UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended
SEPTEMBER 30, 1999
Commission File No. 0-25551
MIDAMERICAN ENERGY HOLDINGS COMPANY
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(Exact name of registrant as specified in its charter)
Iowa 94-2213782
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
666 Grand Avenue, Des Moines, IA 50309
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 242-4300
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Former name, former address and former fiscal year, if changed since last
report. N/A
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59,868,107 shares of Common Stock, no par value, were outstanding as of
September 30, 1999.
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MIDAMERICAN ENERGY HOLDINGS COMPANY
FORM 10-Q
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
PAGE NO.
ITEM 1. Financial Statements
Independent Accountants' Report................................ 3
Consolidated Balance Sheets, September 30, 1999
and December 31, 1998....................................... 4
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998.................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998............... 6
Notes to Consolidated Financial Statements..................... 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 15
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 31
ITEM 2. Changes in Securities.......................................... 31
ITEM 3. Defaults on Senior Securities.................................. 31
ITEM 4. Submission of Matters to a Vote of Security Holders............ 31
ITEM 5. Other Information.............................................. 31
ITEM 6. Exhibits and Reports on Form 8-K............................... 31
Signatures .......................................................... 32
Exhibit Index .......................................................... 33
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INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Stockholders
MidAmerican Energy Holdings Company
Des Moines, Iowa
We have reviewed the accompanying consolidated balance sheet of MidAmerican
Energy Holdings Company and subsidiaries as of September 30, 1999, and the
related consolidated statements of operations for the three and nine month
periods ended September 30, 1999 and 1998 and the related consolidated
statements of cash flows for the nine month periods ended September 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of MidAmerican Energy Holdings Company
and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein), and in our report dated January 28, 1999 (March
12, 1999 as to Note 3 and Note 21), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1998 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
Des Moines, Iowa
October 25, 1999
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AS OF
---------------------------
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and investments ............................................. $ 167,264 $ 1,606,148
Marketable securities ............................................ 100,178 -
Restricted cash and investments .................................. 384,548 637,571
Accounts receivable .............................................. 461,927 528,116
Properties, plant, contracts and equipment, net .................. 5,848,787 4,236,039
Excess of cost over fair value of net assets acquired, net ....... 2,778,203 1,538,176
Regulatory assets ................................................ 265,526 -
Equity investments ............................................... 201,373 125,036
Deferred charges and other assets ................................ 801,748 432,438
------------ -----------
TOTAL ASSETS .................................................. $ 11,009,554 $ 9,103,524
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable ................................................. $ 441,934 $ 305,757
Accrued liabilities .............................................. 1,655,212 1,009,091
Parent company debt .............................................. 1,977,073 2,645,991
Subsidiary and project-level debt ................................ 4,320,563 3,093,810
Deferred income taxes ............................................ 916,671 543,391
------------ -----------
Total liabilities ............................................. 9,311,453 7,598,040
------------ -----------
Deferred income .................................................. 65,934 58,468
Preferred securities of subsidiaries ............................. 147,192 66,033
Company-obligated mandatorily redeemable
convertible preferred securities of subsidiary trusts ......... 450,000 553,930
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts ............................... 101,598 -
Commitments and contingencies (Note 6)
Stockholders' Equity:
Preferred stock - authorized 2,000 shares, no par value .......... - -
Common stock - authorized 180,000 shares, no par value;
82,980 shares issued, 59,868 and 59,605 shares outstanding,
at September 30, 1999 and December 31, 1998, respectively ..... - -
Additional paid in capital ....................................... 1,239,007 1,238,690
Retained earnings ................................................ 450,988 340,496
Accumulated other comprehensive income ........................... (4,293) 45
Treasury stock - 23,112 and 23,375 common shares at
September 30, 1999 and December 31, 1998, respectively, at cost (752,325) (752,178)
------------ -----------
Total Stockholders' Equity .................................... 933,377 827,053
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 11,009,554 $ 9,103,524
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------ --------------------------
1999 1998 1999 1998
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Operating revenue ...................... $ 1,062,560 $ 600,862 $ 2,864,047 $ 1,813,302
Interest and other income .............. 27,357 26,885 100,934 79,274
Gain on sale of qualified facilities ... - - 20,173 -
Gain on sale of McLeod ................. - - 78,223 -
----------- --------- ----------- -----------
TOTAL REVENUES ............................ 1,089,917 627,747 3,063,377 1,892,576
----------- --------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales .......................... 515,430 265,605 1,462,496 848,018
Operating expense ...................... 263,283 109,137 695,858 345,773
Depreciation and amortization .......... 115,630 81,449 306,376 247,033
Interest expense ....................... 124,593 95,750 372,888 283,956
Less interest capitalized .............. (18,391) (14,464) (51,101) (42,941)
----------- --------- ----------- -----------
TOTAL COSTS AND EXPENSES .................. 1,000,545 537,477 2,786,517 1,681,839
----------- --------- ----------- -----------
Income before provision for income taxes .. 89,372 90,270 276,860 210,737
Provision for income taxes ................ 27,491 32,112 90,783 72,595
----------- --------- ----------- -----------
Income before minority interest ........... 61,881 58,158 186,077 138,142
Minority interest ......................... 12,185 10,535 35,529 30,758
----------- --------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM .......... 49,696 47,623 150,548 107,384
Extraordinary item, net of tax ............ (3,170) - (40,056) -
----------- --------- ----------- -----------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS ........................... $ 46,526 $ 47,623 $ 110,492 $ 107,384
=========== ========= =========== ===========
NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM - BASIC ............ $ 0.82 $ 0.80 $ 2.51 $ 1.78
Extraordinary item ........................ (0.05) - (0.67) -
----------- --------- ----------- -----------
NET INCOME PER SHARE...................... $ 0.77 $ 0.80 $ 1.84 $ 1.78
=========== ========= =========== ===========
Average number of common
shares outstanding ..................... 60,592 59,674 59,945 60,330
=========== ========= =========== ===========
NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM - DILUTED........... $ 0.76 $ 0.72 $ 2.29 $ 1.67
Extraordinary item ........................ (0.04) - (0.56) -
----------- --------- ----------- -----------
NET INCOME PER SHARE - DILUTED............ $ 0.72 $ 0.72 $ 1.73 $ 1.67
=========== ========= =========== ===========
Diluted shares outstanding ................ 71,330 73,540 72,397 74,274
=========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 110,492 $ 107,384
Adjustments to reconcile to net cash flows from operating activities:
Gain on sale of QFs and McLeod ...................................... (98,396) -
Extraordinary item, net of tax ...................................... 40,056 -
Depreciation and amortization ....................................... 261,882 213,325
Amortization of excess of cost over fair value of net assets acquired 44,494
33,708
Amortization of deferred financing costs and other costs ............ 15,844 13,922
Provision for deferred income taxes ................................. (69,243) 46,504
Undistributed earnings on equity investments ........................ (17,194) 4,820
Income applicable to minority interest .............................. 10,917 3,392
Changes in other items:
Accounts receivable ............................................... 207,289 (59,888)
Accounts payable, accrued liabilities and deferred income ......... 32,511 57,247
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES ............................... 538,652 420,414
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of MidAmerican and Kiewit's interests, net of cash acquired ... (2,501,425) (502,916)
Proceeds from sale of QFs, net of cash disposed ........................ 365,074 -
Purchase of marketable securities ...................................... (62,022) -
Proceeds from sale of marketable securities ............................ 451,234 -
Capital expenditures relating to operating projects .................... (243,079) (184,787)
Acquisition of CE Gas assets ........................................... (72,272) (35,677)
Domestic - construction in progress .................................... (97,810) -
Indonesian and other development costs net of recoveries ............... 3,407 (101,078)
Philippine-construction in progress .................................... (42,631) (85,663)
Decrease in restricted cash and investments ............................ 114,783 185,464
Increase in other assets ............................................... (52,620) (24,343)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES ............................... (2,137,361) (749,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subsidiary and project debt .............................. 1,304,373 107,234
Proceeds from parent company debt ...................................... - 1,400,000
Repayment of subsidiary and project debt ............................... (325,408) (112,594)
Repayment of parent company debt ....................................... (720,473) -
Purchase of treasury stock ............................................. (104,847) (724,791)
Other .................................................................. 10,182 (32,605)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES ............................... 163,827 637,244
----------- -----------
Effect of exchange rate changes on cash ................................ (4,002) 18,186
----------- -----------
Net increase (decrease) in cash and cash equivalents ................... (1,438,884) 326,844
Cash and cash equivalents at beginning of period ....................... 1,606,148 1,451,410
----------- -----------
Cash and cash equivalents at end of period ............................. $ 167,264 $ 1,778,254
=========== ===========
Interest paid, net of amount capitalized ............................... $ 298,542 $ 197,680
=========== ===========
Income taxes paid ...................................................... $ 91,728 $ 53,319
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
In the opinion of management of MidAmerican Energy Holdings Company (the
"Company"), the accompanying unaudited consolidated financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1999 and the results
of operations for the three and nine months ended September 30, 1999 and 1998,
and cash flows for the nine months ended September 30, 1999 and 1998. The
results of operations for the three and nine months ended September 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the full
year.
