in this discussion for further information regarding
the Iowa proceeding.
A-5
<PAGE>
Beginning September 29, 1997, MidAmerican began collection of its remaining
deferred energy efficiency costs and current, ongoing energy efficiency costs.
Including an allowed return on deferred costs, the annual increase in electric
revenues is $36.1 million. The effect on earnings of this increase in revenues
and gross margin is partially offset by a corresponding increase in other
operating expenses of $31.1 million for deferred and current energy efficiency
costs. Refer to "Energy Efficiency" in Liquidity and Capital Resources later in
this discussion for further information.
Revenues and margin increased $6.2 million due to an increase in
transmission revenues. In addition, a 3.9% increase in non-retail sales resulted
in a $3.3 million increase in revenues.
Electric gross margin for 1996 was unchanged compared to 1995. Electric
retail sales for 1996 increased nearly 2% compared to 1995 due to modest
customer growth and an improvement in sales not dependent upon weather. Cooler
weather conditions in the 1996 third quarter compared to the 1995 third quarter
caused a significant decrease in weather-related sales. Colder weather during
the 1996 heating seasons compared to the 1995 heating seasons helped to mitigate
the impact of the mild cooling season in 1996. Sales to the more
weather-sensitive customers have a higher margin per unit than sales to other
customers. As a result, the decrease in sales to those customers had a greater
impact on margin than increases in sales to other customers.
The net impact of increases and decreases in retail rates resulted in an
overall decrease of $2.1 million in revenues and gross margin for 1996 compared
to 1995. Rate decreases implemented in Iowa and Illinois in November 1996 were
partially offset by an increase resulting from a filing made by one of
MidAmerican's predecessor companies. Electric revenues in the first half of 1995
reflect a $13.6 million annual increase for interim rates in connection with
that Iowa electric rate filing. Revenues for 1996 reflect the full-year effect
of the final $20.3 million annual rate increase in the proceeding, which was
effective in August 1995. Approximately $8 million of this increase relates to
increased expenses for other postretirement employee benefit (OPEB) costs.
In August 1995, MidAmerican began collection of $5.7 million over a
four-year period related to an energy efficiency cost recovery filing. At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously been deferred and included on the Company's balance sheet.
The amortization is included in other operating expenses.
<TABLE>
<CAPTION>
Gas Gross Margin:
-----------------
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Operating revenues $536 $537 $460
Cost of gas sold 346 345 279
---- ---- ----
Gas gross margin $190 $192 $181
==== ==== ====
</TABLE>
Variations in gas gross margin are the result of changes in revenues due to
price and sales volume variances. MidAmerican has been allowed to recover in
revenues the cost of gas sold from most of its gas utility customers through
purchase gas adjustment clauses (PGAs). Variations in revenues collected through
the PGAs, reflecting changes in the cost of gas per unit and volumes sold, do
not affect gross margin or net income.
A-6
<PAGE>
Gas gross margin for 1997 decreased $2 million compared to 1996 due to
warmer temperatures during the 1997 heating seasons. Temperatures in 1997 were
close to normal while temperatures in 1996 were colder than normal, contributing
$8 million to the 1996 gas gross margin. The decrease in sales and gross margin
due to weather was partially offset by the effect of a modest increase in
natural gas retail customers. In total, retail sales of natural gas in 1997
decreased 7.1% compared to 1996 sales.
As discussed in the electric margin discussion, beginning September 29,
1997, MidAmerican began recovery of its energy efficiency costs not previously
approved for recovery. Including an allowed return on deferred costs, the annual
increase in gas revenues is $12.8 million. The effect on earnings of this
increase in revenues and gross margin is partially offset by a corresponding
increase in other operating expenses of approximately $11.1 million for deferred
and current energy efficiency costs.
The average cost of gas per unit increased in 1997 compared to 1996 and is
reflected in revenues and cost of gas sold.
Gas gross margin increased in 1996 compared to 1995. The increase was due
both to price and sales volumes increases. Retail sales of natural gas increased
3.1% in 1996 compared to 1995 due in part to colder weather conditions in the
first quarter of 1996 than during the first quarter of 1995.
Another cause of the increases in gas revenues and gross margin was an
increase in gas retail service rates. Retail revenues in the first half of 1995
reflect interim rates from an $8.2 million increase in annual gas revenues in
connection with an Iowa gas rate filing by one of MidAmerican's predecessor
companies. MidAmerican began collecting the interim rates in October 1994. Gas
revenues for 1996 reflect the full-year effect of the final rate increase of
$10.6 million annually which was effective in August 1995. Approximately $2.5
million of the $10.6 million increase relates to increased expense for OPEB
costs.
In August 1995, MidAmerican began collection of $12.9 million over a
four-year period related to an energy efficiency cost recovery filing. At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously been deferred and included on the Company's balance sheet.
The amortization is included in other operating expenses.
Revenues and cost of gas sold each increased significantly in 1996 compared
to 1995 due to an increase in the average cost of gas per unit in 1996.
UTILITY OPERATING EXPENSES
Utility other operating expenses increased for 1997 compared to 1996 due in
part to an increase of $14.0 million in nuclear operating costs. Operating
expenses related to Cooper increased in part due to the ratemaking treatment for
Cooper capital improvements. As a result of 1996 and 1997 rate settlements,
Cooper capital improvements are now expensed when incurred, instead of being
capitalized. As mentioned previously in the Electric Gross Margin section,
MidAmerican is now recovering on a current basis the Iowa portion of these costs
from its Iowa electric customers. Recovery in Illinois is included in base
rates. This change accounted for $4.5 million of the nuclear operating expense
increase.
As mentioned in the gross margin discussions, 1997 reflects an increase in
expense related to the increased recovery of certain energy efficiency costs
beginning September 29, 1997. The increase in energy efficiency costs, including
amortization of historical costs and charging expense for current costs,
accounted for $13.1 million of the increase in other operating expenses.
A-7
<PAGE>
Continued restructuring of the Company in preparation for a competitive
industry has required additional expenses. MidAmerican has increased its
emphasis in marketing-related efforts, as well as customer service operations,
resulting in increases in consulting costs, advertising and other related
expenses. In addition, 1997 reflects increases in uncollectible accounts
expense, employee incentive compensation and certain employee benefits expenses.
Other operating expenses for 1997 reflect an increase in transmission wheeling
expense due in part to changes required by FERC Order Nos. 888 and 889.
For 1996, utility other operating expenses decreased compared to 1995 due
primarily to $31.9 million of costs in 1995 for the Company's restructuring plan
implemented as part of the merging of its predecessors. In addition, 1996
reflects cost savings resulting from the merger. Nuclear operations costs
decreased $4.5 million in 1996 compared to 1995. Partially offsetting these
decreases was a $4.2 million increase from the amortization of deferred energy
efficiency costs. There were also increases in consulting services expenses and
some general administrative costs for 1996 compared to 1995.
Maintenance expenses increased for 1997 compared to 1996. The main cause of
the increase was an adjustment in 1996 to align power plant inventory accounting
of predecessor companies which reduced 1996 expense by $6.2 million. In
addition, the Company incurred $2.0 million in maintenance expenses for
restoration following a snow storm in October 1997. Maintenance expenses at the
Quad Cities Station decreased $2.5 million in 1997 compared to 1996. Refer to
the discussion of Quad Cities Nuclear Station in the Liquidity and Capital
Resources section of MD&A for information regarding the status of the plant.
Maintenance expenses increased for 1996 compared to 1995. The timing of
power plant maintenance accounted for much of the variation between the periods.
The increase in power plant maintenance for 1996 was partially offset by the
inventory adjustment mentioned above. Maintenance expense for the Quad Cities
Station increased $1.8 million for 1996 compared to 1995.
Property taxes increased $8.8 million in 1997 compared to 1996 due
primarily to an increase in the assessed value for Iowa property tax
purposes.
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- ---------
Revenues of MidAmerican Capital and Midwest Capital increased a total of
$22.8 million in 1997 compared to 1996. Revenues from the natural gas marketing
subsidiaries increased $22.6 million due to an increase in the average price per
unit, reflective of an increase in the cost of gas sold. Sales of natural gas
decreased 3 million MMBtu's (4%) compared to 1996 sales.
Cost of sales includes expenses directly related to sales of natural gas.
The increase in cost of sales for 1997 reflects a 15% increase in the average
cost of gas per unit. Compared to 1996, total gross margin (total price less
cost of gas) on nonregulated natural gas sales increased $1.0 million.
Revenues of MidAmerican Capital and Midwest Capital increased a total of
$141.7 million for 1996 compared to 1995. The increase was due primarily to a
$136.1 million increase in revenues from natural gas marketing subsidiaries,
some of which did not exist in 1995. Sales volumes for the natural gas marketing
firms increased 51 million MMBtu's (153%) for 1996 compared to 1995. In
addition, the average price of natural gas increased in 1996.
A-8
<PAGE>
Cost of sales for 1996 reflects the increases in gas sales volumes and cost
per unit compared to 1995. Average margins on sales of natural gas decreased in
1996 compared to 1995 due in part to increased competition in the nonregulated
natural gas industry. As a result, total 1996 gross margin on nonregulated
natural gas sales decreased $2.5 million compared to 1995.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- ------------
Other, Net -
In September 1997, MidAmerican received a $15 million cash payment from
Nebraska Public Power District (NPPD) as settlement for a lawsuit filed by
MidAmerican against NPPD. Approximately $12 million was refunded to
MidAmerican's customers. The remaining amount was retained by MidAmerican for
recovery of litigation costs in the lawsuit. Other, Net for 1997 reflects $2.2
million of pre-tax income for recovery of litigation costs incurred in prior
years.
Other, Net for 1996 includes approximately $8.7 million of expenses for
costs incurred by MidAmerican for its merger proposal to IES Industries Inc. in
1996.
MidAmerican was awarded $4.9 million of pre-tax income in 1997 for its
performance under its incentive gas procurement program during the May 1996 to
April 1997 period. In the fourth quarter of 1996, MidAmerican recorded an award
of $2.7 million of pre-tax income as a result of successful performance under
its incentive gas procurement program during the 1995-1996 heating season.
In 1996, MidAmerican recorded an initial pre-tax gain of $3.2 million on
its sale of the certain storage gas supplies. MidAmerican recorded an additional
$0.8 million gain in the second quarter of 1997 after receiving favorable
treatment on the transaction from the Iowa Utilities Board (IUB).
In addition, Other, Net includes the recognition of deferred income from
energy efficiency programs totaling $5.0 million and $3.3 million for 1997 and
1996, respectively.
Other, Net for 1997 reflects a net loss on reacquired long-term debt of
$0.9 million compared to a $1.1 million net gain in 1996.
Other, Net for 1995 includes $4.6 million of merger transaction costs
related to the Company's 1995 merger and $3.1 million for recognition of
deferred income from energy efficiency programs.
Interest Charges -
A decrease in the average amount of commercial paper outstanding compared
to 1996 resulted in a decrease in other interest expense for 1997. The decrease
was partially offset by interest expense related to IRS settlements in 1997.
A-9
<PAGE>
Holdings:
- ---------
Dividend Income -
Dividend income decreased for 1997 periods due MidAmerican Capital's
reduced holdings of preferred stock portfolios as discussed below.
Realized Gains and Losses on Securities, Net -
Net realized gains on securities for 1997 includes an $8.0 million pre-tax
gain on the sale of shares of McLeodUSA common stock. Excluding that gain, net
realized gains decreased in 1997 compared to 1996 primarily from realized gains
on the sales of certain common equity fund holdings which MidAmerican Capital
began liquidating in 1996. Net realized gains on securities increased for 1996
compared to 1995 due to an increase in gains on the disposition of equity fund
holdings and managed preferred stock portfolios.
Other, Net -
During 1997, the Company sold all of the assets of its railcar repair
services subsidiary and most of the assets of its railcar leasing subsidiary and
recorded pre-tax gains totaling $10.0 million. Write-downs of nonregulated
investments, as discussed in the Earnings Discussion section at the beginning of
Results of Operations, decreased Other, Net by $3.4 million, $15.6 million and
$18.0 million for 1997, 1996 and 1995, respectively. Income from equity
investments decreased in 1997 due to the liquidation activity discussed above.
Other, Net for 1996 reflects an increase in income from equity investments and
special purpose funds compared to 1995. In 1995, the Company had pre-tax gains
totaling $8.5 million on the sales of a partnership interest in a gas marketing
organization and a telecommunication subsidiary.
Interest Charges -
MidAmerican Capital's interest on long-term debt decreased $10.1 million
compared to 1996 expense due to the reduction of its long-term debt in early
1997.
INCOME TAXES
Holdings:
- ---------
During the second quarter of 1997, the Company contributed part of an
appreciated common stock investment to its tax exempt foundation and realized
$2.9 million of tax benefit.
A-10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has available a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, construction expenditures, dividends, debt retirement
and other capital requirements.
As of December 31, 1997, common equity represented 51.7% of the Company's
total capitalization compared to 44.0% and 44.3% as of December 31, 1996 and
1995, respectively. Several factors other than earnings, dividends and scheduled
maturities of debt affected the change. Recording an investment in McLeodUSA at
market value and repurchases and retirement of debt prior to its scheduled
maturity were major contributors to the move to a higher percentage of equity.
The Company's common stock repurchase program reduced common equity during 1997.
Each of these items is included in the discussion that follows.
As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $392 million for 1997 compared to
$321 million and $337 million in 1996 and 1995, respectively.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- ------------
Utility Construction Expenditures -
MidAmerican's primary need for capital is utility construction
expenditures. For 1997, utility construction expenditures totaled $167 million,
including allowance for funds used during construction (AFUDC), Quad Cities
Station nuclear fuel purchases and Cooper capital improvements. In addition,
MidAmerican's nonregulated railway subsidiary had $6 million of construction
expenditures in 1997. All such expenditures were met with cash generated from
utility operations, net of dividends.
Beginning with July 1997 expenditures, Cooper capital improvements are no
longer included in utility construction expenditures but are expensed when
incurred in Other Operating Expenses. As part of the 1997 settlement of
MidAmerican's pricing proposal, MidAmerican is recovering on a current basis the
Iowa portion of Cooper capital improvements from its Iowa electric customers
through a tracking mechanism.
Forecasted utility construction expenditures for 1998 are $201 million
including AFUDC. Capital expenditure needs are reviewed regularly by
MidAmerican's management and may change significantly as a result of such
reviews. MidAmerican presently expects that all utility construction
expenditures for the next five years will be met with cash generated from
utility operations, net of dividends. The actual level of cash generated from
utility operations is affected by, among other things, economic conditions in
the utility service territory, weather and federal and state regulatory actions.
A-11
<PAGE>
Nuclear Decommissioning -
Operators of a nuclear facility are required to set aside funds to provide
for costs of future decommissioning of their nuclear facility. In general,
decommissioning of a nuclear facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator. Based on information presently available, MidAmerican expects to
contribute approximately $51 million during the period 1998 through 2002 to an
external trust established for the investment of funds for decommissioning the
Quad Cities Station. Historically, the funds were invested in investment grade
municipal and U.S. Treasury bonds; however, in 1997 MidAmerican directed the
trust to begin investing a portion of the funds in domestic corporate debt and
common equity securities. Approximately 40% of the trust's funds are now
invested in domestic corporate debt and common equity securities.
In addition, MidAmerican makes payments to NPPD related to decommissioning
Cooper. These payments are reflected in Other Operating Expenses in the
Consolidated Statements of Income. NPPD estimates call for MidAmerican to pay
approximately $57 million to NPPD for Cooper decommissioning during the period
1998 through 2002. NPPD invests the funds predominantly in U.S. Treasury Bonds.
MidAmerican's obligation for Cooper decommissioning may be affected by the
actual plant shutdown date and the status of the power purchase contract at that
time. In July 1997, NPPD filed a lawsuit in United States District Court for the
District of Nebraska naming MidAmerican as the defendant and seeking a
declaration of MidAmerican's rights and obligations in connection with Cooper
nuclear decommissioning funding.
MidAmerican currently recovers Quad Cities Station decommissioning costs
charged to Illinois customers through a rate rider on customer billings. Cooper
and Quad Cities Station decommissioning costs charged to Iowa customers are
included in base rates, and recovery of increases in those amounts must be
sought through the normal ratemaking process.
Holdings:
- ---------
Nonregulated Capital Expenditures -
Capital expenditures of MidAmerican Capital and Midwest Capital totaled $8
million in 1997. Capital expenditures of these subsidiaries depend primarily
upon the availability of suitable investment opportunities which meet the
Company's objectives. The Company continues to evaluate nonregulated investments
and may redeploy certain assets in the next year. External financing may also be
used to provide for nonregulated capital expenditures.
Investments -
MidAmerican Capital invests in a variety of marketable securities which it
holds for indefinite periods of time. In the Consolidated Statements of Cash
Flows, the lines Purchase of Securities and Proceeds from Sale of Securities
consist primarily of the gross amounts of these activities, including realized
gains and losses on investments in marketable securities.
Included in investments on the Consolidated Balance Sheets is the Company's
investment in common stock of McLeodUSA. McLeodUSA common stock has been
publicly traded since June 14, 1996. Investor agreements related to McLeodUSA's
initial public offering and subsequent merger with Consolidated Communications
Inc. prohibit the Company from selling or otherwise disposing of any of the
common stock of McLeodUSA prior to September 24, 1998, without the approval of
McLeodUSA's board of directors. As
A-12
<PAGE>
a result of the agreements, the Company's investment was considered restricted
stock and, as such, was recorded at cost in all periods prior to September 1997.