The consolidated financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries. Other investments and corporate
joint ventures, including CE Generation (defined herein) where the Company has
the ability to exercise significant influence are accounted for under the equity
method. Investments, where the Company's ability to influence is limited, are
accounted for under the cost method of accounting.
Certain amounts in the 1998 financial statements and supporting footnote
disclosures have been reclassified to conform to the 1999 presentation. Such
reclassification did not impact previously reported net income or retained
earnings.
Reference is made to the Company's most recently issued annual report that
included information necessary or useful to the understanding of the Company's
business and financial statement presentations.
2. MIDAMERICAN MERGER:
On August 11, 1998, the Company entered into an Agreement and Plan of Merger
("MidAmerican Merger") with MHC Inc., formerly MidAmerican Energy Holdings
Company ("MHC"). The MidAmerican Merger closed on March 12, 1999 and the Company
paid $27.15 in cash for each outstanding share of MHC common stock for a total
of approximately $2.42 billion in a merger pursuant to which MHC became an
indirect wholly owned subsidiary of the Company. Additionally, the Company
reincorporated in the State of Iowa and was renamed MidAmerican Energy Holdings
Company and upon closing became an exempt public utility holding company.
The consummation of the MidAmerican Merger was conditioned upon receipt of a
number of regulatory and shareholder approvals and the disposition of partial
interests in certain of the Company's independent power generating facilities in
order to maintain the qualifying facilities status of such power generating
facilities. See Note 3.
The MidAmerican Merger has been accounted for as a purchase business combination
and as such the results of operations of the Company include the results of MHC
beginning March 12, 1999. The purchase price has been allocated to assets
acquired and liabilities assumed based on preliminary valuations and the Company
is awaiting final valuations. The Company recorded goodwill of approximately
$1.5 billion which is being amortized using the straight line method over a 40
year period.
On March 11, 1999, MidAmerican Funding, LLC, a wholly owned subsidiary of the
Company, issued $200 million of 5.85% Senior Secured Notes due 2001, $175
million of 6.339% Senior Secured Notes due 2009, and $325 million of 6.927%
Senior Secured Bonds due 2029. The proceeds from the offering were used to
complete the MidAmerican Merger.
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Unaudited pro forma combined revenue, income before extraordinary item, net
income and basic earnings per share of the Company and MHC for the nine months
ended September 30, 1999 and 1998, as if the acquisition had occurred at the
beginning of the year after giving effect to certain pro forma adjustments
related to the acquisitions, including the sales of the qualified facilities,
the issuance of senior secured notes and bonds and the redemptions of certain
limited recourse notes and senior discount notes, were $3.47 billion, $164.4
million, $124.3 million and $2.08, respectively, compared to $2.90 billion,
$81.4 million, $81.4 million and $1.35, respectively, for the same period last
year.
3. QUALIFIED FACILITIES DISPOSITIONS:
The consummation of the MidAmerican Merger was conditioned upon receipt of a
number of regulatory approvals. Regulatory approval required the disposition of
partial interests in certain of the Company's independent power generating
facilities prior to the consummation of the MidAmerican Merger in order to
maintain the qualifying facilities status of such power generating facilities.
To accomplish this disposition, the following events occurred in the first
quarter of 1999:
On February 8, 1999, the Company created a new subsidiary, CE Generation LLC
("CE Generation") and subsequently transferred its interest in the Company's
power generation assets in the Imperial Valley and the Gas Plants to CE
Generation.
On February 26, 1999, the Company closed the sale of all of its indirect
ownership interests in the Coso Joint Ventures ("Coso") to Caithness Energy LLC.
The price includes $205 million in cash and $5 million in contingent payments.
On March 2, 1999, CE Generation closed the sale of $400 million aggregate
principal amount of its 7.416% Senior Secured Bonds due 2018 and distributed the
proceeds to the Company.
On March 3, 1999, the Company closed the sale of 50% of its ownership interests
in CE Generation to an affiliate of El Paso Energy Corporation for an aggregate
consideration of approximately $245 million in cash, $6.5 million in contingent
payments and $23.5 million in equity commitments. Including the gross proceeds
from the CE Generation debt offering, the aggregate consideration was
approximately $675 million. Due to the sale of 50% of its interests in CE
Generation, the Company has accounted for CE Generation as an equity investment
beginning March 3, 1999.
4. EXTRAORDINARY ITEMS:
The remaining outstanding Senior Discount Notes were redeemed on January 15,
1999 at a redemption price of 105.125% plus accrued interest. Due to the early
extinguishment of the Senior Discount Notes, the Company recorded an
extraordinary loss of approximately $14 million, net of tax.
On January 29, 1999, the Company commenced a cash offer for all of its
outstanding Limited Recourse Notes. The Company received tenders from holders of
an aggregate of approximately $195.8 million principal which were paid on March
3, 1999, at a redemption price of 110.025% plus accrued interest. Due to the
early retirement of the Limited Recourse Notes, the Company recorded an
extraordinary loss of approximately $17.5 million, net of tax.
The Company redeemed $103.9 million in principal value of the 9.5% Senior Notes
at an aggregate price of $114.6 million throughout the first nine months of
1999. Due to the early extinguishment of this debt, the Company recorded an
extraordinary loss of $8.5 million net of tax in the first nine months of 1999.
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5. PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT:
Properties, plants, contracts and equipment comprise the following (in
thousands):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Operating assets:
Utility system ....................................... $ 3,909,859 $ 1,305,806
Power plants ......................................... 831,855 1,868,002
Wells and resource development ....................... 175,421 473,237
Power sales agreements ............................... 102,677 193,868
Other assets ......................................... 364,163 313,029
----------- -----------
Total operating assets ............................... 5,383,975 4,153,942
Less accumulated depreciation and amortization ....... (586,846) (769,526)
----------- -----------
Net operating assets ................................. 4,797,129 3,384,416
Mineral and gas reserves and exploration assets, net . 480,738 375,208
Construction in progress:
Casecnan ........................................ 286,579 243,948
Indonesia ....................................... 189,973 190,175
Zinc recovery project ........................... 60,516 24,183
Cordova, Salton Sea V and other ................. 33,852 18,109
----------- -----------
Total ................................................ $ 5,848,787 $ 4,236,039
=========== ===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
INDONESIA
On December 2, 1994, subsidiaries of the Company, Himpurna California Energy
Ltd. ("HCE") and Patuha Power, Ltd. ("PPL", together with HCE, the "Indonesian
Subsidiaries") executed separate joint operation contracts for the development
of geothermal steam fields and geothermal power facilities located in Central
Java in Indonesia with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
("Pertamina"), the Indonesian national oil company, and executed separate
"take-or-pay" energy sales contracts ("ESCs") with both Pertamina and P.T. PLN
(Persero) ("PLN"), the Indonesian national electric utility. The Government of
Indonesia provided sovereign performance undertakings of the obligations under
the joint operating and "take-or-pay" contracts.
In 1997 and 1998 a series of Indonesian government decrees and other actions
(including the non-payment of all monthly invoices from HCE's Dieng Unit I,
which became operational in March 1998) created significant uncertainty as to
whether PLN and the Indonesian government would honor their contractual
obligations to the Indonesian Subsidiaries.
On or about August 14, 1998, the Company, through the Indonesian Subsidiaries,
began arbitration proceedings against PLN in connection with the HCE's and PPL's
geothermal power projects in Indonesia, the Dieng Project and the Patuha
Project. The arbitration was conducted under the United Nations Commission of
International Trade Law ("UNCITRAL") rules. In its Statement of Claim, HCE
alleged that PLN breached the "take-or-pay" provisions of its ESA with HCE and,
through its conduct has repudiated the ESC with HCE. In its Statement of Claim,
PPL alleged that, in conjunction with PLN's breach of the ESC with HCE and
through its conduct, PLN
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<PAGE>
repudiated the ESC with PPL. On or about December 10, 1998, PLN delivered two
Statements of Defense in respect of the HCE claim and the PPL claim.
An arbitral tribunal found that PLN had materially breached the provisions of
the Energy Sales Contracts between PLN and both HCE and PPL, and awarded HCE
$391,711,652 and PPL $180,570,322, and ordered PLN to pay these amounts
immediately. Following PLN's failure to pay such amounts, PPL and HCE demanded
payment pursuant to the sovereign performance undertakings issued by the
Minister of Finance ("MOF") on behalf of the Republic of Indonesia ("ROI") and
following the ROI's failure to pay brought an arbitration against the ROI for
breach of those undertakings.
A final award was issued by an international arbitration panel in the ROI
arbitration on October 15, 1999 which found that:
o The ROI is in breach of its performance undertakings and violated
international law.
o The ROI is required to pay HCE and PPL an aggregate amount of
approximately $575 million.
The Company carries political risk insurance on its investment in HCE and PPL
through OPIC, an agency of the U.S. Government, as well as through private
market insurers. Such insurance covers expropriation of the Company's investment
in HCE and PPL, as well as material breaches by PLN of the ESCs and by the ROI
of its performance undertakings. The Company filed claims in the amount of
approximately $290 million pursuant to such political risk insurance policies
with OPIC and the private market insurers and intends to vigorously pursue such
claims with OPIC and the private market insurers, if necessary.
NYSEG
On February 14, 1995, New York State Electric & Gas ("NYSEG") filed with the
Federal Energy Regulatory Commission ("FERC") a Petition for a Declaratory
Order, Complaint, and Request for Modification of Rates in Power Purchase
Agreements Imposed Pursuant to the Public Utility Regulatory Policies Act of
1978 ("Petition") seeking FERC (i) to declare that the rates NYSEG pays under
the Saranac Power Purchase Agreement ("Saranac PPA"), which was approved by the
New York Public Service Commission (the "PSC"), were in excess of the level
permitted under PURPA and (ii) to authorize the PSC to reform the Saranac PPA.
On March 14, 1995, the Saranac Partnership intervened in opposition to the
Petition asserting, inter alia, that the Saranac PPA fully complied with PURPA,
that NYSEG's action was untimely and that the FERC lacked authority to modify
the Saranac PPA. On March 15, 1995, the Company intervened also in opposition to
the Petition and asserted similar arguments. On April 12, 1995, the FERC by a
unanimous (5-0) decision issued an order denying the various forms of relief
requested by NYSEG and finding that the rates required under the Saranac PPA
were consistent with PURPA and the FERC's regulations. On May 11, 1995, NYSEG
requested rehearing of the order and, by order issued July 19, 1995, the FERC
unanimously (5-0) denied NYSEG's request. On June 14, 1995, NYSEG petitioned the
United States Court of Appeals for the District of Columbia Circuit (the "Court
of Appeals") for review of FERC's April 12, 1995 order. FERC moved to dismiss
NYSEG's petition for review on July 28, 1995. On October 30, 1996, all parties
filed final briefs and the Court of Appeals heard oral arguments on December 2,
1996. On July 11, 1997, the Court of Appeals dismissed NYSEG's appeal from
FERC's denial of the petition on jurisdictional grounds.
On August 7, 1997, NYSEG filed a complaint in the U.S. District Court for the
Northern District of New York against the FERC, the PSC (and the Chairman,
Deputy Chairman and the Commissioners of the PSC as individuals in their
official capacity), the Saranac Partnership and Lockport Energy Associates, L.P.
("Lockport") concerning the power purchase agreements that NYSEG entered into
with Saranac Partners and Lockport. NYSEG's suit asserts that the PSC and the
FERC improperly implemented PURPA in authorizing the pricing terms that NYSEG,
the Saranac Partnership and Lockport agreed to in those contracts. The action
raises similar legal arguments to those rejected by the FERC in its April and
July 1995 orders. NYSEG in addition asks for retroactive reformation of the
contracts as of the date of commercial operation and seeks a refund of $281
million
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from the Saranac Partnership. The Saranac Partnership and other parties have
filed motions to dismiss and oral arguments on those motions were heard on March
2, 1998 and again on March 3, 1999. The Court's decision is pending. The Saranac
Partnership believes that NYSEG's claims are without merit for the same reasons
described in the FERC's orders.
COOPER LITIGATION
On July 23, 1997, Nebraska Public Power District ("NPPD") filed a Complaint, in
the United States District Court for the District of Nebraska, naming
MidAmerican Energy Company ("MEC"), an indirectly wholly owned subsidiary of the
Company, as the defendant and seeking declaratory judgment as to three issues
under the parties' long-term power purchase agreement for Cooper Nuclear Station
("Cooper") capacity and energy. More specifically, NPPD seeks a declaratory
judgment in the following respects: (1) that MEC is obligated to pay 50% of all
costs and expenses associated with decommissioning Cooper, and that in the event
NPPD continues to operate Cooper after expiration of the power purchase
agreement (September 2004), MEC is not entitled to reimbursement of any
decommissioning funds it has paid to date or will pay in the future; (2) that
the current method of allocating transition costs as a part of the
decommissioning cost is proper under the power purchase agreement; and (3) that
the current method of investing decommissioning funds is proper under the power
purchase agreement.
MEC filed its answer and contingent counterclaims. The contingent counterclaims
filed by MEC are generally as follows: (1) that MEC has no duty under the power
purchase agreement to reimburse or pay 50% of the decommissioning costs unless
certain conditions occur; (2) that NPPD has the duty to repay all amounts that
MEC has prefunded for decommissioning in the event NPPD operates the plant after
the term of the power purchase agreement; (3) that NPPD is equitably estopped
from continuing to operate the plant after the term of the power purchase
agreement; (4) that NPPD has granted MEC an option to continue taking 50% of the
power from the plant; (5) that the term "monthly power costs" as defined in the
power purchase agreement does not include costs and expenses associated with
decommissioning the plant; (6) that MEC has no duty to pay for nuclear fuel, O&M
projects or capital improvements that have useful lives after the term of the
power purchase agreement; (7) that transition costs are not included in any
decommissioning costs and expenses; (8) that NPPD has breached its duty to MEC
in making investments of certain funds; (9) that reserves in certain accounts
are excessive and should be refunded to MEC; and (10) that NPPD must credit MEC
for certain payments by MEC for low-level radioactive waste disposal.