Beginning in September 1997, the investment is no longer considered restricted
for accounting purposes and is recorded at fair value. At December 31, 1997, the
cost and fair value of the McLeodUSA investment were $45.2 million and $257.9
million, respectively. The unrealized gain is recorded, net of income taxes, as
a valuation allowance in common shareholders' equity. At December 31, 1997, the
unrealized gain and deferred income taxes for this investment were $212.7
million and $74.4 million, respectively.
MidAmerican Capital received approximately $302 million in cash during 1997
from sales of investments primarily as part of its efforts to align them with
the Company's strategy. A significant portion of the proceeds from these sales
was used for retirement of MidAmerican Capital long-term debt and for dividends
to Holdings for use in the repurchase of the Company's common stock.
FINANCING ACTIVITIES, PLANS AND AVAILABILITY
MidAmerican:
- ------------
MidAmerican currently has authority from the Federal Energy Regulatory
Commission (FERC) to issue short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of December 31, 1997, MidAmerican had a
$250 million revolving credit facility agreement and a $10 million line of
credit to provide short-term financing for utility operations. MidAmerican's
commercial paper borrowings, which totaled $123 million at December 31, 1997,
are supported by the revolving credit facility and the line of credit.
MidAmerican also has a revolving credit facility which is dedicated to provide
liquidity for its obligations under outstanding pollution control revenue bonds
that are periodically remarketed.
In 1997, MidAmerican entered into a revolving agreement, which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special purpose entity established to purchase accounts receivable from
MidAmerican. Funding Corp. in turn sold receivable interests to outside
investors. In consideration for the sale, MidAmerican received $70 million in
cash and the remaining balance in the form of a subordinated note from Funding
Corp. The agreement is structured as a true sale under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors and, as
such, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.
During 1997, MidAmerican repurchased $42.4 million of first mortgage bonds
with annual interest rates from 6.95% to 7.70%, excluding bonds which matured in
1997.
As of December 31, 1997, MidAmerican had $401 million of long-term debt
maturities and sinking fund requirements for 1998 through 2002.
MidAmerican currently has regulatory authority to issue an additional $300
million of preferred securities and long-term debt, including issues under its
medium-term note program. It is management's intent to refinance certain
MidAmerican debt securities with additional issuances of unsecured debt and
preferred securities of a subsidiary trust as market conditions allow.
A-13
<PAGE>
Credit Ratings -
MidAmerican's access to external capital and its cost of capital are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of January 31, 1998, are shown in the table below. The ratings reflect only
the views of such rating agencies, and each rating should be evaluated
independently of any other rating. Generally, rating agencies base their ratings
on information furnished to them by the issuing company and on investigation,
studies and assumptions by the rating agencies. There is no assurance that any
particular rating will continue for any given period of time or that it will not
be changed or withdrawn entirely if in the judgment of the rating agency
circumstances so warrant. Such ratings are not a recommendation to buy, sell or
hold securities.
<TABLE>
<CAPTION>
Moody's
Investors Standard
Service & Poor's
--------- --------
<S> <C> <C>
Mortgage Bonds A2 AA-
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
</TABLE>
The following is a summary of the meanings of the ratings shown above and
the relative rank of MidAmerican's rating within each agency's classification
system.
Moody's top four bond ratings (Aaa, Aa, A and Baa) are generally considered
"investment grade." Obligations which are rated "A" possess many favorable
investment attributes and are considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment sometime in
the future. A numerical modifier ranks the security within the category with a
"1" indicating the high end, a "2" indicating the mid-range and a "3" indicating
the low end of the category. Standard & Poor's top four bond ratings (AAA, AA, A
and BBB) are considered "investment grade". Debt rated "AA" has a very strong
capacity to meet its financial commitment and differs from the highest rated
obligations only in small degree. Standard & Poor's may use a plus (+) or minus
(-) sign after ratings to designate the relative position of a credit within the
rating category.
Ratings of preferred stocks are an indication of a company's ability to pay
the preferred dividend and any sinking fund obligations on a timely basis.
Moody's top four preferred stock ratings (aaa, aa, a and baa) are generally
considered "investment grade". Moody's "a" rating is considered to be an upper
medium grade preferred stock. Earnings and asset protection are expected to be
maintained at adequate levels in the foreseeable future. Standard & Poor's top
four preferred stock ratings (AAA, AA, A and BBB) are considered "investment
grade". Standard & Poor's "A" rating indicates adequate earnings and asset
protection.
Moody's top three commercial paper ratings (P-1, P-2 and P-3) are generally
considered "investment grade". Issuers rated "P-1" have a superior ability for
repayment of senior short-term debt obligations and repayment ability is often
evidenced by a conservative structure, broad margins in earnings coverage of
fixed financial charges and well established access to a range of financial
markets and assured sources of alternate liquidity. Standard & Poor's commercial
paper ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity less than 365 days. The top three Standard &
Poor's commercial paper ratings (A-1, A-2 and A-3) are considered "investment
grade". Issues rated "A-1" indicate that the
A-14
<PAGE>
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety are denoted with a plus
(+) sign designation.
Preferred Dividends -
Preferred dividends include net gains or losses on the reacquisition of
MidAmerican preferred shares. Net losses on reacquisitions totaled $1.4 million
and $1.6 million for 1997 and 1996, respectively. Excluding these losses,
preferred dividends increased for 1997 compared to 1996 due to the increase in
preferred stock outstanding.
Holdings:
- ---------
As of December 31, 1997, Holdings had lines of credit totaling $120 million
available to provide for short-term financing needs.
In addition, Holdings has the necessary authority to issue shares of its
common stock through its Shareholder Options Plan (a dividend reinvestment and
stock purchase plan). Since July 1, 1995, the Company has used open market
purchases of its common stock rather than original issue shares to meet share
obligations under its Employee Stock Purchase Plan and the Shareholder Options
Plan. Holdings currently plans to continue using open market purchases to meet
share obligations under these plans.
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of December 31, 1997, the
Company had repurchased approximately 5.0 million shares for $89.2 million. The
Company believes repurchasing Holding's common stock is the best investment of
Company funds at this time. Repurchasing the common stock will reduce total
common dividend requirements and aid in improving the Company's dividend payout
ratio. In addition, a subsidiary of the Company holds approximately 437,000
shares of Holdings common stock which are also excluded from shares outstanding.
On January 28, 1998, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable March 1, 1998. The dividend
represents an annual rate of $1.20 per share.
Nonregulated Subsidiaries -
As of December 31, 1997, MidAmerican Capital had unsecured revolving credit
facilities in the amount of $114 million with a zero balance outstanding under
these facilities. In January 1997, MidAmerican Capital paid off the $90 million
outstanding under the revolving credit facilities with proceeds from the sale
transaction with KCS. Another $100 million revolving credit facility related to
discontinued operations was terminated in January 1997, and the $84 million
outstanding repaid. In addition, MidAmerican Capital terminated two $32 million
floating-rate-to-fixed-interest-rate swaps related to amounts outstanding under
one of the revolving credit facilities. MidAmerican Capital has $135 million of
long-term debt maturities and sinking fund requirements for 1998 through 2002.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at December 31, 1997.
A-15
<PAGE>
OPERATING ACTIVITIES AND OTHER MATTERS
Throughout the country, the utility industry continues to move towards a
competitive environment. Although the extent of deregulation varies between
states, increased competition is becoming a reality in virtually every region of
the country. Numerous states have passed restructuring legislation, some of
which initiated a phase-in of customer choice in 1998. Legislators and
regulators in many other states are addressing the issue.
As part of many restructuring legislation packages, electric utilities are
required to unbundle traditional services previously provided as a "packaged
product" under their rate tariffs. Unbundling allows customers to choose their
energy supplier and the level of energy delivery and retail services they
desire. Gas utilities are also experiencing separation of the merchant and
delivery functions for all classes of customers.
The generation segment of the electric industry will be significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity. As retail competition evolves, margins will be pressured by
competition from other utilities, power marketers, and self-generation.
MidAmerican has been active in promoting and monitoring legislative and
regulatory changes that affect the jurisdictions in which it operates. In order
to successfully compete in the new environment, the Company believes it must
become the leading regional provider of energy and complementary services. The
Company is evaluating all aspects of its business to determine what adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative impacts on Holdings' earnings in the form of write-downs for
the sale, revaluation or discontinuance of nonregulated operations and
investments. (Refer to the Results of Operations section of MD&A for comments on
the earnings impact of such actions.) The following discussion further addresses
changes affecting the industry and actions the Company is taking to implement
its strategy.
Competition -
MidAmerican is subject to regulation by several utility regulatory agencies
which significantly influences the operating environment and the recoverability
of costs from utility customers. That regulatory environment has, in general,
given MidAmerican an exclusive right to serve customers within its service
territory and, in turn, the obligation to provide electric service to those
customers.
Although the anticipated changes in the electric utility industry may
create opportunities, they will also create additional challenges and risks for
utilities. Competition will put pressure on margins for traditional electric
services. In order to lessen the impact of reduced margins, MidAmerican will
continue to focus on controlling the cost of such services. In addition,
MidAmerican is positioning itself to offer complementary products and services
as expected opportunities become available in a competitive utility retail
market. Additional products and services may provide avenues to replace margins
lost on traditional electric services.
MidAmerican has been authorized in an order from the IUB approving the
electric pricing settlement to enter into long-term electric contracts with
industrial and commercial customers. MidAmerican is negotiating long-term
contracts with various industrial and commercial customers. The Company believes
these contracts will help stabilize margins in the future.
A-16
<PAGE>
Legislative and Regulatory Evolution -
On December 16, 1997, the Governor of Illinois signed into law a bill to
restructure the Illinois' electric utility industry and transition it to a
competitive market beginning October 1, 1999. The law is very complex, and
MidAmerican continues to evaluate the impact of the law on its operations.
The law requires a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its obligation, the law specifically permitted
MidAmerican to receive credit for the $15.5 million, or approximately 13%, rate
reductions implemented in Illinois in 1996 and 1997. MidAmerican is also
exempted from the requirement to join an independent system operator (ISO) or to
form an in-state ISO.
In addition, the law provides for Illinois earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning in April 2000. The ROE level at which MidAmerican will be required to
share earnings is a multi-step calculation of average 30-year Treasury Bill
rates plus 5.50% for 1998 and 1999 and 6.50% for 2000 through 2004. If the
resulting average Treasury Bill rate approximated rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%.
Beginning October 1, 1999, larger non-residential customers and 33% of the
remaining non-residential customers will be allowed to select their provider of
electric supply services. All other non-residential customers will have supplier
choice starting December 31, 2000. Residential customers all receive the
opportunity to select their electric supplier on May 1, 2002.
The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities address
stranded costs, will end December 31, 2006, subject to possible extension.
In Iowa, no legislation has yet been introduced to allow generation or
retail service competition. Because energy costs are low in Iowa, industry
restructuring has not been an issue aggressively pursued in the state to date.
However, a group of industrial customers formed in the fall of 1997 has
indicated that it may introduce retail competition legislation during the 1998
Iowa legislative session. MidAmerican's Iowa legislative priority for 1998 is
property tax reform, a condition it considers precedent to industry
restructuring.
In April 1996, the FERC issued Order Nos. 888 and 889 which require public
utilities and other transmission providers and users to provide other companies
the same transmission access, service and pricing that they provide themselves.
In compliance with Order 888, which was effective July 9, 1996, MidAmerican has
filed a pro forma open access transmission tariff and is currently operating
under it. In May 1997, MidAmerican filed revisions to the tariff in accordance
with Order No. 888-A which was issued in March 1997. In accordance with Order
889, which was effective January 3, 1997, MidAmerican has separated its electric
wholesale marketing and transmission operation functions. Order 889 establishes
standards of conduct for this functional separation and further requires
transmission providers such as MidAmerican to either create or participate in an
Open Access Same Time Information System (OASIS). MidAmerican is a long-time
member of the Mid-Continent Area Power Pool (MAPP) and has elected to
participate in the MAPP OASIS.
In October 1997, the IUB adopted rules to encourage gas transportation
service for small volume customers starting in 1999. MidAmerican has until
November 15, 1998, to file its own plan to unbundle service for its small volume
customers. MidAmerican presently believes that these rules will not have a
material impact on its results of operations.
A-17
<PAGE>
Accounting Effects of Industry Restructuring -
A possible consequence of competition in the utility industry is that
Statement of Financial Accounting Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth accounting principles for operations that are regulated and
meet certain criteria. For operations that meet the criteria, SFAS 71 allows,
among other things, the deferral of costs that would otherwise be expensed when
incurred. A majority of MidAmerican's electric and gas utility operations
currently meet the criteria required by SFAS 71, but its applicability is
periodically reexamined. On December 16, 1997, MidAmerican's generation
operations serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring legislation in Illinois. Thus, MidAmerican was
required to write off those amounts of regulatory assets and liabilities from
its balance sheet related to its Illinois generation operations. These
write-offs were not material. If other portions of its utility operations no
longer meet the criteria of SFAS 71, MidAmerican would be required to write off
the related regulatory assets and liabilities from its balance sheet and thus, a
material adjustment to earnings in that period could result. As of December 31,
1997, MidAmerican had $339 million of regulatory assets in its Consolidated
Balance Sheet. Refer to Note 1(c) for a list of the regulatory assets as of
December 31, 1997.
Energy Efficiency -
MidAmerican's regulatory assets as of December 31, 1997, included $111.5
million of deferred energy efficiency costs. On September 29, 1997, MidAmerican
received approval from the IUB, effective immediately, to begin recovery of
deferred energy efficiency costs not previously approved. Accordingly, $95.1
million of such costs will be collected over a four-year period, along with a
return of $26.6 million on those costs. MidAmerican also received approval to
recover current energy efficiency costs, which are expected to be $18.5 million
for the period May 1997 through April 1998. The projected $18.5 million of
current costs, $5.3 million of which were deferred from May through September
1997, will be collected in the twelve-month period ending in September 1998. The
filing is subject to periodic prudence reviews by the IUB. Deferred and current
energy efficiency costs will be reflected in operating expenses over the related
periods of recovery.
Rate Matters -
As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the IUB issued an order in a consolidated rate proceeding
involving MidAmerican's pricing proposal and a filing by the Iowa Office of
Consumer Advocate (OCA). The order approved a March 1997 settlement agreement
between MidAmerican, the OCA and other parties to the proceeding. The agreement
includes a number of characteristics of MidAmerican's pricing proposal. Prices
for residential customers were reduced $8.5 million annually and $10.0 million
annually, effective November 1, 1996, and July 11, 1997, respectively, and will
be reduced an additional $5.0 million annually on June 1, 1998, for a total
annual decrease of $23.5 million. Rates for commercial and industrial customers
will be reduced a total of $10 million annually by June 1, 1998, through pilot
projects, negotiated rates with individual customers and, if needed, a base rate
reduction effective June 1, 1998. The agreement includes a tracking mechanism to
currently recover the cost of capital improvements required by the Cooper
Nuclear Station Power Purchase Contract. The tracking mechanism will offset
approximately $9 million of these reductions.
A-18
<PAGE>
In addition, the agreement accepted MidAmerican's proposal to eliminate the
energy adjustment clause (EAC) which was the mechanism through which fuel costs
were collected from Iowa customers prior to July 11, 1997. The EAC flowed the
cost of fuel to customers on a current basis, and thus, fuel costs had little
impact on net income. Beginning July 11, 1997, base rates for Iowa customers
include a factor for recovery of a representative level of fuel costs. Earnings
are now affected by variances in actual fuel costs from the factor included in
rates. The fuel cost factor will be reviewed in February 1999 and adjusted
prospectively if actual 1998 fuel costs vary 15% above or below the factor
included in base rates.
Under the agreement, if MidAmerican's annual return on common equity
exceeds 12%, then an equal sharing between customers and shareholders of
earnings above the 12% level begins; if it exceeds 14%, then two-thirds of
MidAmerican's share of those earnings will be used for accelerated recovery of
certain regulatory assets. The agreement permits MidAmerican to file for
increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the FERC, is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually until the conclusion of the program. Any loss of
revenues associated with the pilot program will be considered part of the $10
million annual reduction for commercial and industrial customers but may not be
recovered from other customer classes. MidAmerican filed its proposed program
with the IUB and the FERC in September 1997. MidAmerican anticipates that the
necessary approvals will be received before the end of the second quarter of
1998.
In December 1997, an Iowa industrial customer located within MidAmerican's
IUB-approved exclusive electric service territory, filed a lawsuit against
Holdings and MidAmerican in the United States District Court for the District of
Iowa alleging various violations of federal antitrust laws. The lawsuit stems
from a claim that because the customer is not free to choose its retail energy,
MidAmerican is engaging in illegal monopolistic behavior. In addition to
damages, the customer is seeking the right to choose its electric retail
supplier. MidAmerican maintains that its provision of retail electric service is
in accordance with Iowa laws and regulations governing electric service
territories, and all other applicable legal requirements. A ruling in favor of
the plaintiff could have the effect of accelerating retail competition in
MidAmerican's Iowa service territory.
Environmental Matters -
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
The Company is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether the Company has any responsibility for remedial action. The
Company's present estimate of probable remediation costs for these sites is $21
million. This estimate has been recorded as a liability and a regulatory asset
for future recovery through the regulatory process. Refer to Note 4(b) of Notes
for further discussion of the Company's environmental activities related to
manufactured gas plant sites and cost recovery.
A-19
<PAGE>
Although the timing of potential incurred costs and recovery of such cost
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on the Company's financial position or results of operations.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking (NOPR) which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
Coal Deliveries -
A coal transportation provider of MidAmerican has been experiencing
nationwide operational problems. Consequently, coal deliveries to MidAmerican's
Neal station in the fourth quarter of 1997 were delayed resulting in reduced
coal inventory at that site. The Neal Station represents approximately 37% of
MidAmerican's coal-fired generating capacity. Following discussions between
MidAmerican and the transportation provider, increased deliveries have been made
to the four Neal units. In order to preserve coal inventories, MidAmerican
reduced its sales of energy to other utilities, which reduced electric margins
in the fourth quarter.
Quad Cities Nuclear Station Outage -
In September 1997, Commonwealth Edison Company (ComEd), operator and 75%
owner of Quad Cities Station Units 1 and 2, shut down Unit 2 and entered early a
scheduled outage to address safety system concerns. In December 1997, Unit 1 was
also taken off-line for the same reason. ComEd has indicated that the units may
be unavailable until the first half of May 1998. During this time, it may be
necessary for MidAmerican to forego off-system sales opportunities, operate more
expensive units, and/or purchase more off-system energy. In January 1998, ComEd
received a Confirmatory Action Letter (CAL) from the Nuclear Regulatory
Commission (NRC). The CAL details actions that must be taken to correct the
problems described above. Also in January, ComEd was informed by the NRC that
the performance of Quad Cities Station is trending adversely. The Company cannot
at this time predict the cost of these actions nor the impact on results of
operations of the plant's outage.
A-20
<PAGE>
YEAR 2000
The Company has undertaken an extensive project to ensure the ability of
its information technology systems, including hardware, software and
applications programs, to perform correctly on January 1, 2000. The Company, in
addition to its internal resources, has engaged independent contractors to
assist with the conversion project. The project timetable specifies completion
of all conversion work and testing sufficiently in advance of January 1, 2000,
to identify any residual concerns. The Company estimates the remaining cost to
remediate year 2000 flaws in its principal business systems to be approximately
$5 million. Potential concerns regarding other systems used throughout the
Company's operations continues to be evaluated. Although management believes
that the project will be completed within the required time frame, unforeseen
and other factors, including failure of the contractors to perform, could cause
delays in the project, the results of which could be material to the Company.
ACCOUNTING ISSUES
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure Draft, "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets," which addresses the accounting for closure and
removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for such decommissioning are
changed, the annual provision for decommissioning could increase relative to the
current level, and the total estimated cost for decommissioning could be
recorded as a liability with recognition of an increase in the cost of related
nuclear power plant. Due to the continuing evolution of the exposure draft, the
Company is uncertain as to the impact on its results of operations and financial
position.
The Financial Accounting Standards Board has issued SFAS No. 130 addressing
the issue of comprehensive income. SFAS 130 requires that all items required to
be recognized as changes in equity during a period, except those resulting from
investments by owners and distributions to owners, (i.e., comprehensive income),
be reported in a financial statement that is displayed with the same prominence
as the other financial statements. The display can be a separate statement or an
addition to an existing statement. The material components of the Company's
comprehensive income will include net income and the after-tax effect of changes
in the fair value of investments classified as available for resale. SFAS 130 is
effective for fiscal years beginning after December 15, 1997.
A-21
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric utility ............................................... $ 1,126,300 $ 1,099,008 $ 1,094,647
Gas utility .................................................... 536,306 536,753 459,588
Nonregulated ................................................... 259,675 236,851 95,106
----------- ----------- -----------
1,922,281 1,872,612 1,649,341
----------- ----------- -----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ............................ 235,760 234,317 230,261
Cost of gas sold ............................................. 346,016 345,014 279,025
Other operating expenses ..................................... 429,794 350,174 399,648
Maintenance .................................................. 98,090 88,621 85,363
Depreciation and amortization ................................ 170,540 164,592 158,950
Property and other taxes ..................................... 101,317 92,630 96,350
----------- ----------- -----------
1,381,517 1,275,348 1,249,597
----------- ----------- -----------
Nonregulated:
Cost of sales ................................................ 240,182 218,256 70,209
Other ........................................................ 30,076 35,370 37,181
----------- ----------- -----------
270,258 253,626 107,390
----------- ----------- -----------
Total operating expenses ..................................... 1,651,775 1,528,974 1,356,987
----------- ----------- -----------
OPERATING INCOME ............................................... 270,506 343,638 292,354
----------- ----------- -----------
NON-OPERATING INCOME
Interest income ................................................ 5,318 4,012 4,485
Dividend income ................................................ 13,792 16,985 16,954
Realized gains and losses on securities, net ................... 7,798 1,895 688
Other, net ..................................................... 22,111 (4,020) (10,467)
----------- ----------- -----------
49,019 18,872 11,660
----------- ----------- -----------
FIXED CHARGES
Interest on long-term debt ..................................... 89,898 102,909 105,550
Other interest expense ......................................... 10,034 10,941 9,449
Preferred dividends of subsidiaries ............................ 14,468 10,689 8,059
Allowance for borrowed funds ................................... (2,597) (4,212) (5,552)
----------- ----------- -----------
111,803 120,327 117,506
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .......... 207,722 242,183 186,508
INCOME TAXES ................................................... 68,390 98,422 66,803
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS .............................. 139,332 143,761 119,705
----------- ----------- -----------
DISCONTINUED OPERATIONS
Income (Loss) from operations (net of income taxes) ............ (118) 2,117 3,059
Loss on disposal (net of income taxes) ......................... (4,110) (14,832) -
----------- ----------- -----------
(4,228) (12,715) 3,059
----------- ----------- -----------
NET INCOME ..................................................... $ 135,104 $ 131,046 $ 122,764
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING .............................. 98,058 100,752 100,401
EARNINGS PER COMMON SHARE
Continuing operations .......................................... $ 1.42 $ 1.43 $ 1.19
Discontinued operations ........................................ (0.04) (0.13) 0.03
----------- ----------- -----------
Earnings per average common share .............................. $ 1.38 $ 1.30 $ 1.22
=========== =========== ===========
DIVIDENDS DECLARED PER SHARE ................................... $ 1.20 $ 1.20 $ 1.18
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
A-22
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
UTILITY PLANT
Electric ......................................................... $4,084,920 $4,010,847
Gas .............................................................. 756,874 723,491
---------- ----------
4,841,794 4,734,338
Less accumulated depreciation and amortization ................... 2,275,099 2,153,058
---------- ----------
2,566,695 2,581,280
Construction work in progress .................................... 55,418 49,305
---------- ----------
2,622,113 2,630,585
---------- ----------
POWER PURCHASE CONTRACT .......................................... 173,107 190,897
---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS ............................ - 166,320
---------- ----------
CURRENT ASSETS
Cash and cash equivalents ........................................ 10,468 97,749
Receivables, less reserves of $347 and $2,093, respectively ...... 207,471 312,015
Inventories ...................................................... 86,091 90,864
Other ............................................................ 18,452 11,031
---------- ----------
322,482 511,659
---------- ----------
INVESTMENTS ...................................................... 799,524 622,972
---------- ----------
OTHER ASSETS ..................................................... 360,865 399,415
---------- ----------
TOTAL ASSETS ..................................................... $4,278,091 $4,521,848
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ...................................... $1,301,286 $1,239,946
MidAmerican preferred securities, not subject to
mandatory redemption .......................................... 31,763 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities .............................. 50,000 50,000
MidAmerican-obligated preferred securities of subsidiary trust
holding solely MidAmerican junior subordinated debentures ... 100,000 100,000
Long-term debt (excluding current portion) ....................... 1,034,211 1,395,103
---------- ----------
2,517,260 2,816,818
---------- ----------
CURRENT LIABILITIES
Notes payable .................................................... 138,054 161,990
Current portion of long-term debt ................................ 144,558 79,598
Current portion of power purchase contract ....................... 14,361 13,718
Accounts payable ................................................. 145,855 169,806
Taxes accrued .................................................... 92,629 82,254
Interest accrued ................................................. 22,355 28,513
Other ............................................................ 38,766 22,830
---------- ----------
596,578 558,709
---------- ----------
OTHER LIABILITIES
Power purchase contract .......................................... 83,143 97,504
Deferred income taxes ............................................ 761,795 722,300
Investment tax credit ............................................ 83,127 88,842
Other ............................................................ 236,188 237,675
---------- ----------
1,164,253 1,146,321
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ............................. $4,278,091 $4,521,848
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
A-23
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 135,104 $ 131,046 $ 122,764
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization............................... 197,454 190,511 181,636
Net decrease in deferred income taxes and
investment tax credit, net................................ (71,191) (7,894) (961)
Amortization of other assets................................ 33,761 20,541 19,630
Cash proceeds form accounts receivable sale................. 70,000 - -
Capitalized cost of real estate sold........................ 1,859 3,568 1,744
Loss (income) from discontinued operations.................. 4,228 12,715 (3,059)
Gain on sale of securities, assets and other investments.... (9,996) (10,132) (1,050)
Other-than-temporary decline in value of investments........ 3,795 15,566 17,971
Impact of changes in working capital, net of effects
from discontinued operations.............................. 28,098 (53,752) (21,024)
Other....................................................... (867) 19,218 19,369
--------- --------- ---------
Net cash provided......................................... 392,245 321,387 337,020
--------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures.............................. (166,932) (154,198) (190,771)
Quad Cities Nuclear Power Station decommissioning trust fund... (9,819) (8,607) (8,636)
Deferred energy efficiency expenditures........................ (12,258) (20,390) (35,841)
Nonregulated capital expenditures.............................. (14,066) (55,788) (12,881)
Purchase of securities......................................... (159,770) (198,947) (164,521)
Proceeds from sale of securities............................... 180,890 243,290 94,493
Proceeds from sale of assets and other investments............. 57,433 33,285 34,263
Investment in discontinued operations.......................... 181,321 (5,984) (9,752)
Other investing activities, net................................ (1,360) 8,308 6,946
--------- --------- ---------
Net cash provided (used).................................... 55,439 (159,031) (286,700)
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid.......................................... (117,605) (120,770) (118,828)
Issuance of long-term debt, net of issuance cost............... - 99,500 12,750
Retirement of long-term debt, including reacquisition cost..... (122,300) (136,616) (110,351)
Reacquisition of preferred shares.............................. (6) (58,176) (10)
Reacquisition of common shares................................. (96,618) - -
Issuance of preferred shares, net of issuance cost............. - 96,850 -
Increase (decrease) in MidAmerican Capital Company
unsecured revolving credit facility......................... (174,500) 44,500 95,000
Issuance of common shares...................................... - - 15,083
Net increase (decrease) in notes payable....................... (23,936) (22,810) 60,300
--------- --------- ---------
Net cash used............................................... (534,965) (97,522) (46,056)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (87,281) 64,834 4,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 97,749 32,915 28,651
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................... $ 10,468 $ 97,749 $ 32,915
========= ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized...................... $ 96,805 $ 107,179 $ 116,843
========= ========= =========
Income taxes paid.............................................. $ 130,521 $ 85,894 $ 69,319
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
A-24
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
------------------------------------
1997 1996
----------- ----------
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common shares, no par; 350,000,000 shares authorized;
95,300,882 and 100,751,713 shares outstanding, respectively.......... $ 753,873 $ 801,431
Retained earnings...................................................... 409,296 440,971
Valuation allowance, net of income taxes............................... 138,117 (2,456)
---------- ----------
1,301,286 51.7% 1,239,946 44.0%
---------- ------ ---------- ------
MIDAMERICAN PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
$3.30 Series, 49,481 and 49,523 shares, respectively............... 4,948 4,952
$3.75 Series, 38,310 and 38,320 shares, respectively............... 3,831 3,832
$3.90 Series, 32,630 shares ....................................... 3,263 3,263
$4.20 Series, 47,369 shares........................................ 4,737 4,737
$4.35 Series, 49,945 and 49,950 shares, respectively............... 4,994 4,995
$4.40 Series, 50,000 shares........................................ 5,000 5,000
$4.80 Series, 49,898 shares........................................ 4,990 4,990
---------- ----------
31,763 1.2% 31,769 1.1%
---------- ------ ---------- ------
Cumulative shares outstanding; subject to mandatory redemption:
$5.25 Series, 100,000 shares....................................... 10,000 10,000
$7.80 Series, 400,000 shares....................................... 40,000 40,000
---------- ----------
50,000 2.0% 50,000 1.8%
---------- ------ ---------- ------
MIDAMERICAN-OBLIGATED PREFERRED SECURITIES
MidAmerican-obligated mandatorily redeemable cumulative
preferred securities of subsidiary trust holding solely
MidAmerican junior subordinated debentures:
7.98% Series, 4,000,000 shares.................................... 100,000 4.0% 100,000 3.6%
---------- ------ ---------- ------
LONG-TERM DEBT
MidAmerican mortgage bonds:
5.05% Series, due 1998............................................ - 49,100
6.25% Series, due 1998............................................ - 75,000
7.875% Series, due 1999........................................... 60,000 60,000
6% Series, due 2000............................................... 35,000 35,000
6.75% Series, due 2000............................................ 75,000 75,000
7.125% Series, due 2003........................................... 100,000 100,000
7.70% Series, due 2004............................................ 55,630 60,000
7% Series, due 2005............................................... 90,500 100,000
7.375% Series, due 2008........................................... 75,000 75,000
8% Series, due 2022............................................... 50,000 50,000
7.45% Series, due 2023............................................ 6,940 26,500
8.125% Series, due 2023........................................... 100,000 100,000
6.95% Series, due 2025............................................ 12,500 21,500
MidAmerican pollution control revenue obligations:
5.15% to 5.75% Series, due periodically through 2003.............. 8,064 8,424
5.95% Series, due 2023 (secured by general mortgage bonds)........ 29,030 29,030
</TABLE>
The accompanying notes are an integral part of these statements.
A-25
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
----------------------------------
1997 1996
---------- -----------
<S> <C> <C> <C> <C>
LONG-TERM DEBT (CONTINUED)
Variable rate series -
Due 2016 and 2017 (3.7% and 3.5%, respectively)................ $ 37,600 $ 37,600
Due 2023 (secured by general mortgage
bonds, 3.7% and 3.5%, respectively)....................... 28,295 28,295
Due 2023 (3.7% and 3.5%, respectively)......................... 6,850 6,850
Due 2024 (3.7% and 3.6%, respectively)......................... 34,900 34,900
Due 2025 (3.7% and 3.5%, respectively)......................... 12,750 12,750
MidAmerican notes:
8.75% Series, due 2002............................................ 240 240
6.5% Series, due 2001............................................. 100,000 100,000
6.4% Series, due 2003 through 2007................................ 2,000 2,000
Obligation under capital lease.................................... 2,104 2,218
Unamortized debt premium and discount, net........................ (3,192) (4,009)
---------- ----------
Total utility.................................................. 919,211 1,085,398
---------- ----------
Nonregulated Subsidiaries Notes:
7.34% Series, due 1998............................................ - 20,000
7.76% Series, due 1999............................................ 45,000 45,000
8.52% Series, due 2000 through 2002............................... 70,000 70,000
8% Series, due annually through 2004.............................. - 205
Borrowings under unsecured revolving credit facility (6.2%)....... - 64,000
Borrowings under unsecured revolving credit facility (6.1%)....... - 26,000
Borrowings under unsecured revolving credit facility (6.1%)....... - 84,500
---------- ----------
Total nonregulated subsidiaries................................ 115,000 309,705
---------- ----------
1,034,211 41.1% 1,395,103 49.5%
---------- ------ ---------- ------
TOTAL CAPITALIZATION.................................................. $2,517,260 100.0% $2,816,818 100.0%
========== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BEGINNING OF YEAR.................................................... $ 440,971 $ 430,589 $ 426,683
--------- --------- ---------
NET INCOME........................................................... 135,104 131,046 122,764
--------- --------- ---------
DEDUCT (ADD):
Loss on repurchase of common shares.................................. 49,174 - -
Dividends declared on common shares of $1.20, $1.20 and
$1.18 per share, respectively...................................... 117,605 120,770 118,828
Other................................................................ - (106) 30
--------- --------- ----------
166,779 120,664 118,858
--------- --------- ---------
END OF YEAR.......................................................... $ 409,296 $ 440,971 $ 430,589
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
A-26
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MERGER AND FORMATION OF THE COMPANY:
MidAmerican Energy Holdings Company (Company or Holdings) is a holding
company for MidAmerican Energy Company (MidAmerican), MidAmerican Capital
Company (MidAmerican Capital) and Midwest Capital Group, Inc. (Midwest Capital).
Prior to December 1, 1996, MidAmerican held the capital stock of MidAmerican
Capital and Midwest Capital. Effective December 1, 1996, each share of
MidAmerican common stock was exchanged for one share of Holdings common stock.
As part of the transaction, MidAmerican distributed the capital stock of
MidAmerican Capital and Midwest Capital to Holdings.
MidAmerican was formed on July 1, 1995, as a result of the merger of
Iowa-Illinois Gas and Electric Company (Iowa-Illinois), Midwest Resources Inc.
(Midwest Resources) and its utility subsidiary, Midwest Power Systems Inc.
(Midwest Power). Each outstanding share of preferred and preference stock of the
predecessor companies was converted into one share of a similarly designated
series of MidAmerican preferred stock, no par value. Each outstanding share of
common stock of Midwest Resources and Iowa-Illinois was converted into one share
and 1.47 shares, respectively, of MidAmerican common stock, no par value. The
merger was accounted for as a pooling-of-interest and the financial statements
included herein are presented as if the merger and the formation of the holding
company had occurred as of the earliest period shown.
(B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:
The accompanying Consolidated Financial Statements include the Company and
its wholly owned subsidiaries, MidAmerican, MidAmerican Capital and Midwest
Capital. All significant intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
(C) REGULATION:
MidAmerican's utility operations are subject to the regulation of the Iowa
Utilities Board (IUB), the Illinois Commerce Commission (ICC), the South Dakota
Public Utilities Commission, and the Federal Energy Regulatory Commission
(FERC). MidAmerican's accounting policies and the accompanying Consolidated
Financial Statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process.