On October 6, 1999, the Court rendered summary judgment for NPPD on the
above-mentioned issue concerning liability for decommissioning (issue one in the
first paragraph above) and the related contingent counterclaims filed by MEC
(issues one, two, three and five in the second paragraph above). On November 3,
1999 the Court referred all remaining issues in the case to mediation, and
cancelled the November 1999 trial date. MEC filed its appeal with the Federal
Court of Appeals for the Eighth Circuit of the Court's summary judgment ruling.
MEC will participate in mediation in an attempt to resolve the remaining issues.
7. SUBSEQUENT EVENTS:
On October 14, 1999, the Company announced that HomeServices.Com, a subsidiary
of the Company, closed its initial public offering of 3,250,000 shares of common
stock at $15 per share. HomeServices sold 2,187,500 shares and the Company, the
selling stockholder, sold 1,062,500 shares in the offering. HomeServices.Com is
the surviving entity of a merger with MidAmerican Realty Services. The net
proceeds received by it in the offering will be used for general corporate
purposes, which are expected to include acquisitions and the continued
development of its E-commerce operations.
On October 24, 1999, the Company and entities representing an investor group
comprised of Berkshire Hathaway Inc. ("Berkshire Hathaway"), Walter Scott, Jr.,
the current chairman of Level 3 Communications, Inc. and a director of the
Company, and David L. Sokol, Chairman and Chief Executive Officer of the
Company, executed a definitive
-11-
<PAGE>
agreement and plan of merger whereby the investor group would acquire all of the
outstanding common stock of the Company for $35.05 per share in cash,
representing a premium of approximately 29% over the October 22, 1999 closing
price of $27.25, the last trading day prior to the announcement of the
transaction. Berkshire Hathaway will invest approximately $1.25 billion in
common stock and convertible preferred stock and $800 million in nontransferable
trust preferred stock. Mr. Scott will contribute approximately $280 million in
cash and current securities of the Company and Mr. Sokol will contribute current
securities of the Company having a value of approximately $18 million. Upon
completion of the transaction, Berkshire Hathaway will own not more than 9.9% of
the voting stock, Mr. Scott will own approximately 88% of the voting stock and
Mr. Sokol will own approximately 2% of the voting stock. In addition, the
transaction is subject to the investor group obtaining evidence satisfactory to
them that neither they nor their affiliates will be subject to regulation as a
registered holding company under the Public Utility Holding Company Act of 1935,
as amended. Following the merger, it is expected that the Company will be a
public utility holding company exempt from the provisions of the Public Utility
Holding Company Act of 1935, as amended, except for Section 9(a)(2) thereof.
The Company has or will file applications requesting the approval of the Federal
Energy Regulatory Commission, the Nuclear Regulatory Commission and, with
respect to the transfer of jurisdictional gas properties, the Illinois Commerce
Commission. In addition, the Company and members of the investor group will file
their notices under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the pre-merger notification period must expire. The Company will
also file an application with the Iowa Utilities Board which has the right to
review the proposed transaction and to disapprove it only if found not to be in
the public interest. State regulators in Illinois, Nebraska and South Dakota
will also be notified and the transaction is subject to approval by the
shareholders of the Company at a special meeting. The Company currently expects
that the transaction will be completed by the end of April 2000.
On September 24, 1999, the Company commenced a cash offer for all $121.115
million of its presently outstanding 9.5% Senior Notes. The Company received
tenders from holders of an aggregate of $121.083 million principal which were
paid in October 1999, at a redemption price of 109.798% plus accrued interest.
8. COMPREHENSIVE INCOME:
Comprehensive income for the three months ended September 30, 1999 and 1998 was
$66.7 million and $57.5 million, respectively, and for the nine months ended
September 30, 1999 and 1998 was $106.5 million and $125.6 million, respectively.
Comprehensive income differs from net income due primarily to foreign currency
translation adjustments.
9. ACCOUNTING PRONOUNCEMENT:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which established accounting and reporting standards
for derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement was amended by SFAS No. 137 which delayed implementation. This
statement is now effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company is in the process of evaluating the impact of
this accounting pronouncement.
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<PAGE>
10. SEGMENT INFORMATION:
The Company has identified four reportable business segments principally based
on geographic area: Domestic electricity generation, foreign electricity
generation (primarily the Philippines), domestic utility operations and foreign
utility operations (primarily the United Kingdom). Information related to the
Company's reportable operating segments are shown below (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Domestic generation ........ $ 12,821 $ 169,152 $ 100,186 $ 433,958
Foreign generation ......... 54,636 56,540 157,696 168,868
Domestic utility ........... 591,828 - 1,294,382 -
Foreign utility ............ 430,176 396,643 1,468,289 1,279,020
----------- ----------- ---------- -----------
Segment revenue ............ 1,089,461 622,335 3,020,553 1,881,846
Corporate .................. 456 5,412 42,824 10,730
----------- ----------- ---------- -----------
$ 1,089,917 $ 627,747 $3,063,377 $ 1,892,576
=========== =========== ========== ===========
OPERATING INCOME: (1)
Domestic generation ........ $ 12,014 $ 101,659 $ 61,393 $ 233,199
Foreign generation ......... 34,370 37,711 95,299 109,166
Domestic utility ........... 125,027 - 283,775 -
Foreign utility ............ 33,717 36,695 150,851 131,021
----------- ----------- ---------- -----------
Segment operating income ... 205,128 176,065 591,318 473,386
Corporate .................. (9,554) (4,509) 7,329 (21,634)
----------- ----------- ---------- -----------
$ 195,574 $ 171,556 $ 598,647 $ 451,752
=========== =========== ========== ===========
CAPITAL EXPENDITURES:
Domestic generation ........ $ 90,117 $ 17,268 $ 161,191 $ 59,076
Foreign generation ......... 14,813 39,191 50,577 167,434
Domestic utility ........... 40,843 - 102,528 -
Foreign utility (2) ........ 107,859 39,136 152,420 144,602
----------- ----------- ---------- -----------
Segment capital expenditures 253,632 95,595 466,716 371,112
Corporate .................. 23 185 75 1,229
----------- ----------- ---------- -----------
$ 253,655 $ 95,780 $ 466,791 $ 372,341
=========== =========== ========== ===========
</TABLE>
(1) Operating income excludes interest expense, net of capitalized interest.
(2) Capital expenditures at the foreign utility exclude the effect of exchange
rate changes.
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<PAGE>
SEPTEMBER 30 DECEMBER 31
1999 1998
----------- -----------
IDENTIFIABLE ASSETS:
Domestic generation ................. $ 816,352 $ 2,458,842
Foreign generation .................. 1,735,098 1,956,387
Domestic utility .................... 5,186,808 -
Foreign utility ..................... 2,930,247 3,095,839
----------- -----------
Segment identifiable assets ......... 10,668,505 7,511,068
Corporate ........................... 341,049 1,592,456
----------- -----------
$11,009,554 $ 9,103,524
=========== ===========
LONG-LIVED ASSETS:
Domestic generation ................. $ 561,109 $ 1,930,347
Foreign generation .................. 1,379,978 1,305,190
Domestic utility .................... 4,199,084 -
Foreign utility ..................... 2,466,485 2,519,615
----------- -----------
Segment long-lived assets ........... 8,606,656 5,755,152
Corporate ........................... 20,334 19,063
----------- -----------
$ 8,626,990 $ 5,774,215
=========== ===========
The remaining differences from the segment amounts to the consolidated amounts
described as "Corporate" relate principally to the corporate functions including
administrative costs, corporate cash and related interest income as well as the
gain on the sale of the qualified facilities.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
- ---------------------
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the periods included in the accompanying statements of
operations.