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations currently meet the criteria of SFAS 71, but its applicability is
periodically reexamined. On December 16, 1997, MidAmerican's generation
operations serving Illinois
A-27
<PAGE>
were no longer subject to the provisions of SFAS 71 due to passage of
restructuring legislation in Illinois. Thus, MidAmerican was required to write
off regulatory assets and liabilities from its balance sheet related to its
Illinois generation operations. The net amount of such write-off's were
immaterial. If other utility operations no longer meet the criteria of SFAS 71,
MidAmerican would be required to write off the related regulatory assets and
liabilities from its balance sheet and thus, a material adjustment to earnings
in that period could result. The following regulatory assets, primarily included
in Other Assets in the Consolidated Balance Sheets, represent probable future
revenue to MidAmerican because these costs are expected to be recovered in
charges to utility customers (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred income taxes................ $143,851 $140,649
Energy efficiency costs.............. 111,471 112,244
Debt refinancing costs............... 34,923 40,230
FERC Order 636 transition costs....... 9,279 25,033
Environmental costs................... 20,417 22,577
Retirement benefit costs.............. 595 11,025
Enrichment facilities decommissioning. 8,781 11,089
Unamortized costs of retired plant ... 5,771 8,953
Other................................. 4,201 2,655
-------- --------
Total............................... $339,289 $374,455
======== ========
</TABLE>
(D) REVENUE RECOGNITION:
Revenues are recorded as services are rendered to customers. MidAmerican
records unbilled revenues, and related energy costs, representing the estimated
amount customers will be billed for services rendered between the meter-reading
dates in a particular month and the end of such month. Accrued unbilled revenues
were $80.2 million and $70.1 million at December 31, 1997 and 1996,
respectively, and are included in Receivables on the Consolidated Balance
Sheets.
MidAmerican's Illinois and South Dakota jurisdictional sales, or
approximately 11% of total retail electric sales, and the majority of its total
retail gas sales are subject to adjustment clauses. These clauses allow
MidAmerican to adjust the amounts charged for electric and gas service as the
costs of gas, fuel for generation or purchased power change. The costs recovered
in revenues through use of the adjustment clauses are charged to expense in the
same period.
(E) DEPRECIATION AND AMORTIZATION:
MidAmerican's provisions for depreciation and amortization for its utility
operations are based on straight-line composite rates. The average depreciation
and amortization rates for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Electric.................... 3.8% 3.8% 3.9%
Gas......................... 3.4% 3.7% 3.7%
</TABLE>
A-28
<PAGE>
Utility plant is stated at original cost which includes overhead costs,
administrative costs and an allowance for funds used during construction.
The cost of repairs and minor replacements is charged to maintenance
expense. Property additions and major property replacements are charged to plant
accounts. The cost of depreciable units of utility plant retired or disposed of
in the normal course of business is eliminated from the utility plant accounts
and such cost, plus net removal cost, is charged to accumulated depreciation.
An allowance for the estimated annual decommissioning costs of the Quad
Cities Nuclear Power Station (Quad Cities) equal to the level of funding is
included in depreciation expense. See Note 4(e) for additional information
regarding decommissioning costs.
(F) INVESTMENTS:
Investments, managed primarily through the Company's nonregulated
subsidiaries, include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Investments:
Marketable securities.................. $467,207 $219,890
Equipment leases....................... 73,928 89,791
Nuclear decommissioning trust fund..... 93,251 76,304
Energy projects........................ 21,180 24,467
Special-purpose funds.................. 10,057 44,863
Real estate............................ 42,424 45,457
Corporate owned life insurance......... 33,471 27,395
Coal transportation.................... 14,516 18,623
Communications......................... 10,000 56,333
Security .............................. 8,551 5,367
Other.................................. 24,939 14,482
-------- --------
Total................................. $799,524 $622,972
======== ========
</TABLE>
Marketable securities generally consist of preferred stocks, common stocks
and mutual funds held by MidAmerican Capital. Investments in marketable
securities classified as available-for-sale are reported at fair value with net
unrealized gains and losses reported as a net of tax amount in Common
Shareholders' Equity until realized. Investments in marketable securities that
are classified as held-to-maturity are reported at amortized cost. An
other-than-temporary decline in the value of a marketable security is recognized
through a write-down of the investment to earnings.
Investments held by the nuclear decommissioning trust fund for the Quad
Cities units are classified as available-for-sale and are reported at fair value
with net unrealized gains and losses reported as adjustments to the accumulated
provision for nuclear decommissioning.
(G) CONSOLIDATED STATEMENTS OF CASH FLOWS:
The Company considers all cash and highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
A-29
<PAGE>
Net cash provided (used) from changes in working capital, net of effects
from discontinued operations was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Receivables....................... $ 34,544 $(84,802) $(31,314)
Inventories....................... 4,773 (5,629) 7,013
Other current assets ............. (7,421) 6,732 (4,140)
Accounts payable.................. (23,950) 47,751 15,903
Taxes accrued..................... 10,375 356 (9,755)
Interest accrued.................. (6,158) (2,122) (24)
Other current liabilities......... 15,935 (16,038) 1,293
-------- --------- --------
Total........................... $ 28,098 $ (53,752) $(21,024)
======== ========= ========
</TABLE>
(H) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:
Under a long-term power purchase contract with Nebraska Public Power
District (NPPD), expiring in 2004, MidAmerican purchases one-half of the output
of the 778-megawatt Cooper Nuclear Station (Cooper). The Consolidated Balance
Sheets include a liability for MidAmerican's fixed obligation to pay 50% of
NPPD's Nuclear Facility Revenue Bonds and other fixed liabilities. A like amount
representing MidAmerican's right to purchase power is shown as an asset.
Capital improvement costs prior to July 11, 1997, including carrying costs,
were deferred, and are being amortized and recovered in rates over either a
five-year period or the term of the NPPD contract. Beginning July 11, 1997,
capital improvement costs are recovered currently from customers and are
expensed as incurred.
The fuel cost portion of the power purchase contract is included in Cost of
Fuel, Energy and Capacity on the Consolidated Statements of Income. All other
costs MidAmerican incurs in relation to its long-term power purchase contract
with NPPD are included in Other Operating Expenses on the Consolidated
Statements of Income.
See Notes 4(d), 4(e) and 4(f) for additional information regarding the
power purchase contract.
(I) ACCOUNTING FOR DERIVATIVES:
1) Preferred Stock Hedge Instruments:
The Company is exposed to market value risk from changes in interest rates
for certain fixed rate sinking fund preferred and perpetual preferred stocks
(fixed rate preferred stocks) included in Investments on the Consolidated
Balance Sheets. The Company reviews the interest rate sensitivity of these
securities and purchases put options on U.S. Treasury securities (put options)
to reduce interest rate risk on preferred stocks. The Company does not purchase
or sell put options for speculative purposes. The Company's intent is to
substantially offset any change in market value of the fixed rate preferred
stocks due to a change in interest rates with a change in market value of the
put options.
A-30
<PAGE>
The preferred stocks are publicly traded securities and, as such, changes
in their fair value are reported, net of income taxes, as a valuation allowance
in shareholders' equity. Unrealized gains and losses on the associated put
options are included in the determination of the fair value of the preferred
stocks. The fair value of the put options, including unrealized gains and
losses, included in the determination of the fair value of the preferred
securities as of December 31, 1997 and 1996 was $1.9 million and $5.1 million,
respectively. Realized gains and losses on the put options are included in
Realized Gains and Losses on Securities, Net in the Consolidated Statements
Income in the period the underlying hedged fixed rate preferred stocks are sold.
At December 31, 1997, the Company held put options with a notional value of $3.2
million.
2) Gas Futures Contracts and Swaps:
The Company uses gas futures contracts and swap contracts to reduce its
exposure to changes in the price of natural gas purchased to meet the needs of
its customers and to manage margins on natural gas storage opportunities.
Investments in natural gas futures contracts, which total $1.6 million and $0.8
million as of December 31, 1997 and 1996, are included in Receivables on the
Consolidated Balance Sheets. Gains and losses on gas futures contracts that
qualify for hedge accounting are deferred and reflected as adjustments to the
carrying value of the hedged item or included in Other Assets on the
Consolidated Balance Sheets until the underlying physical transaction is
recorded if the instrument is used to hedge an anticipated future transaction.
The net gain or loss on gas futures contracts is included in the determination
of income in the same period as the expense for the physical delivery of the
natural gas. Realized gains and losses on gas futures contracts and the net
amounts exchanged or accrued under the natural gas swap contracts are included
in Cost of Gas Sold, Other Net or Nonregulated-Costs of Sales consistent with
the expense for the physical commodity. Deferred net gains (losses) related to
the Company's gas futures contracts are $(0.4) million and $0.8 million as of
December 31, 1997 and 1996, respectively.
The Company periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved, the contracts
are recorded at fair value and the gains or losses are included in the
determination of income. At December 31, 1997 the Company held the following
hedging instruments:
<TABLE>
<CAPTION>
Weighted average
Notional volume Market Value
(MMBtu) (Per MMBtu)
--------------- ----------------
<S> <C> <C>
Natural Gas Futures (Long) 3,670,000 $2.277
Natural Gas Futures (Short) 1,670,000 $2.305
Natural Gas Swaps (Fixed to Variable) 2,497,400
Weighted average variable price $2.558
Weighted average fixed price $3.114
Natural Gas Swaps (Variable to Fixed) 6,806,952
Weighted average variable price $2.536
Weighted average fixed price $2.473
</TABLE>
A-31
<PAGE>
(2) LONG-TERM DEBT:
The Company's sinking fund requirements and maturities of long-term debt
for 1998 through 2002 are $145 million, $106 million, $134 million, $125 million
and $25 million, respectively.
The interest rate on the Company's Adjustable Rate Series Mortgage Bonds is
reset every two years at 160 basis points over the average yield to maturity of
10-year Treasury securities. The rate was reset in 1997.
The Company's Variable Rate Pollution Control Revenue Obligations bear
interest at rates that are periodically established through remarketing of the
bonds in the short-term tax-exempt market. The Company, at its option, may
change the mode of interest calculation for these bonds by selecting from among
several alternative floating or fixed rate modes. The interest rates shown in
the Consolidated Statements of Capitalization are the weighted average interest
rates as of December 31, 1997 and 1996. The Company maintains dedicated
revolving credit facility agreements or renewable lines of credit to provide
liquidity for holders of these issues.
Substantially all the former Iowa-Illinois utility property and franchises,
and substantially all of the former Midwest Power electric utility property in
Iowa, or approximately 82% of gross utility plant, is pledged to secure mortgage
bonds.
MidAmerican Capital has $64 million and $50 million unsecured revolving
credit facility agreements which mature in 1998. Borrowings under these
agreements may be on a fixed rate, floating rate or competitive bid rate basis.
All subsidiary long-term borrowings outstanding at December 31, 1997, are
without recourse to Holdings.
(3) JOINTLY OWNED UTILITY PLANT:
Under joint plant ownership agreements with other utilities, MidAmerican
had undivided interests at December 31, 1997, in jointly owned generating plants
as shown in the table below.
The dollar amounts below represent MidAmerican's share in each jointly
owned unit. Each participant has provided financing for its share of each unit.
Operating Expenses on the Consolidated Statements of Income include
MidAmerican's share of the expenses of these units (dollars in millions).
<TABLE>
<CAPTION>
Nuclear Coal fired
----------- ------------------------------------------
Council
Quad Cities Neal Bluffs Neal Ottumwa Louisa
Units Unit Unit Unit Unit Unit
No. 1 & 2 No. 3 No. 3 No.4 No. 1 No. 1
----------- ----- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
In service date 1972 1975 1978 1979 1981 1983
Utility plant in service $ 240 $ 128 $ 298 $ 159 $ 210 $ 531
Accumulated depreciation $ 87 $ 78 $ 164 $ 87 $ 103 $ 235
Unit capacity-MW 1,529 515 675 624 716 700
Percent ownership 25.0% 72.0% 79.1% 40.6% 52.0% 88.0%
</TABLE>
A-32
<PAGE>
(4) COMMITMENTS AND CONTINGENCIES:
(A) CAPITAL EXPENDITURES:
Utility construction expenditures for 1998 are estimated to be $201
million, including $13 million for Quad Cities nuclear fuel. Nonregulated
capital expenditures depend upon the availability of investment opportunities
and other factors. During 1998, such expenditures are estimated to be
approximately $10 million.
(B) MANUFACTURED GAS PLANT FACILITIES:
The United States Environmental Protection Agency (EPA) and the state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
MidAmerican is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action. MidAmerican
is currently conducting field investigations at seventeen of the sites and has
completed investigations at one of the sites. In addition, MidAmerican has
completed removals at three of the sites. MidAmerican is continuing to evaluate
several of the sites to determine the future liability, if any, for conducting
site investigations or other site activity.
MidAmerican's present estimate of probable remediation costs for the sites
discussed above as of December 31, 1997 is $21 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery. The ICC has
approved the use of a tariff rider which permits recovery of the actual costs of
litigation, investigation and remediation relating to former MGP sites.
MidAmerican's present rates in Iowa provide for a fixed annual recovery of MGP
costs. MidAmerican intends to pursue recovery of the remediation costs from
other PRPs and its insurance carriers.
The estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether MidAmerican has potential legal liability
for the site and whether information exists to indicate that contaminated wastes
remain at the site. If so, the costs of performing a preliminary investigation
and the costs of removing known contaminated soil are accrued. As the
investigation is performed and if it is determined remedial action is required,
the best estimate of remediation costs is accrued. If necessary, the estimate is
revised when a consent order is issued. The estimated recorded liabilities for
these properties include incremental direct costs of the remediation effort,
costs for future monitoring at sites and costs of compensation to employees for
time expected to be spent directly on the remediation effort. The estimated
recorded liabilities for these properties are based upon preliminary data. Thus,
actual costs could vary significantly from the estimates. The estimate could
change materially based on facts and circumstances derived from site
investigations, changes in required remedial action and changes in technology
relating to remedial alternatives. In addition, insurance recoveries for some or
all of the costs may be possible, but the liabilities recorded have not been
reduced by any estimate of such recoveries.
A-33
<PAGE>
Although the timing of potential incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on MidAmerican's financial position or results of operations.
(C) CLEAN AIR ACT:
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
(D) LONG-TERM POWER PURCHASE CONTRACT:
Payments to NPPD cover one-half of the fixed and operating costs of Cooper
(excluding depreciation but including debt service) and MidAmerican's share of
nuclear fuel cost (including nuclear fuel disposal) based on energy delivered.
The debt service portion is approximately $1.5 million per month for 1998 and is
not contingent upon the plant being in service. In addition, MidAmerican pays
one-half of NPPD's decommissioning funding related to Cooper.
The debt amortization and Department of Energy (DOE) enrichment plant
decontamination and decommissioning component of MidAmerican's payments to NPPD
were $13.8 million, $14.5 million and $12.0 million and the net interest
component was $3.8 million, $3.6 million and $4.6 million each for the years
1997, 1996 and 1995, respectively.
MidAmerican's payments for the debt principal portion of the power purchase
contract obligation and the DOE enrichment plant decontamination and
decommissioning payments are $14.4 million, $15.0 million, $15.8 million, $16.6
million, $17.4 million and $18.3 million for 1998 through 2003, respectively.
A-34
<PAGE>
(E) DECOMMISSIONING COSTS:
Based on site-specific decommissioning studies that include
decontamination, dismantling, site restoration and dry fuel storage cost,
MidAmerican's share of expected decommissioning costs for Cooper and Quad
Cities, in 1997 dollars, is $247 million and $230 million, respectively. In
Illinois, nuclear decommissioning costs are included in customer billings
through a mechanism that permits annual adjustments. Such costs are reflected as
base rates in Iowa tariffs.
For purposes of developing a decommissioning funding plan for Cooper, NPPD
assumes that decommissioning costs will escalate at an annual rate of 4.0%.
Although Cooper's operating license expires in 2014, the funding plan assumes
decommissioning will start in 2004, the anticipated plant shutdown date.
As of December 31, 1997, MidAmerican's share of funds set aside by NPPD in
internal and external accounts for decommissioning was $78.2 million. In
addition, the funding plan also assumes various funds and reserves currently
held to satisfy NPPD bond resolution requirements will be available for plant
decommissioning costs after the bonds are retired in early 2004. The funding
schedule assumes a long-term return on funds in the trust of 6.75% annually.
Certain funds will be required to be invested on a short-term basis when
decommissioning begins and are assumed to earn at a rate of 4.0% annually. NPPD
is recognizing decommissioning costs over the life of the power sales contract.
MidAmerican makes payments to NPPD related to decommissioning Cooper. These
payments are included in MidAmerican's power purchase costs. The Cooper
decommissioning component of MidAmerican's payments to NPPD was $11.3 million,
$9.9 million and $8.9 million for the years 1997, 1996, and 1995, respectively,
and is included in Other Operating Expenses in the Consolidated Statements of
Income. Earnings from the internal and external trust funds, which are
recognized by NPPD as the owner of the plant, are tax exempt and serve to reduce
future funding requirements.
External trusts have been established for the investment of funds for
decommissioning the Quad Cities units. The total accrued balance as of December
31, 1997, was $93.3 million and is included in Other Liabilities and a like
amount is reflected in Investments and represents the value of the assets held
in the trusts.