As a result of the acquisition of MHC and the sales of Coso and an interest in
CE Generation, the Company's future results will differ significantly from the
Company's historical results.
ACQUISITIONS/DISPOSITIONS:
On August 11, 1998, the Company entered into an Agreement and Plan of Merger
with MHC. The MidAmerican Merger closed on March 12, 1999 and the Company paid
$27.15 in cash for each outstanding share of MHC common stock for a total of
approximately $2.42 billion in a merger, pursuant to which MHC became an
indirect wholly owned subsidiary of the Company. Additionally, the Company
reincorporated in the State of Iowa, was renamed MidAmerican Energy Holdings
Company and upon closing became an exempt public utility holding company.
The consummation of the MidAmerican Merger was conditioned upon receipt of a
number of regulatory and shareholder approvals and the disposition of partial
interests in certain of the Company's power generating facilities in order to
maintain the qualifying facilities status of such independent power generating
facilities. On February 26, 1999, the Company closed the sale of all of its
ownership interests in the Coso Project to Caithness Energy LLC ("Caithness").
The price includes $205 million in cash and the assumption of approximately
$67.7 million in debt. On February 8, 1999, the Company created a new
subsidiary, CE Generation LLC ("CE Generation") and subsequently transferred its
interest in the Imperial Valley Projects and Gas Plants to CE Generation. On
March 2, 1999, CE Generation closed the sale of $400 million aggregate principal
amount of its 7.416% Senior Secured Bonds due 2018. On March 3, 1999, the
Company closed the sale of 50% of its ownership interests in CE Generation to an
affiliate of El Paso Energy Corporation for an aggregate consideration of
approximately $245 million in cash, $6.5 million in contingent payments and
$23.5 million in equity commitments. Including the gross proceeds from the CE
Generation debt offering, the aggregate consideration was approximately $675
million.
BUSINESS OF MHC:
MHC's interests include 100% of the common stock of MEC, MidAmerican Capital
Company, MidAmerican Services Company and Midwest Capital Group. MEC is
primarily engaged in the business of generating, transmitting, distributing and
selling electricity and in distributing, selling and transporting natural gas.
MidAmerican Capital Company manages marketable securities and passive investment
activities, security services and other energy-related, nonregulated activities.
MidAmerican Services provides energy management and related services. Midwest
Capital Group functions as a regional business development company in MEC's
service territory.
Currently, MEC has gas and electric operations in Iowa, Illinois and South
Dakota and gas operations in Nebraska. Most of MEC's business is conducted in a
rate-regulated environment and accordingly, many of its decisions as to the
source and use of resources and other strategic matters are evaluated from a
utility business perspective. MEC's operations are seasonal in nature with a
disproportionate percentage of revenues and earnings historically being earned
in the Company's first and third quarters.
-15-
<PAGE>
Through October 6, 1999, MHC owned approximately 95% of the common stock of
MidAmerican Realty Services. On October 6, 1999, MidAmerican Realty Services was
dividended out of MHC to the Company and merged with HomeServices.Com a
subsidiary of the Company. HomeServices.Com includes the Company's real estate
brokerage operations and offers integrated real estate services in eleven states
including residential brokerage, relocation, title, abstract and mortgage
services.
BUSINESS OF NORTHERN:
The operations of Northern Electric plc ("Northern"), an indirect wholly owned
subsidiary of the Company, consist primarily of the distribution and supply of
electricity, supply of natural gas and other auxiliary businesses in the United
Kingdom. Northern's operations are seasonal in nature with a disproportionate
percentage of revenues and earnings historically being earned in the Company's
first and fourth quarters.
Northern receives electricity from the national grid transmission system and
distributes it to customers' premises using its network of transformers,
switchgear and cables. Substantially all of the customers in Northern's
authorized area are connected to Northern's network and can only be delivered
electricity through Northern's distribution system, regardless of whether it is
supplied by Northern's own supply business or by other suppliers, thus providing
Northern with distribution volume that is stable from year to year. Northern
charges access fees for the use of the distribution system. The prices for
distribution are controlled by a prescribed formula that limits increases (and
may require decreases) based upon the rate of inflation in the United Kingdom
and other regulatory action.
On August 12, 1999, the United Kingdom's Office of Gas and Electricity Markets
("OFGEM") issued a draft report proposing a range of 18% to 23% of net regulated
revenue reductions for the distribution business of Northern beginning April 1,
2000. The report proposed revenue reductions for all public electricity supply
companies in Great Britain. On October 8, 1999, the Company received further
proposals from OFGEM that clarified its intentions regarding the proposed
distribution price reductions. Proposed distribution price reductions were
revised below the initial range of 18% - 23% to 17%. Revised price controls are
expected in November 1999, and will become effective from April 1, 2000.
Northern's supply business primarily involves the bulk purchase of electricity,
through a central pool, and subsequent resale to individual customers. The
supply business generally is a high volume business which tends to operate at
lower profitability levels than the distribution business. Prior to November 4,
1998, Northern was the exclusive supplier of electricity to premises in its
authorized area, except where the maximum demand of a customer was greater than
100kW. Beginning November 4, 1998, liberalization of the entire market in
Northern's area commenced in stages with complete liberalization achieved in
Northern's authorized area by the end of April 1999.
On October 8, 1999, OFGEM indicated an initial proposed reduction of
approximately 15% in Northern's supply rate cap for its electric supply business
(sales to ultimate customers). The final OFGEM report on the supply price
adjustment is expected at the end of November 1999, and will become effective
April 1, 2000.
In the market between 100kW and 1MW of electricity demand, Northern has
significantly increased its sales during 1998 and 1999. In the October 1999
contract round, sales increased by an additional 27% over the amount of business
that was available for renewal. Northern is now one of the largest electricity
suppliers in this sector of the U.K. market.
Northern also competes to supply gas inside and outside its authorized area. In
the supply of gas to the business market, Northern expects to more than double
its annual gas sales in 1999 from 1997. In the residential market Northern
currently supplies gas to approximately 560,000 customers. Northern is now the
third largest gas supplier of the new entrants in the U.K. residential market.
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<PAGE>
POWER GENERATION PROJECTS:
On February 8, 1999, the Company created a new subsidiary, CE Generation LLC
("CE Generation") and subsequently transferred its interest in the Imperial
Valley Projects and Gas Plants to CE Generation. On March 2, 1999, CE Generation
closed the sale of $400 million aggregate principal amount of its 7.416% Senior
Secured Bonds due 2018. On March 3, 1999, the Company closed the sale of 50% of
its ownership interests in CE Generation to an affiliate of El Paso Energy
Corporation for an aggregate consideration of approximately $245 million in
cash, $6.5 million in contingent payments and $23.5 million in equity
commitments. Including the gross proceeds from the CE Generation debt offering,
the aggregate consideration was approximately $675 million. Due to the sale of
50% of its interests in CE Generation, the Company has accounted for CE
Generation as an equity investment beginning March 3, 1999. Prior to that date,
CE Generation results were fully consolidated.