MidAmerican's provision for depreciation included costs for Quad Cities
nuclear decommissioning of $9.8 million, $8.6 million and $8.6 million for 1997,
1996 and 1995, respectively. The provision charged to expense is equal to the
funding that is being collected in rates. The decommissioning funding component
of MidAmerican's Illinois tariffs assumes decommissioning costs, related to the
Quad Cities unit, will escalate at an annual rate of 5.3% and the assumed annual
return on funds in the trust is 6.5%. The Quad Cities decommissioning funding
component of MidAmerican's Iowa tariffs assumes decommissioning costs will
escalate at an annual rate of 6.3% and the assumed annual return on funds in the
trust is 6.5%. Earnings on the assets in the trust fund were $5.0 million, $3.5
million and $2.5 million for 1997, 1996 and 1995, respectively.
(F) NUCLEAR INSURANCE:
MidAmerican maintains financial protection against catastrophic loss
associated with its interest in Quad Cites and Cooper through a combination of
insurance purchased by NPPD (the owner and operator of Cooper) and Commonwealth
Edison (the joint owner and operator of Quad Cities), insurance purchased
directly by MidAmerican, and the mandatory industry-wide loss funding mechanism
afforded under the Price-Anderson Amendments Act of 1988. The coverage falls
into three categories: nuclear liability, property coverage and nuclear worker
liability.
A-35
<PAGE>
NPPD and Commonwealth Edison each purchase nuclear liability insurance in
the maximum available amount of $200 million. In accordance with the
Price-Anderson Amendments Act of 1988, excess liability protection above that
amount is provided by a mandatory industry-wide program under which the owners
of nuclear generating facilities could be assessed for liability incurred due to
a serious nuclear incident at any commercial nuclear reactor in the United
States. Currently, MidAmerican's maximum potential share of such an assessment
is $79.3 million per incident, payable in installments not to exceed $10 million
annually.
The property coverage provides for property damage, stabilization and
decontamination of the facility, disposal of the decontaminated material and
premature decommissioning. For Quad Cities, Commonwealth Edison purchases
primary and excess property insurance protection for the combined interest in
Quad Cities totalling $2.1 billion. For Cooper, NPPD purchases primary property
insurance in the amount of $500 million. Additionally, MidAmerican and NPPD
separately purchase coverage for their respective obligation of $1.125 billion
each in excess of the $500 million primary layer purchased by NPPD. This
structure provides that both MidAmerican and NPPD are covered for their
respective 50% obligation in the event of a loss totalling $2.75 billion.
MidAmerican also directly purchases extra expense/business interruption coverage
to cover the cost of replacement power and/or other continuing costs in the
event of a covered accidental outage at Cooper or Quad Cities. The coverages
purchased directly by MidAmerican, and the primary and excess property coverages
purchased by Commonwealth Edison, contain provisions for retrospective premium
assessments should two or more full policy-limit losses occur in one policy
year. Currently, the maximum retrospective amounts that could be assessed
against MidAmerican from industry mutual insurance companies for its obligations
associated with Cooper and Quad Cities combined total $11.6 million.
The master nuclear worker liability coverage is an industry-wide policy
with an aggregate limit of $200 million for the nuclear industry as a whole,
which is in effect to cover tort claims of workers as a result of radiation
exposure on or after January 1, 1988. MidAmerican's share, based on its interest
in Cooper and Quad Cities, of a maximum potential share of a retrospective
assessment under this program is $3.0 million.
(G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:
MidAmerican has entered into supply and related transportation contracts
for its fossil fueled generating stations. The contracts, with expiration dates
ranging from 1998 to 2003, require minimum payments of $132.2 million, $88.8
million, $57.8 million, $26.3 million and $3.1 million and $3.1 million for the
years 1998 through 2003, respectively. The Company expects to supplement these
coal contracts with spot market purchases to fulfill its future fossil fuel
needs.
The Company has entered into various natural gas supply and transportation
contracts for its utility operations. The minimum commitments under these
contracts are $88 million, $63 million, $37 million, $32 million and $16 million
for the years 1998 through 2002, respectively, and $76 million for the total of
the years thereafter. During 1993 FERC Order 636 became effective, requiring
interstate pipelines to restructure their services. The pipeline will recover
the transition costs related to Order 636 from the local distribution companies.
The Company has recorded a liability and regulatory asset for the transition
costs which are being recovered by the Company through the purchased gas
adjustment clause. The unrecovered balance recorded by the Company as of
December 31, 1997, was $9.3 million.
A-36
<PAGE>
(5) COMMON SHAREHOLDERS' EQUITY:
Common shares outstanding changed during the years ended December 31 as
shown in the table below (in thousands):
<TABLE>
1997 1996 1995
--------------------- -------------------- --------------------
Amount Shares Amount Shares Amount Shares
--------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year ............... $ 801,431 100,752 $ 801,227 100,752 $ 786,420 99,687
Changes due to:
Repurchase of common shares ............ (47,444) (5,451) - - - -
Issuance of common shares .............. - - - - 15,083 1,065
Stock options .......................... 210 - 623 - - -
Capital stock expense .................. (289) - (419) - (276) -
Other .................................. (35) - - - - -
--------- -------- --------- ------- --------- -------
Balance, end of year ................... $ 753,873 95,301 $ 801,431 100,752 $ 801,227 100,752
========= ======== ========= ======= ========= =======
</TABLE>
(6) RETIREMENT PLANS:
The Company has noncontributory defined benefit pension plans covering
substantially all employees. Benefits under the plans are based on participants'
compensation, years of service and age at retirement.
Funding is based upon the actuarially determined costs of the plans and the
requirements of the Internal Revenue Code and the Employee Retirement Income
Security Act. MidAmerican has been allowed to recover funding contributions in
rates.
Net periodic pension cost includes the following components for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period . $ 10,092 $ 12,323 $ 9,817
Interest cost on projected benefit obligation . 29,623 31,109 27,934
Decrease in pension costs from actual
return on assets ............................. (79,580) (58,460) (63,593)
Net amortization and deferral ................. 39,446 26,223 32,126
One-time charge ............................... - - 15,683
Regulatory deferral of incurred cost .......... 5,423 568 (10,470)
-------- -------- --------
Net periodic pension cost ..................... $ 5,004 $ 11,763 $ 11,497
======== ======== ========
</TABLE>
During 1995, the Company incurred a one-time charge of $15.7 million
related to the early retirement portion of its restructuring plan. Of such cost,
$3.0 million was charged to expense and the remaining amount was deferred for
future recovery through the regulatory process.
The plan assets are stated at fair market value and are primarily comprised
of insurance contracts, United States government debt and corporate equity
securities. The plans in which accumulated benefits exceed assets consist
entirely of nonqualified defined benefit plans. Although the plans have no
assets, the Company purchases corporate owned life insurance to provide funding
for the future cash requirements. The cash value of such insurance was $21.5
million and $17.3 million at December 31, 1997 and 1996,
A-37
<PAGE>
respectively. The following table presents the funding status of the plans and
amounts recognized in the Consolidated Balance Sheets as of December 31 (dollars
in thousands):
<TABLE>
<CAPTION>
Plans in Which:
----------------------------------------------
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
---------------------- --------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .................. $(325,770) $(298,237) $(40,080) $(36,574)
Nonvested benefit obligation ............... (3,623) (3,454) (242) (1,925)
--------- --------- -------- --------
Accumulated benefit obligation ............. (329,393) (301,691) (40,322) (38,499)
Provision for future pay increases ......... (52,027) (79,790) (8,301) (8,733)
--------- --------- -------- --------
Projected benefit obligation ............... (381,420) (381,481) (48,623) (47,232)
Plan assets at fair value ..................... 483,668 427,828 - -
--------- --------- -------- --------
Projected benefit obligation (greater) less
than plan assets ........................... 102,248 46,347 (48,623) (47,232)
Unrecognized prior service cost ............... 592 18,636 21,147 21,544
Unrecognized net loss (gain) .................. (93,770) (63,173) (1,281) --
Unrecognized net transition asset ............. (16,339) (18,929) -- --
Other ...................................... -- -- (11,565) (12,811)
--------- --------- -------- --------
Pension liability recognized in the
Consolidated Balance Sheets ................ $ (7,269) $ (17,119) $(40,322) $(38,499)
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Assumptions used were:
Discount rate................................ 7.0% 7.5%
Rate of increase in compensation levels...... 5.0% 5.0%
Weighted average expected long-term
rate of return on assets................. 9.0% 9.0%
</TABLE>
The Company currently provides certain health care and life insurance
benefits for retired employees. Under the plans, substantially all of the
Company's employees may become eligible for these benefits if they reach
retirement age while working for the Company. However, the Company retains the
right to change these benefits anytime at its discretion.
In January 1993, the Company adopted SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The Company began expensing these
costs on an accrual basis for its Illinois customers and certain of its Iowa
customers in 1993 and including provisions for such costs in rates for these
customers. For its remaining Iowa customers, the Company deferred the portion of
these costs above the "pay-as-you-go" amount already included in rates until
recovery on an accrual basis was established in 1995. The Company is currently
amortizing the deferral, expensing the SFAS No. 106 accrual and including
provisions for these costs in rates.
A-38
<PAGE>
Net periodic postretirement benefit cost includes the following components
for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefit earned during the period ...... $ 2,680 $ 2,118 $ 1,583
Interest cost ...................................... 8,822 8,341 7,185
Increase (decrease) in benefit cost from
actual return on assets .......................... (2,285) (1,598) (2,090)
Amortization of unrecognized transition obligation . 5,291 5,291 5,291
Amortization of unrecognized service cost .......... 650 - -
Amortization of unrecognized prior year (loss) ..... (298) - -
Other .............................................. (288) (297) (262)
One-time charge for early retirement ............... - - 4,353
Regulatory recognition of incurred cost ............ 4,888 5,112 5,140
-------- -------- --------
Net periodic postretirement benefit cost ........... $ 19,460 $ 18,967 $ 21,200
======== ======== ========
</TABLE>
During 1995, the Company recorded a one-time expense of $4.4 million
related to the early retirement portion of its restructuring plan.
The Company has established external trust funds to meet its expected
postretirement benefit obligations. The trust funds are comprised primarily of
guaranteed rate investment accounts and money market investment accounts. A
reconciliation of the funded status of the plan to the amounts realized as of
December 31 is presented below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated present value of benefit obligations:
Retiree benefit obligation ............................. $ (74,534) $ (78,935)
Active employees fully eligible for benefits ........... (6,466) (2,798)
Other active employees ................................. (46,347) (34,772)
--------- ---------
Accumulated benefit obligation ......................... (127,347) (116,505)
Plan assets at fair value ................................ 52,174 36,783
--------- ---------
Accumulated benefit obligation greater than plan assets .. (75,173) (79,722)
Unrecognized net gain .................................... (11,248) (8,810)
Prior service cost ....................................... 8,277 -
Unrecognized transition obligation ....................... 79,370 84,662
--------- ---------
Postretirement benefit liability recognized in the
Consolidated Balance Sheets ............................ $ 1,226 $ (3,870)
========= =========
Assumptions used were:
Discount rate .......................................... 7.0% 7.5%
Weighted average expected long-term rate of return
on assets (after taxes) ............................. 6.5% 6.7%
</TABLE>
For purposes of calculating the postretirement benefit obligation, it is
assumed health care costs for covered individuals prior to age 65 will increase
by 10.0% in 1998, and that the rate of increase thereafter will decline by 1.0%
annually to an ultimate rate of 5.5% by the year 2003. For covered individuals
age 65 and older, it is assumed health care costs will increase by 7.0% in 1998,
and that the rate of increase thereafter will decline by 1.0% annually to an
ultimate rate of 5.5% by the year 2000.
A-39
<PAGE>
If the assumed health care trend rates used to measure the expected cost of
benefits covered by the plans were increased by 1%, the total service and
interest cost would increase by $1.8 million and the accumulated postretirement
benefit obligation would increase by $15.4 million.
The Company sponsors defined contribution pension plans (401(k) plans)
covering substantially all employees. The Company's contributions to the plans,
which are based on the participants' level of contribution and cannot exceed
four percent of the participants' salaries or wages, were $4.6 million, $4.4
million and $3.7 million for 1997, 1996 and 1995, respectively.
(7) STOCK-BASED COMPENSATION PLANS:
The company has stock-based compensation arrangements as described below.
The company accounts for these plans under Accounting Principles Board Opinion
No. 25 and the related interpretations. The total compensation cost recognized
in income for stock-based compensation awards was $1.3 million, $0.6 million,
and $1.8 million for 1997, 1996, and 1995 respectively. Had the company used
Statement of Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), pro-forma net income for common stock would be $135.3
million, $130.9 million, and $122.6 million, while earnings per share would be
$1.38, $1.30, and $1.22 for the years ended 1997, 1996, and 1995 respectively.
Stock options and performance share awards have been granted pursuant to
the MidAmerican Energy Company 1995 Long-Term Incentive Plan (the "Plan"). Up to
four million shares are authorized to be granted under the Plan.
STOCK OPTIONS - Under the Plan, the Board of Directors have granted options to
purchase shares of MidAmerican Holdings common stock (the "Options") at the fair
market value of the shares on the date of the grant. The options vest over a
4-year period at a rate of 25% per year and expire ten years after the date of
grant. Stock option activity for 1997, 1996, and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 800,000 $14.66 700,000 $14.50 - -
Granted 46,666 $17.36 100,000 $15.75 700,000 $14.50
Exercised 165,000 $14.58 - - - -
Forfeited 115,000 $14.93 - - - -
Expired - - - - -
Outstanding, end of year 566,666 $15.12 800,000 $14.66 700,000 $14.50
Exercisable, end of year 315,000 $14.54 175,000 $14.50 - -
Weighted average fair value of
options granted during year $1.66 $1.48 $1.58
</TABLE>
A-40
<PAGE>
The fair value of the options granted were estimated as of the date of the grant
using the Black-Scholes option pricing model. The model assumed:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Dividend rate per share $ 1.20 $ 1.20 $ 1.20
Expected volatility 16.55% 17.62% 23%
Expected life 10 Years 10 Years 10 Years
Risk free interest rate 6.14% 6.53% 6.28%
</TABLE>
The options outstanding at December 31, 1997 have an exercise price range of
$14.50 to $17.785, with a weighted average contractual life of 8.25 years.
PERFORMANCE SHARES - Under the Plan, participants are granted contingent shares
of common stock. The shares are contingent upon the attainment of specified
performance measures within a 3-year performance period. During the performance
period, the participant is entitled to receive dividends and vote the stock. The
stock is vested upon achievement of the performance measures. If the specified
criteria is not met within the 3-year performance period, the shares are
forfeited. The following table provides certain information regarding contingent
performance incentive shares granted under the Plan:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Number of performance shares granted 77,105 68,189 86,277
Fair value at date of grant (in thousands) $ 1,335 $ 1,176 $ 1,251
Weighted average per share amounts $ 17.3125 $ 17.2500 $ 14.5000
End of performance period 6/30/2000 6/30/99 6/30/98
</TABLE>
In addition, the company has granted 800 restricted shares to each non-employee
director in 1997, 1996 and 1995. Non-employee directors are restricted from
disposing of granted shares until such time as they cease to be a director of
the company. The following table provides certain information regarding the
directors restricted shares granted under the Plan.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Number of shares granted 11,200 12,000 13,600
Fair value at date of grant (in thousands) $ 194 $ 207 $ 197
Weighted average price per share amounts $17.3125 $17.2500 $14.5000
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN - Employees of the Company are allowed to purchase
company stock up to the lesser of 15% or $25,000 of their annual compensation at
a 15% discount. The number of shares acquired by employees under the plan were
140,943, 150,899, and 182,707 in 1997, 1996 and 1995, respectively. The Company
currently acquires shares in the open market for this plan. Participants who
purchase shares under the Plan are required to hold purchased shares for 180
days.
A-41
<PAGE>
(8) SHORT-TERM BORROWING:
Interim financing of working capital needs and the construction program
may be obtained from the sale of commercial paper or short-term borrowing from
banks. Information regarding short-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Balance at year-end $138,054 $161,990 $184,800
Weighted average interest rate
on year-end balance 5.9% 5.4% 5.7%
Average daily amount outstanding
during the year $117,482 $151,318 $114,036
Weighted average interest rate on average daily
amount outstanding during the year 5.7% 5.5% 6.0%
</TABLE>
MidAmerican has authority from FERC to issue short-term debt in the form of
commercial paper and bank notes aggregating $400 million. As of December 31,
1997, MidAmerican had a $250 million revolving credit facility agreement and a
$10 million line of credit and Holdings had lines of credit totaling $120
million. MidAmerican's commercial paper borrowings are supported by the
revolving credit facility and the line of credit.
(9) RATE MATTERS:
As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the Iowa Utilities Board (IUB) issued an order in a
consolidated rate proceeding involving MidAmerican's pricing proposal and a
filing by the Iowa Office of Consumer Advocate (OCA). The order approved a March
1997 settlement agreement between MidAmerican, the OCA and other parties to the
proceeding. The agreement includes a number of characteristics of MidAmerican's
pricing proposal. Prices for residential customers were reduced $8.5 million
annually and $10.0 million annually, effective November 1, 1996, and July 11,
1997, respectively, and will be reduced an additional $5.0 million annually on
June 1, 1998, for a total annual decrease of $23.5 million. Rates for commercial
and industrial customers will be reduced a total of $10 million annually by June
1, 1998, through pilot projects, negotiated rates with individual customers and,
if needed, a base rate reduction effective June 1, 1998. The agreement includes
a tracking mechanism to currently recover the cost of capital improvements
required by the Cooper Nuclear Station Power Purchase Contract. The tracking
mechanism will offset approximately $9 million of these reductions.