For purposes of consistent presentation, plant capacity factors for Vulcan, Hoch
(Del Ranch), Elmore and Leathers (collectively the "Partnership Project") are
based on capacity amounts of 34, 38, 38, and 38 net MW respectively, and for
Salton Sea I, Salton Sea II, Salton Sea III and Salton Sea IV plants
(collectively the "Salton Sea Project") are based on capacity amounts of 10, 20,
49.8 and 39.6 net MW respectively (the Partnership Project and the Salton Sea
Project are collectively referred to as the "Imperial Valley Project"). Plant
capacity factors for Saranac, Power Resources, NorCon and Yuma (collectively the
"Gas Plants") are based on capacity amounts of 240, 200, 80, and 50 net MW,
respectively. Capacity amounts for Upper Mahiao, Malitbog and Mahanagdong
(collectively, the "Philippine Projects") are 119, 216 and 165 net MW,
respectively. Each plant possesses an operating margin which allows for
production in excess of the amount listed above. Utilization of this operating
margin is based upon a variety of factors and can be expected to vary between
calendar quarters, under normal operating conditions.
On February 26, 1999, the Company closed the sale of all of its ownership
interests in the Navy I, Navy II and BLM, collectively the Coso Project, to
Caithness. The price includes $205 million in cash plus the assumption of
approximately $67.7 million in debt.
RESULTS OF OPERATIONS FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998:
Operating revenue increased in the third quarter of 1999 to $1,062.6 million
from $600.9 million for the same period in 1998, a 76.8% increase. Operating
revenue increased in the nine months ended September 30, 1999 to $2,864.0
million from $1,813.3 million for the same period in 1998, a 57.9% increase.
Northern's operating revenue increased in the third quarter of 1999 to $424.2
million from $393.9 million for the same period in 1998 and for the nine months
ended September 30, 1999 to $1,449.2 million from $1,266.5 million for the same
period in 1998, primarily due to higher volumes of gas supplied as well as
higher electricity supply revenues. Operating revenue decreased due to the sales
of Coso and the 50% interest in CE Generation. The acquisition of MHC accounted
for $587.3 million in operating revenue in the third quarter of 1999 and
$1,198.5 million in the period from March 12, 1999 through September 30, 1999.
The following data represents the supply and distribution operations in the
U.K.:
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
Electricity Supplied (GWh) ........ 4,208 3,526 12,849 10,831
Electricity Distributed (GWh) ..... 3,719 3,657 11,578 11,611
Gas Supplied (Therms in millions) . 51.6 41.1 328.7 193.6
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<PAGE>
The increases in electricity supplied for the three months ended September 30,
1999 and the nine months ended September 1999 from the same periods in 1998 are
due primarily to the increase in supply volumes for customers outside of the
franchise area. The increase in electricity distributed for the three months
ended September 30, 1999 and decreases in electricity distributed for the year
to date ended September 1999 from the same periods in 1998 are due to changes in
demand in the franchise area. The increase in gas supplied in 1999 from 1998
reflects the increased volume as the domestic gas supply business in the U.K.
opened up to competition as a result of regulatory changes and the successful
dual fuel marketing campaign.
The following data represents sales from utility operations for MEC. The
financial results of MEC are consolidated with the Company beginning on March
12, 1999.
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
Electric Retail Sales (GWh) .......... 4,583 4,605 17,100 17,029
Electric Sales for Resale (GWh) ...... 1,442 1,933 4,810 4,742
Gas Throughput (Therms in millions) . 215 209 1,025 997
The following operating data represents the aggregate capacity and electricity
production of the domestic geothermal projects:
Three Months Nine Months
Ended September 30 Ended September 30
------------------- ---------------------
1999 1998 1999* 1998
------- --------- --------- ---------
Overall capacity factor..... 101.2% 105.1% 97.5% 98.5%
kWh produced (in thousands). 597,800 1,177,500 2,039,700 3,273,700
Capacity (net MW)........... 267.4 507.4 319.3 507.4
* The nine months ended September 30, 1999 is a weighted average for the
disposition of the Coso Project.
The capacity factor for the nine months ended September 30, 1999 decreased
compared to the same period in 1998, due to scheduled turbine overhauls at Del
Ranch, Leathers and Elmore. The decrease in kWh produced for both the three and
nine month periods ending September 1999 compared to September 1998 is the
result of the sale of Coso.
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<PAGE>
The following operating data represents the aggregate capacity and electricity
production of the Gas Plants:
Three Months Nine Months
Ended September 30 Ended September 30
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Overall capacity factor..... 88.3% 81.0% 87.3% 79.5%
kWh produced (in thousands). 1,111,200 1,019,800 3,260,600 2,969,840
Capacity NMW................ 570.0 570.0 570.0 570.0
The capacity factor of the Gas Plants reflects certain contractual curtailments.
The increases from the prior period was primarily due to the severe winter snow
and ice storms which caused transmission curtailments at Saranac, as well as a
turbine overhaul at PRI in the first quarter of 1998.
Interest and other income increased in the third quarter of 1999 to $27.4
million from $26.9 million for the same period in 1998, a 1.9% increase. The
increase is primarily due to increased earnings in equity investments. Interest
and other income increased for the year to date period ended September 1999 to
$100.9 million from $79.3 million in the same period in 1998. Higher corporate
cash balances, the addition of MHC amounts due to the acquisition, and the
addition of equity income from CE Generation accounted for the increase.
On May 18, 1999, the Company announced the sale of approximately 6.74 million
shares of McLeodUSA ("McLeod") Class A common stock, through a secondary
offering by McLeod, at $55.625 per share. Proceeds from the sale exceeded $375
million, with a resulting after-tax gain to the Company of approximately $47.1
million or $0.65 per diluted share.
Cost of sales increased in the third quarter of 1999 to $515.4 million from
$265.6 million for the same period in 1998, a 94.1% increase. Cost of sales
increased in the nine months ended September 1999 to $1,462.5 million from
$848.0 million from the same period in 1998, a 72.5% increase. The increases are
primarily due to higher volumes of gas and electricity supplied at Northern and
the acquisition of MHC.
Operating expense increased in the third quarter of 1999 to $263.3 million from
$109.1 million for the same period in 1998, a 141.3% increase. Operating
expenses increased in the year to date ended September 1999 to $695.9 million
from $345.8 million for the same period in 1998, a 101.2% increase. The
increases are primarily due to the acquisition of MHC partially offset by the
sales of Coso and an interest in CE Generation.
Depreciation and amortization increased in the third quarter of 1999 to $115.6
million from $81.4 million for the same period in 1998. Depreciation and
amortization increased in the year to date September 1999 to $306.4 million from
$247.0 million in the same period in 1998, a 24.0% increase. The increases are
due to the acquisition of MHC, partially offset by the sales of Coso and the 50%
interest in CE Generation.
Interest expense, less amounts capitalized, increased in the third quarter of
1999 to $106.2 million from $81.3 million for the same period in 1998, a 30.6%
increase. Interest expense, less amounts capitalized, increased in the year to
date September 1999 to $321.8 million from $241.0 million, a 33.5% increase. The
increases are primarily due to the acquisition of MHC and the greater average
outstanding debt balances.
The provision for income taxes decreased in the third quarter of 1999 to $27.5
million from $32.1 million for the same period in 1998, a 14.3% decrease. The
provision for income taxes increased in the year to date ended September 1999 to
$90.8 million from $72.6 million for the same period in 1998, a 25.1% increase.
The year to date increase is due to higher pretax income during the comparable
period of 1999.
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<PAGE>
Minority interest increased in the third quarter to $12.2 million from $10.5
million for the same period in 1998, a 16.2% increase. Minority interest
increased in the nine months ended September 1999 to $35.5 million from $30.8
million in the same period in 1998, a 15.3% increase. The increase is primarily
due to the acquisition of MHC which has minority interests in the form of
preferred stock outstanding.
Income before extraordinary items increased in the third quarter of 1999 to
$49.7 million or $0.82 per share, from $47.6 million or $0.80 per share for the
same period in 1998. Income before extraordinary items increased in the year to
date ended September 1999 to $150.5 million or $2.51 per share from $107.4
million or $1.78 per share for the same period in 1998.
Due to the early retirements of the Senior Discount Notes, the Limited Recourse
Notes and the 9.5% Senior Notes, the Company recorded extraordinary losses of
approximately $3.2 million and $40.1 million, net of tax, in the three and nine
months ended September 30, 1999, respectively.
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, debt retirement and other
capital requirements.
The Company's cash and cash equivalents were $167.3 million at September 30,
1999 as compared to $1,606.1 million at December 31, 1998. The majority of this
decrease was due to the cash used to acquire MHC. In addition, the Company
recorded separately restricted cash and investments of $384.5 million and $637.6
million at September 30, 1999 and December 31, 1998, respectively. The
restricted cash balance as of September 30, 1999 is comprised primarily of
amounts deposited in restricted accounts from which the Company will fund the
various projects under construction. Additionally, the accounts include the
Dieng Project and the Patuha Project restricted cash accounts; and the
Philippine Projects' cash reserves for the debt service reserve funds.
Financing Activity
The remaining outstanding Senior Discount Notes of $369.5 million were redeemed
on January 15, 1999 at a redemption price of 105.125% plus accrued interest.
On January 29, 1999, the Company commenced a cash offer for all of its
outstanding Limited Recourse Notes. The Company received tenders from holders of
an aggregate of approximately $195.8 million of principal which were paid on
March 3, 1999, at a redemption price of 110.025% plus accrued interest.
On March 11, 1999, MidAmerican Funding, LLC, a wholly-owned subsidiary of the
Company, issued $200 million of 5.85% Senior Secured Notes due 2001, $175
million of 6.339% Senior Secured Notes due 2009, and $325 million of 6.927%
Senior Secured Bonds due 2029. The proceeds from the offering were used to
complete the MidAmerican Merger.
On May 18, 1999, CalEnergy Capital Trust, a subsidiary of the Company, effected
the conversion of $103.8 million of 6 1/4% Convertible Preferred Securities into
approximately 3.5 million shares of common stock of the Company. The Securities
were converted at a rate of 1.6728 shares of common stock of the Company for
each Security, equivalent to a conversion price of $29.89 per share of Company
common stock.
The Company redeemed $39.5 million in principal value of the 9.5% Senior Notes
at an aggregate price of $43.5 million throughout the third quarter of 1999. The
Company has redeemed $103.9 million in principal value through the nine months
ended September 30, 1999. Due to the early extinguishment of this debt, the
Company recorded an extraordinary loss of $3.2 million in the third quarter and
$8.5 million in the nine months ended September 30, 1999.
-20-
<PAGE>
On September 24, 1999, the Company commenced a cash offer for all $121.115
million of its presently outstanding 9.5% Senior Notes. The Company received
tenders from holders of an aggregate of $121.083 million principal which were
paid in October 1999, at a redemption price of 109.798% plus accrued interest.
As of September 30, 1999, the Company held 23.1 million shares of treasury stock
at a cost of $752.3 million. On May 25, 1999, the Company announced that it had
increased to 3.75 million the number of shares of its common stock authorized
for repurchase on the open market. The Company has repurchased 3.4 million
shares of common stock in 1999 at an aggregate cost of $104.8 million. The
treasury shares will provide shares for issuance under the Company's employee
stock option and share purchase plan and other outstanding convertible
securities. The stock repurchase plan minimizes the dilutive effect of the
additional shares issued under these plans.
Acquisitions and Dispositions
On August 11, 1998, the Company entered into an Agreement and Plan of Merger
with MHC. The MidAmerican Merger closed on March 12, 1999 and the Company paid
$27.15 in cash for each outstanding share of MHC common stock for a total of
approximately $2.42 billion in a merger, pursuant to which MHC became an
indirect wholly owned subsidiary of the Company. Additionally, the Company
reincorporated in the State of Iowa, was renamed MidAmerican Energy Holdings
Company and upon closing became an exempt public utility holding company.
The consummation of the MidAmerican Merger was conditioned upon receipt of a
number of regulatory and shareholder approvals and the disposition of partial
interests in certain of the Company's power generating facilities in order to
maintain the qualifying facilities status of such independent power generating
facilities.
On February 26, 1999, the Company closed the sale of all of its indirect
ownership interest in the Coso Project to Caithness. The price includes $205
million in cash and the assumption of approximately $67.7 million in debt.
On February 8, 1999, the Company created a new subsidiary, CE Generation and
subsequently transferred its interest in the Imperial Valley Projects and Gas
Plants to CE Generation. On March 2, 1999, CE Generation closed the sale of $400
million aggregate principal amount of its 7.416% Senior Secured Bonds due 2018.
On March 3, 1999, the Company closed the sale of 50% of its ownership interests
in CE Generation to an affiliate of El Paso Energy Corporation for an aggregate
consideration of approximately $245 million in cash, $6.5 million in contingent
payments and $23.5 million in equity commitments. Including the gross proceeds
from the CE Generation debt offering, the aggregate consideration was
approximately $675 million.
On May 18, 1999, the Company announced the sale of approximately 6.74 million
shares of McLeodUSA ("McLeod") Class A common stock, through a secondary
offering by McLeod, at $55.625 per share. Proceeds from the sale exceeded $375
million, with a resulting after-tax gain to the Company of approximately $47.1
million or $0.65 per diluted share.
In July 1999, the Company's wholly-owned subsidiary, CE Gas, closed its
acquisition of a 67% interest in the Anglia Field located in the Southern Gas
Basin in the North Sea. The producing field is expected to provide the Company
with 89 billion cubic feet of natural gas reserves, which will give the Company
further options in support of its growing gas supply business in the U.K.
On October 14, 1999, the Company announced that HomeServices.Com, a subsidiary
of the Company, closed its initial public offering of 3,250,000 shares of common
stock at $15 per share. HomeServices sold 2,187,500 shares and the Company, the
selling stockholder, sold 1,062,500 shares in the offering. HomeServices.Com is
the surviving entity of a merger with MidAmerican Realty Services. The net
proceeds received by it in the offering will be used for general corporate
purposes, which are expected to include acquisitions and the continued
development of its E-commerce operations.
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On October 24, 1999, the Company and entities representing an investor group
comprised of Berkshire Hathaway Inc. ("Berkshire Hathaway"), Walter Scott, Jr.,
the current chairman of Level 3 Communications, Inc. and a director of the
Company, and David L. Sokol, Chairman and Chief Executive Officer of the
Company, executed a definitive agreement and plan of merger whereby the investor
group would acquire all of the outstanding common stock of the Company for
$35.05 per share in cash, representing a premium of approximately 29% over the
October 22, 1999 closing price of $27.25, the last trading day prior to the
announcement of the transaction. Berkshire Hathaway will invest approximately
$1.25 billion in common stock and convertible preferred stock and $800 million
in nontransferable trust preferred stock. Mr. Scott will contribute
approximately $280 million in cash and current securities of the Company and Mr.
Sokol will contribute current securities of the Company having a value of
approximately $18 million. Upon completion of the transaction, Berkshire
Hathaway will own not more than 9.9% of the voting stock, Mr. Scott will own
approximately 88% of the voting stock and Mr. Sokol will own approximately 2% of
the voting stock. In addition, the transaction is subject to the investor group
obtaining evidence satisfactory to them that neither they nor their affiliates
will be subject to regulation as a registered holding company under the Public
Utility Holding Company Act of 1935, as amended. Following the merger, it is
expected that the Company will be a public utility holding company exempt from
the provisions of the Public Utility Holding Company Act of 1935, as amended,
except for Section 9(a)(2) thereof.