In addition, the agreement accepted MidAmerican's proposal to eliminate the
Iowa energy adjustment clause (EAC) which was the mechanism through which fuel
costs were collected from Iowa customers prior to July 11, 1997. The EAC flows
the cost of fuel to customers on a current basis, and thus, fuel costs had
little impact on net income. Prospectively, base rates for Iowa customers will
include a factor for recovery of a representative level of fuel costs. To the
extent actual fuel costs vary from that factor, pre-tax earnings will be
impacted. The fuel cost factor will be reviewed in February 1999 and adjusted
prospectively if actual 1998 fuel costs vary 15% above or below the factor
included in base rates.
A-42
<PAGE>
Under the agreement, if MidAmerican's annual Iowa electric
jurisdictional return on common equity exceeds 12%, then an equal sharing
between customers and shareholders of earnings above the 12% level begins; if it
exceeds 14%, then two-thirds of MidAmerican's share of those earnings will be
used for accelerated recovery of certain regulatory assets. The agreement
permits MidAmerican to file for increased rates if the return falls below 9%.
Other parties signing the agreement are prohibited from filing for reduced rates
prior to 2001 unless the return, after reflecting credits to customers, exceeds
14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the Federal Energy Regulatory Commission (FERC), is limited to 60 MW of
participation the first year and can be expanded by 15 MW annually until the
conclusion of the program. Any loss of revenues associated with the pilot
program will be considered part of the $10 million annual reduction for
commercial and industrial customers as described above, but may not be recovered
from other customer classes. The program was filed with the IUB and the FERC in
September 1997. The Company anticipates that the necessary approvals will be
received before the end of the second quarter of 1998.
(10) DISCONTINUED OPERATIONS:
In the third quarter of 1996, the Company announced the discontinuation
of certain nonstrategic businesses in support of its strategy of becoming the
leading regional energy and complementary services provider. In November of
1996, the Company signed a definitive agreement with KCS Energy, Inc. (KCS) to
sell an oil and gas exploration and development subsidiary and completed the
sale on January 3, 1997. The Company recorded an after-tax loss of $7.1 million
for the disposition in 1996 and an additional $0.9 million in 1997. In October
1997, the company sold its subsidiary that developed and continues to operate a
computerized information system facilitating the real-time exchange of power in
the electric industry. The Company recorded a $4.0 million estimated after-tax
loss on disposal in the third quarter of 1996 and an additional $3.2 million in
September 1997. In addition, in the third quarter of 1996 the Company received a
final settlement from the sale of a coal mining subsidiary which was reflected
as a discontinued operation by a predecessor company in 1982. The final
settlement, which resulted in an after-tax loss of $3.3 million, included the
reacquisition of preferred equity by the buyer and the settlement of reclamation
reserves.
Proceeds received from the disposition of the oil and gas subsidiary
included $210 million in cash and 870,000 warrants, after a stock split in 1997,
to purchase KCS common stock. The warrants were valued at $6 million. Proceeds
received from the disposition of the subsidiary that operates a computerized
information system for the exchange of power in the electric industry included
an unsecured note receivable for $0.7 million and warrants to purchase twenty
percent of the acquirer which have been valued at zero. Proceeds received from
the disposition of the coal mining subsidiary settlement were $15 million. Net
assets of the discontinued operations are separately presented on the
Consolidated Balance Sheets as Investment in Discontinued Operations.
Revenues from discontinued activities, as well as the results of operations
and the estimated loss on the disposal of discontinued operations for the years
ended December 31 are as follows (in thousands):
A-43
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
OPERATING REVENUES ................. $ - $ 233,952 $ 81,637
======== ========= ========
INCOME FROM OPERATIONS
Income (loss) before income taxes .. $ (200) $ 1,638 $ 4,704
Income tax benefit (expense) ....... 82 479 (1,645)
-------- --------- --------
Income (loss) from Operations ...... $ (118) $ 2,117 $ 3,059
======== ========= ========
LOSS ON DISPOSAL
Income (loss) before income taxes .. $(10,106) $ 9,047 $ -
Income tax benefit (expense) ....... 5,996 (23,879) -
-------- --------- --------
Loss on disposal ................... $ (4,110) $ (14,832 $ -
======== ========= ========
</TABLE>
(11) CONCENTRATION OF CREDIT RISK:
The Company's electric utility operations serve 560,000 customers in Iowa,
85,000 customers in western Illinois and 3,000 customers in southeastern South
Dakota. The Company's gas utility operations serve 486,000 customers in Iowa,
65,000 customers in western Illinois, 63,000 customers in southeastern South
Dakota and 4,000 customers in northeastern Nebraska. The largest communities
served by the Company are the Iowa and Illinois Quad-Cities; Des Moines, Sioux
City, Cedar Rapids, Waterloo, Iowa City and Council Bluffs, Iowa; and Sioux
Falls, South Dakota. The Company's utility operations grant unsecured credit to
customers, substantially all of whom are local businesses and residents. As of
December 31, 1997, billed receivables from the Company's utility customers
totalled $14.8 million. As described in Note 18, billed receivables related to
utility services have been sold to a wholly owned unconsolidated subsidiary.
MidAmerican Capital has investments in preferred stocks of companies in the
utility industry. As of December 31, 1997, the total cost of these investments
was $96 million.
MidAmerican Capital has entered into leveraged lease agreements with
companies in the airline industry. As of December 31, 1997, the receivables
under these agreements totalled $35 million.
(12) PREFERRED SHARES:
During 1996, MidAmerican redeemed all shares of the $1.7375 Series of
preferred stock. The redemptions were made at a premium, which resulted in a
charge to net income of $1.6 million.
The $5.25 Series Preferred Shares, which are not redeemable prior to
November 1, 1998 for any purpose, are subject to mandatory redemption on
November 1, 2003 at $100 per share. The $7.80 Series Preferred Shares have
sinking fund requirements under which 66,600 shares will be redeemed at $100 per
share each May 1, beginning in 2001 through May 1, 2006.
The total outstanding cumulative preferred stock of MidAmerican not subject
to mandatory redemption requirements may be redeemed at the option of the
Company at prices which, in the aggregate, total $31.8 million. The aggregate
total the holders of all preferred stock outstanding at December 31, 1997, are
entitled to upon involuntary bankruptcy is $181.8 million plus accrued
dividends. Annual dividend requirements for all preferred stock outstanding at
December 31, 1997, total $12.9 million.
A-44
<PAGE>
(13) SEGMENT INFORMATION:
Information related to segments of the Company's business is as follows
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
UTILITY
Electric:
Operating revenues ........................ $1,126,300 $1,099,008 $ 1,094,647
Cost of fuel, energy and capacity ......... 235,760 234,317 230,261
Depreciation and amortization expense ..... 145,931 140,939 136,324
Other operating expenses .................. 502,109 424,594 459,344
---------- ---------- -----------
Operating income .......................... $ 242,500 $ 299,158 $ 268,718
========== ========== ===========
Gas:
Operating revenues ........................ $ 536,306 $ 536,753 $ 459,588
Cost of gas sold .......................... 346,016 345,014 279,025
Depreciation and amortization expense ..... 24,609 23,653 22,626
Other operating expenses .................. 127,092 106,831 122,017
---------- ---------- -----------
Operating income .......................... $ 38,589 $ 61,255 $ 35,920
========== ========== ===========
Operating income ............................ $ 281,089 $ 360,413 $ 304,638
Other income (expense) ...................... 14,699 3,998 (4,074)
Fixed charges ............................... 100,018 96,753 92,036
---------- ---------- -----------
Income from continuing operations
before income taxes ........................ 195,770 267,658 208,528
Income taxes ................................ 76,317 112,927 84,098
---------- ---------- -----------
Income from continuing operations ........... $ 119,453 $ 154,731 $ 124,430
========== ========== ===========
Capital Expenditures-
Electric ................................... $ 128,544 $ 116,243 $ 133,490
Gas ........................................ $ 38,388 $ 37,955 $ 57,281
1997 1996 1995
---------- ---------- -----------
NONREGULATED
Revenues ................................... $ 259,675 $ 236,851 $ 95,106
Cost of sales .............................. 240,182 218,256 70,351
Depreciation and amortization .............. 3,436 4,854 6,010
Other operating expenses ................... 26,640 30,516 31,029
---------- ---------- -----------
Operating income (loss) .................... (10,583) (16,775) (12,284)
Other income ............................... 34,320 14,874 15,734
Fixed charges .............................. 11,785 23,574 25,470
---------- ---------- -----------
Income (loss) from continuing operations
before income taxes ...................... 11,952 (25,475) (22,020)
Income taxes ............................... (7,927) (14,505) (17,295)
---------- ---------- -----------
Income (loss) from continuing operations ... $ 19,879 $ (10,970) $ (4,725)
========== ========== ===========
Capital expenditures ....................... $ 14,066 $ 55,788 $ 12,881
</TABLE>
A-45
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
ASSET INFORMATION
Identifiable utility assets:
Electric (a) .............................. $2,825,573 $2,954,324 $ 2,947,832
Gas (a) ................................... 677,991 692,993 699,539
Used in overall utility operations .......... 11,341 114,545 30,084
Nonregulated ................................ 763,186 593,666 615,342
Investment in discontinued operations ....... - 166,320 177,300
---------- ---------- -----------
Total assets ............................. $4,278,091 $4,521,848 $ 4,470,097
========== ========== ===========
</TABLE>
(a) Utility plant less accumulated provision for depreciation, receivables,
inventories, nuclear decommissioning trust fund and regulatory assets.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. Tariffs for the Company's utility
services are established based on historical cost ratemaking. Therefore, the
impact of any realized gains or losses related to financial instruments
applicable to the Company's utility operations is dependent on the treatment
authorized under future ratemaking proceedings.
Cash and cash equivalents - The carrying amount approximates fair value due
to the short maturity of these instruments.
Quad Cities nuclear decommissioning trust fund - Fair value is based on
quoted market prices of the investments held by the fund.
Marketable securities - Fair value is based on quoted market prices.
Debt securities - Fair value is based on the discounted value of the future
cash flows expected to be received from such investments.
Equity investments carried at cost - Fair value is based on an estimate of
the Company's share of partnership equity, offers from unrelated third parties
or the discounted value of the future cash flows expected to be received from
such investments.
Notes payable - Fair value is estimated to be the carrying amount due to
the short maturity of these issues.
Preferred shares - Fair value of preferred shares with mandatory redemption
provisions is estimated based on the quoted market prices for similar issues.
Long-term debt - Fair value of long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
A-46
<PAGE>
The following table presents the carrying amount and estimated fair value
of certain financial instruments as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Instruments Owned by the Company:
Equity investments carried at cost ............. $ 33,979 $ 36,491 $ 95,339 $ 273,311
Financial Instruments Issued by the Company:
MidAmerican preferred securities; subject
to mandatory redemption ..................... $ 50,000 $ 53,650 $ 50,000 $ 52,920
MidAmerican-obligated preferred securities;
subject to mandatory redemption ............. $ 100,000 $ 104,250 $ 100,000 $ 100,490
Long-term debt, including current portion ...... $1,178,769 $1,214,951 $1,474,701 $1,522,500
</TABLE>
Included in investments on the Consolidated Balance Sheets is the Company's
investment in common stock of McLeodUSA Incorporated (McLeodUSA). McLeodUSA
common stock has been publicly traded since June 14, 1996. Investor agreements
related to McLeodUSA's initial public offering and subsequent merger with
Consolidated Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA prior to September 24, 1998,
without approval of McLeodUSA's board of directors. As a result of the
agreements, the Company's investment was considered restricted stock and as
such, was recorded at cost in all periods prior to September 1997. Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes and is recorded at fair value. At December 31, 1997 the cost and fair
value of the McLeodUSA investment were $45.2 million and $257.9 million,
respectively. The unrealized gain is recorded, net of income taxes, as a
valuation allowance in common shareholders' equity. At December 31, 1997, the
net unrealized gain and deferred income taxes for this investment were $212.7
million and $74.4 million, respectively.
The amortized cost, gross unrealized gain and losses and estimated fair
value of investments in debt and equity securities at December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities ............. $257,316 $ 226,747 $ (10,522) $473,541
Municipal bonds ............... 35,217 2,116 (1) 37,332
U. S. Government securities ... 18,753 800 (4) 19,549
Corporate securities .......... 13,579 222 (3) 13,798
Cash equivalents .............. 9,862 - - 9,862
-------- --------- --------- --------
$334,727 $ 229,885 $ (10,530) $554,082
======== ========= ========= ========
Held-to-maturity:
Equity securities ............. $ 6,376 $ - $ - $ 6,376
Debt securities ............... 4,567 345 - 4,912
-------- --------- --------- --------
$ 10,943 $ 345 $ - $ 11,288
======== ========= ========= ========
</TABLE>
A-47
<PAGE>
<TABLE>
<CAPTION>
1996
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities ............ $208,226 $ 4,883 $ (8,325) $204,784
Municipal bonds .............. 41,800 3,041 (356) 44,485
U.S. Government securities ... 26,814 137 (157) 26,794
Cash equivalents ............. 11,152 - - 11,152
-------- --------- --------- --------
$287,992 $ 8,061 $ (8,838) $287,215
======== ========= ========= ========
Held-to-maturity:
Equity securities ............ $ 6,435 $ - $ (196) $ 6,239
Debt securities .............. 15,445 252 - 15,697
-------- --------- --------- --------
$ 21,880 $ 252 $ (196) $ 21,936
======== ========= ========= ========
</TABLE>
At December 31, 1997, the debt securities held by the Company had the
following maturities (in thousands):
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------ ------
<S> <C> <C> <C> <C>
Within 1 year $ 2,971 $ 2,987 $1,718 $2,014
1 through 5 years 14,057 14,377 2,137 2,143
5 through 10 years 26,821 28,119 139 147
Over 10 years 23,700 25,196 573 608
</TABLE>
During 1996, the Company sold a portion of its held-to-maturity securities
due to a significant deterioration in the issuer's credit worthiness. Such
securities had a carrying value of $4.8 million and proceeds from the sale were
$4.3 million.
The proceeds and the gross realized gains and losses on the disposition
of investments held by the Company for the years ended December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Proceeds from sales............... $211,691 $250,772 $106,910
Gross realized gains.............. 14,320 9,920 3,923
Gross realized losses............. (6,480) (7,950) (3,082)
</TABLE>
A-48
<PAGE>
(15) INCOME TAX EXPENSE:
Income tax expense from continuing operations includes the following for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current
Federal ..................... $ 91,627 $ 80,165 $ 54,430
State ....................... 21,619 22,100 13,330
--------- --------- --------
113,246 102,265 67,760
--------- --------- --------
Deferred
Federal ..................... (29,257) 2,627 5,750
State ....................... (8,242) (264) 1,470
--------- --------- --------
(37,499) 2,363 7,220
Investment tax credit, net ... (7,357) (6,206) (8,177)
--------- --------- --------
Total ...................... $ 68,390 $ 98,422 $ 66,803
========= ========= ========
</TABLE>
Included in Deferred Income Taxes in the Consolidated Balance Sheets as
of December 31 are deferred tax assets and deferred tax liabilities as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Related to:
Investment tax credits ................ $ 55,998 $ 61,349
Unrealized losses ..................... 7,880 12,034
Pensions .............................. 17,339 17,648
AMT credit carry forward .............. - 10,188
Nuclear reserves and decommissioning .. 15,287 8,233
Other ................................. 1,589 5,839
-------- --------
Total .............................. $ 98,093 $115,291
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities
Related to:
Depreciable property .................. $504,594 $545,459
Income taxes recoverable
through future rates ............... 197,877 201,998
Unrealized gains ...................... 81,501 -
Energy efficiency ..................... 40,902 44,734
Reacquired debt ....................... 15,346 14,265
FERC Order 636 ........................ 2,857 9,023
Other ................................. 16,811 22,112
-------- --------
Total ............................... $859,888 $837,591
======== ========
</TABLE>
A-49
<PAGE>
The following table is a reconciliation between the effective income tax
rate, before preferred stock dividends of subsidiary, indicated by the
Consolidated Statements of Income and the statutory federal income tax rate for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Effective federal and state
income tax rate .......................... 31% 39% 34%
Amortization of investment tax credit ..... 3 2 4
State income tax, net of federal income
tax benefit .............................. (4) (6) (5)
Dividends received deduction .............. 2 2 2
Other ..................................... 3 (2) -
---- ---- ----
Statutory federal income tax rate ......... 35% 35% 35%
==== ==== ====
</TABLE>
(16) INVENTORIES:
Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Materials and supplies, at average cost.. $31,425 $32,222
Coal stocks, at average cost............. 14,225 32,293
Gas in storage, at LIFO cost............. 35,430 23,915
Fuel oil, at average cost................ 2,344 1,264
Other.................................... 2,667 1,170
------- --------
Total................................... $86,091 $90,864
======= =======
</TABLE>
At December 31, 1997 prices, the current cost of gas in storage was $50.3
million.
(17) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF MIDAMERICAN ENERGY FINANCING I:
In December 1996, MidAmerican Energy Financing I (the Trust), a
wholly-owned statutory business trust of MidAmerican, issued 4,000,000 shares of
7.98% Series MidAmerican-obligated mandatorily redeemable preferred securities
(the Preferred Securities). The sole assets of the Trust are $103.1 million of
MidAmerican 7.98% Series A Debentures due 2045 (the Debentures). There is a full
and unconditional guarantee by MidAmerican of the Trust's obligations under the
Preferred Securities. MidAmerican has the right to defer payments of interest on
the Debentures by extending the interest payment period for up to 20 consecutive
quarters. If interest payments on the Debentures are deferred, distributions on
the Preferred Securities will also be deferred. During any deferral,
distributions will continue to accrue with interest thereon and MidAmerican may
not declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.
The Debentures may be redeemed by MidAmerican on or after December 18,
2001, or at an earlier time if there is more than an insubstantial risk that
interest paid on the Debentures will not be deductible for federal income tax
purposes. If the Debentures, or a portion thereof, are redeemed, the Trust must
redeem a like amount of the Preferred Securities. If a termination of the Trust
occurs, the Trust will distribute to the
A-50
<PAGE>
holders of the Preferred Securities a like amount of the Debentures unless such
a distribution is determined not to be practicable. If such determination is
made, the holders of the Preferred Securities will be entitled to receive, out
of the assets of the trust after satisfaction of its liabilities, a liquidation
amount of $25 for each Preferred Security held plus accrued and unpaid
distributions.
(18) SALE OF ACCOUNTS RECEIVABLE:
In 1997 MidAmerican entered into a revolving agreement, which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special purpose entity established to purchase accounts receivable from
MidAmerican. Funding Corp. in turn has sold receivable interests to outside
investors. In consideration of the sale, MidAmerican received $70 million in
cash and the remaining balance in the form of a subordinated note from Funding
Corp. The agreement is structured as a true sale under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors and, as
such, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.
(19) EARNINGS PER SHARE
Reconciliation for the Income and Shares of the Basic and Diluted per share
computations for income from continuing operations for the years ended December
31 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
-------- ------ ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING
OPERATIONS.................... $139,332 $143,761
BASIC EPS
Income Available to Common
Shareholders.................. $139,332 98,058 $1.42 $143,761 100,752 $1.43
===== =====
EFFECT OF DILUTIVE SECURITIES
Stock Options................... - 107 - 89
-------- ------ -------- -------
DILUTED EPS
Income Available to Common
Shareholders.................. $139,332 98,165 $1.42 $143,761 100,841 $1.43
======== ====== ===== ======== ======= =====
</TABLE>
A-51
<PAGE>
<TABLE>
<CAPTION>
1995
-----------------------------
Per
Share
Income Shares Amount
-------- ------- ------
<S> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS..... $119,705
BASIC EPS
Income Available to Common
Shareholders...................... $119,705 100,401 $1.19
=====
EFFECT OF DILUTIVE SECURITIES........
Stock Options........................ - 20
-------- -------
DILUTED EPS
Income Available to Common
Shareholders........................ $119,705 100,421 $1.19
======== ======= =====
</TABLE>
(20) UNAUDITED QUARTERLY OPERATING RESULTS:
<TABLE>
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues .......................... $ 584,395 $ 390,615 $ 440,698 $ 506,573
Operating income ............................ 77,233 55,395 97,948 39,930
Income from continuing operations ........... 34,174 24,176 49,705 31,277
Income (loss) from discontinued operations .. (234) 408 (2,793) (1,609)
Earnings on common stock .................... 33,940 24,584 46,912 29,668
Earnings per average common share and
Earnings per average common share
assuming dilution:
Income from continuing operations ........... $ 0.34 $ 0.24 $ 0.51 $ 0.33
Income (loss) from discontinued operations .. - 0.01 (0.03) (0.02)
--------- --------- --------- ---------
$ 0.34 $ 0.25 $ 0.48 $ 0.31
========= ========= ========= =========
</TABLE>
A-52
<PAGE>
<TABLE>
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues .......................... $ 507,596 $ 391,466 $ 434,678 $ 538,872
Operating income ............................ 100,141 65,004 97,919 80,574
Income from continuing operations ........... 48,405 25,099 40,548 29,709
Income (loss) from discontinued operations .. 2,642 3,896 (17,992) (1,261)
Earnings on common stock .................... 51,047 28,995 22,556 28,448
Earnings per average common share and
Earnings per average common share
assuming dilution:
Income from continuing operations ........... $ 0.48 $ 0.25 $ 0.40 $ 0.29
Income (loss) from discontinued operations .. 0.03 0.04 (0.18) (0.01)
--------- --------- --------- ---------
$ 0.51 $ 0.29 $ 0.22 $ 0.28
========= ========= ========= =========
</TABLE>
The quarterly data reflect seasonal variations common in the utility
industry.
(21) OTHER INFORMATION:
The Company completed a merger-related restructuring plan during 1995.
Other operating expenses in the Consolidated Statements of Income for 1995
includes $33.4 million related to the restructuring plan.
Non-Operating - Other, Net, as shown on the Consolidated Statements of
Income includes the following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Other-than-temporary declines in value
of investments and other assets ............... $ (3,443) $(15,566) $(17,971)
IES merger costs ............................... - (8,689) -
Special purpose fund income .................... 1,989 3,301 1,863
Energy efficiency carrying charges ............. 4,993 3,255 3,092
Gain on sale of cushion gas .................... 855 3,182 -
Incentive gas purchase plan award .............. 4,914 2,677 -
Agency gas sales, net .......................... 1,184 1,840 228
Gain (loss) on reacquisition of long-term debt . (556) 1,105 -
Gain on sale of assets, net .................... 10,213 974 8,570
MidAmerican merger costs ....................... - - (4,624)
Allowance for equity funds used
during construction ........................... - - 481
Income (loss) from equity method investments ... 1,273 2,510 (312)
NPPD settlement ................................ 2,248 - -
Other .......................................... (1,559) 1,391 (1,794)
-------- -------- --------
Total ......................................... $ 22,111 $ (4,020) $(10,467)
======== ======== ========
</TABLE>
A-53
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements which have been prepared in conformity with generally accepted
accounting principles. In the opinion of management, the financial position,
results of operation and cash flows of the Company are reflected fairly in the
statements. The statements have been audited by the Company's independent public
accountants, Coopers & Lybrand L.L.P.
The Company maintains a system of internal controls which is designed to
provide reasonable assurance, on a cost effective basis, that transactions are
executed in accordance with management's authorization, the financial statements
are reliable and the Company's assets are properly accounted for and
safeguarded. The Company's internal auditors continually evaluate and test the
system of internal controls and actions are taken when opportunities for
improvement are identified. Management believes that the system of internal
controls is effective.
The Audit Committee of the Board of Directors, the members of which are
directors who are not employees of the Company, meets regularly with management,
the internal auditors and Coopers & Lybrand L.L.P. to discuss accounting,
auditing, internal control and financial reporting matters. The Company's
independent public accountants are appointed annually by the Board of Directors
on recommendation of the Audit Committee. The internal auditors and Coopers &
Lybrand L.L.P. each have full access to the Audit Committee, without management
representatives present.
/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and Chief Executive Officer
/s/ Alan L. Wells
Alan L. Wells
Senior Vice President and
Chief Financial Officer
A-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of MidAmerican Energy Holdings
Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of MidAmerican Energy Holdings Company and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Holdings Company and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 23, 1998
A-55
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR FINANCIAL STATISTICS
1997 1996 1995 1994 1993
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings per average common share --
Continuing operations:
Utility operations..................................... $ 1.22 $ 1.54 $ 1.24 $ 1.12 $ 1.29
Nonregulated activities................................ 0.20 (0.11) (0.05) 0.13 0.09
Discontinued operations................................... (0.04) (0.13) 0.03 (0.03) 0.01
-------- -------- -------- -------- --------
Earnings per average common share......................... $ 1.38 $ 1.30 $ 1.22 $ 1.22 $ 1.39
======== ======== ======== ======== ========
Average shares of common stock
outstanding (in thousands)............................. 98,058 100,752 100,401 98,531 97,762
Return on average common equity (%)....................... 10.8 10.6 10.1 10.1 11.6
Cash dividends declared per common share.................. $ 1.20 $ 1.20 $ 1.18 $ 1.17 $ 1.17
Common dividend payout ratio (%).......................... 87 92 97 96 84
Ratio of earnings to fixed charges--
Holdings............................................... 3.0 3.2 2.8 2.8 2.8
MidAmerican............................................ 3.1 4.1 3.4 3.3 3.4
Ratio of earnings to fixed charges and Cooper
Nuclear Station debt service--
Holdings............................................ 2.9 3.1 2.7 2.7 2.8
MidAmerican......................................... 3.0 4.0 3.3 3.2 3.3
Quarterly earnings per average common share
outstanding --
1st quarter......................................... $ 0.34 $ 0.51 $ 0.35 $ 0.45 $ 0.44
2nd quarter......................................... 0.25 0.29 0.25 0.22 0.22
3rd quarter......................................... 0.48 0.22 0.36 0.36 0.52
4th quarter ........................................ 0.31 0.28 0.27 0.19 0.20
Total assets (in millions)................................ $ 4,278 $ 4,522 $ 4,470 $ 4,389 $ 4,352
Capitalization (in millions) --
Common shareholders' equity............................ $ 1,301 $ 1,240 $ 1,226 $ 1,204 $ 1,181
Preferred shares, not subject to mandatory redemption.. 32 32 90 90 110
Preferred shares, subject to mandatory redemption...... 150 150 50 50 50
Long-term debt (excluding current portion)............. 1,034 1,395 1,403 1,398 1,341
Capitalization ratios % --
Common shareholders' equity............................ 51.7 44.0 44.3 43.9 44.0
Preferred shares, not subject to mandatory redemption.. 1.2 1.1 3.2 3.3 4.1
Preferred shares, subject to mandatory redemption...... 6.0 5.4 1.8 1.8 1.9
Long-term debt (excluding current portion)............. 41.1 49.5 50.7 51.0 50.0
Book value per common share at year-end................... $ 13.65 $ 12.31 $ 12.17 $ 12.08 $ 12.07
Utility construction expenditures (in thousands).......... $166,932 $154,198 $190,771 $211,669 $215,081
Net cash from utility operations less
dividends as a % of construction....................... 153 127 108 99 86
Number of full-time employees --
Utility................................................ 3,467 3,370 3,331 4,077 4,196
Nonregulated........................................... 163 236 271 274 347
</TABLE>
A-56
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility ...................................... $ 1,126,300 $ 1,099,008 $ 1,094,647 $ 1,021,660 $ 1,002,970
Gas utility ........................................... 536,306 536,753 459,588 492,015 538,989
Nonregulated .......................................... 259,675 236,851 95,106 117,550 85,997
----------- ----------- ----------- ----------- -----------
1,922,281 1,872,612 1,649,341 1,631,225 1,627,956
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ................... 235,760 234,317 230,261 213,987 217,385
Cost of gas sold .................................... 346,016 345,014 279,025 326,782 366,049
Other operating expenses ............................ 429,794 350,174 399,648 354,190 340,720
Maintenance ......................................... 98,090 88,621 85,363 101,275 101,601
Depreciation and amortization ....................... 170,540 164,592 158,950 154,229 150,822
Property and other taxes ............................ 101,317 92,630 96,350 94,990 93,238
---------- ----------- ----------- ----------- ----------
1,381,517 1,275,348 1,249,597 1,245,453 1,269,815
---------- ----------- ----------- ----------- ----------
Nonregulated:
Cost of sales ....................................... 240,182 218,256 70,209 84,515 57,907
Other ............................................... 30,076 35,370 37,181 36,765 32,296
---------- ---------- ---------- ----------- -----------
270,258 253,626 107,390 121,280 90,203
---------- ---------- ---------- ----------- -----------
Total operating expenses .............................. 1,651,775 1,528,974 1,356,987 1,366,733 1,360,018
---------- ---------- ---------- ----------- -----------
OPERATING INCOME ...................................... 270,506 343,638 292,354 264,492 267,938
---------- ----------- ----------- ----------- ----------
NON-OPERATING INCOME
Interest income ....................................... 5,318 4,012 4,485 4,334 5,805
Dividend income ....................................... 13,792 16,985 16,954 17,087 17,601
Realized gains and losses on securities, net .......... 7,798 1,895 688 7,635 7,915
Other, net ............................................ 22,111 (4,020) (10,467) 4,316 20,842
---------- ---------- ---------- ----------- -----------
49,019 18,872 11,660 33,372 52,163
---------- ---------- ---------- ----------- -----------
FIXED CHARGES
Interest on long-term debt ............................ 89,898 102,909 105,550 101,267 107,044
Other interest expense ................................ 10,034 10,941 9,449 6,446 5,066
Preferred dividends of subsidiaries ................... 14,468 10,689 8,059 10,551 8,367
Allowance for borrowed funds .......................... (2,597) (4,212) (5,552) (3,955) (2,186)
----------- ----------- ----------- ----------- -----------
111,803 120,327 117,506 114,309 118,291
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES . 207,722 242,183 186,508 183,555 201,810
INCOME TAXES .......................................... 68,390 98,422 66,803 60,457 67,485
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS ..................... 139,332 143,761 119,705 123,098 134,325
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ............ (4,228) (12,715) 3,059 (2,909) 1,159
----------- ----------- ----------- ----------- -----------
NET INCOME ............................................ $ 135,104 $ 131,046 $ 122,764 $ 120,189 $ 135,484
=========== =========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING ..................... 98,058 100,752 100,401 98,531 97,762
EARNINGS PER COMMON SHARE
Continuing operations ................................. $ 1.42 $ 1.43 $ 1.19 $ 1.25 $ 1.38
Discontinued operations ............................... (0.04) (0.13) 0.03 (0.03) 0.01
----------- ----------- ----------- ---------- -----------
Earnings per average common share ..................... $ 1.38 $ 1.30 $ 1.22 $ 1.22 $ 1.39
=========== =========== =========== ========== ===========
DIVIDENDS DECLARED PER SHARE .......................... $ 1.20 $ 1.20 $ 1.18 $ 1.17 $ 1.17
=========== =========== =========== ========== ===========
</TABLE>
A-57
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric................................................ $4,084,920 $4,010,847 $3,881,699 $3,765,004 $3,642,415
Gas..................................................... 756,874 723,491 695,741 663,792 639,276
---------- ---------- ---------- ---------- ----------
4,841,794 4,734,338 4,577,440 4,428,796 4,281,691
Less accumulated depreciation and amortization.......... 2,275,099 2,153,058 2,027,055 1,885,870 1,801,668
---------- ---------- ---------- ---------- ----------
2,566,695 2,581,280 2,550,385 2,542,926 2,480,023
Construction work in progress........................... 55,418 49,305 104,164 101,252 111,726
---------- ---------- ---------- ---------- ----------
2,622,113 2,630,585 2,654,549 2,644,178 2,591,749
---------- ---------- ---------- ---------- ----------
POWER PURCHASE CONTRACT................................. 173,107 190,897 212,148 221,998 248,643
---------- ---------- ---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS................... - 166,320 177,300 186,246 168,907
---------- ---------- ---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents............................... 10,468 97,749 32,915 28,651 20,657
Receivables less reserves............................... 207,471 312,015 228,128 196,814 216,157
Inventories............................................. 86,091 90,864 85,235 92,248 100,675
Other................................................... 18,452 11,031 18,428 14,288 21,195
---------- ---------- ---------- ---------- ----------
322,482 511,659 364,706 332,001 358,684
---------- ---------- ---------- ---------- ----------
INVESTMENTS............................................. 799,524 622,972 646,456 595,510 614,153
---------- ---------- ---------- ---------- ----------
OTHER ASSETS............................................ 360,865 399,415 414,938 408,961 369,937
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............................................ $4,278,091 $4,521,848 $4,470,097 $4,388,894 $4,352,073
========== ========== ========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity............................. $1,301,286 $1,239,946 $1,225,715 $1,204,112 $1,180,510
Preferred shares, not subject to mandatory redemption... 31,763 31,769 89,945 89,955 109,871
Preferred shares, subject to mandatory redemption....... 150,000 150,000 50,000 50,000 50,000
Long-term debt (excluding current portion).............. 1,034,211 1,395,103 1,403,322 1,398,255 1,341,003
---------- ---------- ---------- ---------- ----------
2,517,260 2,816,818 2,768,982 2,742,322 2,681,384
---------- ---------- ---------- ---------- ----------
CURRENT LIABILITIES
Notes payable........................................... 138,054 161,990 184,800 124,500 173,035
Current portion of long-term debt....................... 144,558 79,598 65,295 72,872 66,371
Current portion of power purchase contract.............. 14,361 13,718 13,029 12,080 10,830
Accounts payable........................................ 145,855 169,806 122,055 106,152 123,618
Taxes accrued........................................... 92,629 82,254 81,898 91,653 110,923
Interest accrued........................................ 22,355 28,513 30,635 30,659 31,021
Other................................................... 38,766 22,830 46,267 44,974 49,470
---------- ---------- ---------- ---------- ----------
596,578 558,709 543,979 482,890 565,268
---------- ---------- ---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract................................. 83,143 97,504 112,700 125,729 140,655
Deferred income taxes................................... 761,795 722,300 724,587 712,307 659,753
Investment tax credit................................... 83,127 88,842 95,041 100,871 106,729
Other .................................................. 236,188 237,675 224,808 224,775 198,284
---------- ---------- ---------- ---------- ----------
1,164,253 1,146,321 1,157,136 1,163,682 1,105,421
---------- ---------- ---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES.................... $4,278,091 $4,521,848 $4,470,097 $4,388,894 $4,352,073
========== ========== ========== ========== ==========
</TABLE>
A-58
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED UTILITY FIVE-YEAR ELECTRIC STATISTICS
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES (in thousands)
Residential.................................... $ 417,845 $ 415,954 $ 434,105 $ 400,346 $ 386,047
Small general service.......................... 246,927 237,466 252,427 253,703 242,205
Large general service.......................... 249,444 241,172 219,075 204,481 193,616
Other sales.................................... 62,261 60,476 60,160 57,731 56,198
Sales for resale............................... 124,741 121,452 105,472 84,260 104,461
---------- ----------- ---------- ---------- -----------
Total from electric sales.................. 1,101,218 1,076,520 1,071,239 1,000,521 982,527
Other electric revenue......................... 25,082 22,488 23,408 21,139 20,443
---------- ----------- ---------- ---------- -----------
Total...................................... $1,126,300 $ 1,099,008 $1,094,647 $1,021,660 $ 1,002,970
========== =========== ========== ========== ===========
KWH SALES (in thousands)
Residential.................................... 4,740,688 4,652,031 4,767,608 4,500,265 4,475,883
Small general service.......................... 3,725,873 3,565,459 3,920,792 4,062,993 3,937,360
Large general service.......................... 6,204,087 6,067,325 5,351,933 5,091,685 4,851,493
Other.......................................... 995,295 988,022 957,463 938,620 930,117
Sales for resale............................... 6,987,268 6,727,326 5,509,161 3,605,092 5,566,208
---------- ----------- ----------- ----------- -----------
Total...................................... 22,653,211 22,000,163 20,506,957 18,198,655 19,761,061
========== =========== =========== =========== ===========
REVENUES FROM SALES AS A % OF TOTAL
Residential.................................... 37.9 38.6 40.5 40.0 39.3
Small general service.......................... 22.4 22.1 23.6 25.4 24.7
Large general service.......................... 22.7 22.4 20.5 20.4 19.7
Other.......................................... 5.7 5.6 5.6 5.8 5.7
Sales for resale............................... 11.3 11.3 9.8 8.4 10.6
---------- ----------- ---------- ---------- ------------
Total...................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
SALES AS A % OF TOTAL
Residential.................................... 20.9 21.1 23.2 24.7 22.7
Small general service.......................... 16.5 16.2 19.1 22.3 19.9
Large general service.......................... 27.4 27.6 26.1 28.0 24.5
Other.......................................... 4.4 4.5 4.7 5.2 4.7
Sales for resale............................... 30.8 30.6 26.9 19.8 28.2
---------- ----------- ---------- ---------- ------------
Total...................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
RETAIL ELECTRIC SALES BY JURISDICTION (%)
Iowa........................................... 88.6 88.7 88.4 88.6 88.7
Illinois....................................... 10.7 10.6 11.0 10.9 10.9
South Dakota................................... 0.7 0.7 0.6 0.5 0.4
---------- ----------- ---------- ---------- ------------
Total ..................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
CUSTOMERS (end of year)
Residential.................................... 563,189 557,637 551,384 548,106 541,220
Small general service.......................... 73,488 73,022 72,616 69,905 68,829
Large general service.......................... 1,000 982 945 743 744
Other.......................................... 10,047 9,937 9,744 9,518 9,572
Sales for resale............................... 47 55 55 59 63
---------- ----------- ---------- ---------- ------------
Total...................................... 647,771 641,633 634,744 628,331 620,428
========== =========== ========== ========== ============
ANNUAL AVERAGE PER RESIDENTIAL CUSTOMER
Revenue per Kwh (cents)........................ 8.81 8.94 9.11 8.90 8.62
KWh sales...................................... 8,463 8,392 8,670 8,265 8,310
COOLING DEGREE DAYS
Actual......................................... 883 788 1,112 912 813
Percent warmer (colder) than normal............ (7.5) (17.5) 14.1 (6.5) (16.4)
ELECTRIC PEAK DEMAND (net MW).................. 3,548 3,537 3,553 3,226 3,284
SUMMER NET ACCREDITED CAPABILITY (MW).......... 4,293 4,301 4,311 4,145 4,072
</TABLE>
A-59
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED UTILITY FIVE-YEAR GAS STATISTICS
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES (in thousands)
Residential....................................... $ 339,924 $ 338,605 $ 279,819 $ 287,171 $ 319,359
Small general service............................. 152,661 153,616 128,501 142,894 150,913
Large general service............................. 15,201 17,670 23,280 36,729 37,761
Sales for resale and other........................ 2,914 2,050 5,303 5,514 10,376
--------- --------- --------- --------- ---------
Total revenue from gas sales .................. 510,700 511,941 436,903 472,308 518,409
Gas transported................................... 20.443 20,155 16,677 12,842 13,457
Other gas revenues................................ 5,163 4,657 6,008 6,865 7,123
--------- --------- --------- --------- ---------
Total.......................................... $ 536,306 $ 536,753 $ 459,588 $ 492,015 $ 538,989
========= ========= ========= ========= =========
THROUGHPUT (MMBtu in thousands)
Sales
Residential.................................... 57,039 61,732 57,153 54,732 60,612
Small general service.......................... 31,066 33,642 32,786 32,677 34,504
Large general service.......................... 3,920 4,634 6,222 8,253 9,681
Sales for resale and other..................... 1,800 977 3,582 3,231 4,305
--------- --------- --------- --------- --------
Total sales.................................. 93,825 100,985 99,743 98,893 109,102
Gas transported................................... 58,804 54,618 50,695 43,293 39,570
--------- --------- --------- --------- --------
Total.......................................... 152,629 155,603 150,438 142,186 148,672
========= ========= ========= ========= ========
REVENUES FROM THROUGHPUT AS A % OF TOTAL
Residential....................................... 64.0 63.6 61.7 59.2 60.0
Small general service............................. 28.7 28.9 28.3 29.4 28.4
Large general service............................. 2.9 3.3 5.1 7.6 7.1
Sales for resale and other........................ 0.5 0.4 1.2 1.1 2.0
Gas transported................................... 3.9 3.8 3.7 2.7 2.5
--------- --------- --------- --------- --------
Total.......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
SALES AS A % OF TOTAL (excludes gas transported)
Residential....................................... 60.8 61.1 57.3 55.3 55.6
Small general service............................. 33.1 33.3 32.9 33.0 31.6
Large general service............................. 4.2 4.6 6.2 8.4 8.9
Sales for resale and other........................ 1.9 1.0 3.6 3.3 3.9
--------- --------- --------- --------- --------
Total.......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
RETAIL GAS SALES BY JURISDICTION (%)
Iowa.............................................. 79.1 78.0 77.1 76.6 74.5
Illinois.......................................... 10.4 11.0 11.6 11.9 11.4
South Dakota...................................... 9.8 10.3 10.6 10.8 5.4
Other............................................. 0.7 0.7 0.7 0.7 8.7
--------- --------- --------- --------- --------
Total ......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
CUSTOMERS (end of year)
Residential....................................... 558,501 550,786 541,732 535,301 526,863
Small general service............................. 58,739 58,059 57,207 55,855 54,972
Large general service............................. 767 821 830 876 868
Gas transported and other......................... 569 504 1,128 171 128
--------- --------- --------- --------- --------
Total.......................................... 618,576 610,170 600,897 592,203 582,831
========= ========= ========= ========= ========
ANNUAL AVERAGES PER RESIDENTIAL CUSTOMER
Revenue per MMBtu................................. $ 5.96 $ 5.49 $ 4.90 $ 5.25 $ 5.27
MMBtu sales....................................... 103 113 106 103 111
HEATING DEGREE DAYS
Actual............................................ 6,872 7,445 6,841 6,565 7,097
Percent colder (warmer) than normal............... 1.6 10.1 0.9 (3.5) 3.2
COST PER MMBTU.................................... $ 3.69 $ 3.42 $ 2.80 $ 3.30 3.36
</TABLE>
A-60
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
<TABLE>
<CAPTION>
COMMON STOCK DIVIDENDS AND PRICES
Dividends Price Range
Declared High Low Close
-------- ---- --- -----
<S> <C> <C> <C> <C>
1997
4th Quarter $ 0.30 $ 22 5/8 $ 17 $ 22
3rd Quarter 0.30 17 5/8 16 5/16 17 1/4
2nd Quarter 0.30 17 7/16 16 3/8 17 5/16
1st Quarter 0.30 17 7/8 15 1/2 17 1/8
1996
4th Quarter $ 0.30 $ 16 1/4 $ 14 3/4 $ 15 7/8
3rd Quarter 0.30 17 3/4 15 3/8 15 7/8
2nd Quarter 0.30 17 7/8 16 1/4 17 1/4
1st Quarter 0.30 18 7/8 16 1/4 17 7/8
</TABLE>
A-61
<PAGE>
[LOGO] Common Stock Proxy Card
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MIDAMERICAN
ENERGY HOLDINGS COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 29, 1998, AT 10:00 A.M. AT THE POLK COUNTY CONVENTION COMPLEX, 501 GRAND
AVENUE, DES MOINES, IOWA
The undersigned hereby appoints S.J. Bright, R.J. Giaier and P.J. Leighton,
and each one of them, each with the power of substitution, as Proxies, to
vote all the shares of common stock of MidAmerican Energy Holdings Company
represented hereby at the Annual Meeting of Shareholders to be held on
Wednesday, April 29, 1998, and at all adjournments thereof.
Your vote for the election of directors may be indicated below. Nominees are:
J.W. Aalfs, S.J. Bright, R.D. Christensen, R.E. Christiansen, J.W. Colloton,
F.S. Cottrell, J.W. Eugster, N. Gentry, R.L. Lawson, R.L. Peterson, N.L.
Seifert, W.S. Tinsman, and L.L. Woodruff.
Please vote, date and sign on the reverse side hereof and return this proxy card
promptly in the enclosed envelope. If you attend the meeting and wish to change
your vote, you may do so automatically by casing your vote at the meeting. This
proxy card, when properly executed, will be voted and will be voted in accord-
ance with the directions given by the shareholder. If no directions are given,
the proxy will be voted FOR all nominees.
The Annual Meeting of Shareholders will be held at the Polk County Convention
Complex, 501 Grand Avenue, Des Moines, Iowa, on Wednesday, April 29, 1998, at
10:00 a.m. The enclosed Proxy Statement contains additional information about
the meeting.
INSTRUCTIONS
1. Review and complete the Proxy Card; be sure to SIGN the card.
2. Detach and return the SIGNED Proxy Card in the enclosed return envelope.
IMPORTANT
You are urged to date and sign the enclosed proxy and return it promptly to
ensure a proper representation at this important meeting.
TOLL FREE SHAREHOLDER
INFORMATION NUMBERS
Local (Des Moines).........281-2560
Outside Des Moines...1-800-247-5211
30-61
2-13-98 Detach Proxy Card here
MIDAMERICAN ENERGY HOLDINGS COMPANY
1998 ANNUAL MEETING OF SHAREHOLDERS
APRIL 29, 1998
POLK COUNTY CONVENTION COMPLEX
501 GRAND AVENUE, DES MOINES, IOWA
FREE PARKING IS AVAILABLE AT VETERAN'S
MEMORIAL AUDITORIUM, 833 FIFTH AVENUE,
DES MOINES. FREE SHUTTLE BUSES WILL
OPERATE BETWEEN VETERAN'S MEMORIAL
AUDITORIUM AND THE POLK COUNTY
CONVENTION COMPLEX. PLEASE SEE MAP ON
THE BACK COVER OF THE PROXY STATEMENT
FOR DETAILS.
MidAmerican Energy Holdings Company Proxy Card
<TABLE>
ELECTION OF DIRECTORS / / FOR all nominees / / WITHHOLD AUTHORITY to vote for all
(Mark only one box) (except as marked to the contrary below) nominees
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided above.)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
If no directions are given, this proxy will be voted FOR all nominees.
DATED , 1998
-------------------------------
------------------------------------------
SIGNATURE
------------------------------------------
SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears
opposite. Executors, trustees, and
administrators and other fiduciaries
should so indicate.
<PAGE>
[LOGO] Common Stock Proxy Card
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MIDAMERICAN
ENERGY HOLDINGS COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 29, 1998, AT 10:00 A.M. AT THE POLK COUNTY CONVENTION COMPLEX, 501 GRAND
AVENUE, DES MOINES, IOWA
The undersigned hereby appoints S.J. Bright, R.J. Giaier and P.J. Leighton,
and each one of them, each with the power of substitution, as Proxies, to
vote all the shares of common stock of MidAmerican Energy Holdings Company
represented hereby at the Annual Meeting of Shareholders to be held on
Wednesday, April 29, 1998, and at all adjournments thereof.
Your vote for the election of directors may be indicated below. Nominees are:
J.W. Aalfs, S.J. Bright, R.D. Christensen, R.E. Christiansen, J.W. Colloton,
F.S. Cottrell, J.W. Eugster, N. Gentry, R.L. Lawson, R.L. Peterson, N.L.
Seifert, W.S. Tinsman, and L.L. Woodruff.
Please vote, date and sign on the reverse side hereof and return this proxy card
promptly in the enclosed envelope. If you attend the meeting and wish to change
your vote, you may do so automatically by casing your vote at the meeting. This
proxy card, when properly executed, will be voted and will be voted in accord-
ance with the directions given by the shareholder. If no directions are given,
the proxy will be voted FOR all nominees.
The Annual Meeting of Shareholders will be held at the Polk County Convention
Complex, 501 Grand Avenue, Des Moines, Iowa, on Wednesday, April 29, 1998, at
10:00 a.m. The enclosed Proxy Statement contains additional information about
the meeting.
INSTRUCTIONS
1. Review and complete the Proxy Card; be sure to SIGN the card.
2. Detach and return the SIGNED Proxy Card in the enclosed return envelope.
IMPORTANT
You are urged to date and sign the enclosed proxy and return it promptly to
ensure a proper representation at this important meeting.
30-61A
2-13-98 Detach Proxy Card here
MIDAMERICAN ENERGY HOLDINGS COMPANY
1998 ANNUAL MEETING OF SHAREHOLDERS
APRIL 29, 1998
POLK COUNTY CONVENTION COMPLEX
501 GRAND AVENUE, DES MOINES, IOWA
FREE PARKING IS AVAILABLE AT VETERAN'S
MEMORIAL AUDITORIUM, 833 FIFTH AVENUE,
DES MOINES. FREE SHUTTLE BUSES WILL
OPERATE BETWEEN VETERAN'S MEMORIAL
AUDITORIUM AND THE POLK COUNTY
CONVENTION COMPLEX. PLEASE SEE MAP ON
THE BACK COVER OF THE PROXY STATEMENT
FOR DETAILS.
MidAmerican Energy Holdings Company Proxy Card
<TABLE>
ELECTION OF DIRECTORS / / FOR all nominees / / WITHHOLD AUTHORITY to vote for all
(Mark only one box) (except as marked to the contrary below) nominees
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided above.)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
If no directions are given, this proxy will be voted FOR all nominees.
DATED , 1998
-------------------------------
------------------------------------------
SIGNATURE
------------------------------------------
SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears
opposite. Executors, trustees, and
administrators and other fiduciaries
should so indicate.
<PAGE>
[LOGO] Common Stock Proxy Card
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MIDAMERICAN
ENERGY HOLDINGS COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 29, 1998, AT 10:00 A.M. AT THE POLK COUNTY CONVENTION COMPLEX, 501 GRAND
AVENUE, DES MOINES, IOWA
The undersigned hereby appoints S.J. Bright, R.J. Giaier and P.J. Leighton,
and each one of them, each with the power of substitution, as Proxies, to
vote all the shares of common stock of MidAmerican Energy Holdings Company
represented hereby at the Annual Meeting of Shareholders to be held on
Wednesday, April 29, 1998, and at all adjournments thereof.
Your vote for the election of directors may be indicated below. Nominees are:
J.W. Aalfs, S.J. Bright, R.D. Christensen, R.E. Christiansen, J.W. Colloton,
F.S. Cottrell, J.W. Eugster, N. Gentry, R.L. Lawson, R.L. Peterson, N.L.
Seifert, W.S. Tinsman, and L.L. Woodruff.
Please vote, date and sign on the reverse side hereof and return this proxy card
promptly in the enclosed envelope. This proxy card, when properly executed, will
be voted and will be voted in accordance with the directions given by the share-
holder. If no directions are given, the proxy will NOT be voted.
The Annual Meeting of Shareholders will be held at the Polk County Convention
Complex, 501 Grand Avenue, Des Moines, Iowa, on Wednesday, April 29, 1998, at
10:00 a.m. The enclosed Proxy Statement contains additional information about
the meeting.
INSTRUCTIONS
1. Review and complete the Proxy Card; be sure to SIGN the card.
2. Detach and return the SIGNED Proxy Card in the enclosed return envelope.
IMPORTANT
You are urged to date and sign the enclosed proxy and return it promptly to
ensure a proper representation at this important meeting.
30-140
2-13-98 Detach Proxy Card here
MIDAMERICAN ENERGY HOLDINGS COMPANY
1998 ANNUAL MEETING OF SHAREHOLDERS
APRIL 29, 1998
POLK COUNTY CONVENTION COMPLEX
501 GRAND AVENUE, DES MOINES, IOWA
FREE PARKING IS AVAILABLE AT VETERAN'S
MEMORIAL AUDITORIUM, 833 FIFTH AVENUE,
DES MOINES. FREE SHUTTLE BUSES WILL
OPERATE BETWEEN VETERAN'S MEMORIAL
AUDITORIUM AND THE POLK COUNTY
CONVENTION COMPLEX. PLEASE SEE MAP ON
THE BACK COVER OF THE PROXY STATEMENT
FOR DETAILS.
MidAmerican Energy Holdings Company Proxy Card
<TABLE>
ELECTION OF DIRECTORS / / FOR all nominees / / WITHHOLD AUTHORITY to vote for all
(Mark only one box) (except as marked to the contrary below) nominees
<S> <C> <C>
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(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name in the space provided above.)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
If no directions are given, this proxy will NOT be voted.
DATED , 1998
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SIGNATURE
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SIGNATURE IF SHARES HELD JOINTLY
Please sign exactly as name appears
opposite. Executors, trustees, and
administrators and other fiduciaries
should so indicate.
<PAGE>