The Company has or will file applications requesting the approval of the Federal
Energy Regulatory Commission, the Nuclear Regulatory Commission and, with
respect to the transfer of jurisdictional gas properties, the Illinois Commerce
Commission. In addition, the Company and members of the investor group will file
their notices under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the pre-merger notification period must expire. The Company will
also file an application with the Iowa Utilities Board which has the right to
review the proposed transaction and to disapprove it only if found not to be in
the public interest. State regulators in Illinois, Nebraska and South Dakota
will also be notified and the transaction is subject to approval by the
shareholders of the Company at a special meeting. The Company currently expects
that the transaction will be completed by the end of April 2000.
Minerals Extraction
The Company developed and owns the rights to proprietary processes for the
extraction of minerals from elements in solution in the geothermal brine and
fluids utilized at its Imperial Valley plants (the "Salton Sea Extraction
Project") as well as the production of power to be used in the extraction
process. A pilot plant has successfully produced commercial quality zinc at the
Company's Imperial Valley Project. The Company intends to sequentially develop
facilities for the extraction of manganese, silver, gold, lead, boron, lithium
and other products as it further develops the extraction technology. The Company
is also investigating producing silica as an extraction project. Silica is used
as a filler for such products as paint, plastics and high temperature cement.
CalEnergy Minerals LLC, an indirect wholly owned subsidiary of the Company, is
constructing the Zinc Recovery Project which will recover zinc from the
geothermal brine (the "Zinc Recovery Project"). Facilities will be installed
near the Imperial Valley Project sites to extract a zinc chloride solution from
the geothermal brine through an ion exchange process. This solution will be
transported to a central processing plant where zinc ingots will be produced
through solvent extraction, electrowinning and casting processes. The Zinc
Recovery Project is designed to have a capacity of approximately 30,000 metric
tons per year and is scheduled to commence commercial operation in mid-2000. In
September 1999, CalEnergy Minerals LLC entered into a sales agreement whereby
all zinc produced by the Zinc Recovery Project will be sold to Cominco, LTD. The
initial term of the agreement expires in December 2005.
The Zinc Recovery Project is being constructed by Kvaerner U.S. Inc.
("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering,
procurement and construction contract (the "Zinc Recovery Project EPC
Contract"). Kvaerner is a wholly owned indirect subsidiary of Kvaerner ASA, an
international engineering and construction firm experienced in the metals,
mining and processing industries. Total project costs of the Zinc
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Recovery Project are expected to be approximately $200.9 million. The Company
has incurred $60.5 million of such costs through September 30, 1999.
Imperial Valley Construction Projects
Salton Sea Power LLC, an indirect wholly owned subsidiary of CE Generation, is
constructing Salton Sea V. Salton Sea V will be a 49 net MW geothermal power
plant, which will sell approximately one-third of its net output to the Zinc
Recovery Project. The remainder will be sold through the California Power
Exchange ("PX").
Salton Sea V will be constructed pursuant to a date certain, fixed price,
turnkey engineering, procurement and construction contract (the "Salton Sea V
EPC Contract") by Stone & Webster Engineering Corporation ("SWEC"). SWEC is one
of the world's leading engineering and construction firms for the construction
of electric power plants and, in particular, geothermal power plants. Salton Sea
V is scheduled to commence commercial operation in mid-2000. Total project costs
of Salton Sea V are expected to be approximately $119.1 million. Salton Sea
Power LLC has incurred approximately $61.3 million of such costs through
September 30, 1999.
CE Turbo LLC, an indirect wholly owned subsidiary of CE Generation is
constructing the CE Turbo Project. The CE Turbo Project will have a capacity of
10 net MW. The net output of the CE Turbo Project will be sold to the Zinc
Recovery Project or sold through the PX.
The Partnership Projects are upgrading the geothermal brine processing
facilities at the Vulcan and Del Ranch Projects with the Region 2 brine
facilities construction. In addition to incorporating the pH modification
process, which has reduced operating costs at the Salton Sea Projects, the more
efficient facilities are expected to achieve additional economies through
improved brine processing systems and the utilization of more modern equipment.
The Partnership Projects expect these improvements will reduce brine-handling
operating costs at the Vulcan Project and the Del Ranch Project.
The CE Turbo Project and the Region 2 brine facilities construction are being
constructed by SWEC pursuant to a date certain, fixed price, turnkey
engineering, procurement and construction contract (the "Region 2 Upgrade EPC
Contract"). The obligations of SWEC are guaranteed by Stone & Webster,
Incorporated. The CE Turbo Project is scheduled to commence initial operations
in mid-2000 and the Region 2 brine facilities construction is scheduled to be
completed in early-2000. Total project costs for both the CE Turbo Project and
the Region 2 brine facilities construction are expected to be approximately
$63.7 million. The Company has incurred $29.3 million of such costs through
September 30, 1999.
Casecnan
CE Casecnan Water and Energy Company, Inc., a Philippine corporation ("CE
Casecnan") which at completion of the Casecnan Project is expected to be at
least 70% indirectly owned by the Company, is constructing the Casecnan Project,
a combined irrigation and 150 net MW hydroelectric power generation project (the
"Casecnan Project") located in the central part of the island of Luzon in the
Republic of the Philippines.
CE Casecnan has entered into a fixed-price, date certain, turnkey engineering,
procurement and construction contract to complete the construction of the
Casecnan Project (the "Casecnan Construction Contract"). The work under the
Casecnan Construction Contract is being conducted by a consortium consisting of
Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa
working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
Colenco Power Engineering Ltd. The Casecnan Project, which was expected to
become operational in the fourth quarter of 2000, may now become operational in
the first quarter of 2001 due to certain recent delays experienced by the
contractor.
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Indonesia
On December 2, 1994, subsidiaries of the Company, Himpurna California Energy
Ltd. ("HCE") and Patuha Power, Ltd. ("PPL", together with HCE, the "Indonesian
Subsidiaries") executed separate joint operation contracts for the development
of geothermal steam fields and geothermal power facilities located in Central
Java in Indonesia with Perusahaan Pertambangan Minyak Dan Gas Bumi Negara
("Pertamina"), the Indonesian national oil company, and executed separate
"take-or-pay" energy sales contracts ("ESCs") with both Pertamina and P.T. PLN
(Persero) ("PLN"), the Indonesian national electric utility. The Government of
Indonesia provided sovereign performance undertakings of the obligations under
the joint operating and "take-or-pay" contracts.
In 1997 and 1998 a series of Indonesian government decrees and other actions
(including the non-payment of all monthly invoices from HCE's Dieng Unit I,
which became operational in March 1998) created significant uncertainty as to
whether PLN and the Indonesian government would honor their contractual
obligations to the Indonesian Subsidiaries.
On or about August 14, 1998, the Company, through the Indonesian Subsidiaries,
began arbitration proceedings against PLN in connection with the HCE's and PPL's
geothermal power projects in Indonesia, the Dieng Project and the Patuha
Project. The arbitration was conducted under the United Nations Commission of
International Trade Law ("UNCITRAL") rules. In its Statement of Claim, HCE
alleged that PLN breached the "take-or-pay" provisions of its ESA with HCE and,
through its conduct has repudiated the ESC with HCE. In its Statement of Claim,
PPL alleged that, in conjunction with PLN's breach of the ESC with HCE and
through its conduct, PLN repudiated the ESC with PPL. On or about December 10,
1998, PLN delivered two Statements of Defense in respect of the HCE claim and
the PPL claim.
An arbitral tribunal found that PLN had materially breached the provisions of
the Energy Sales Contracts between PLN and both HCE and PPL, and awarded HCE
$391,711,652 and PPL $180,570,322, and ordered PLN to pay these amounts
immediately. Following PLN's failure to pay such amounts, PPL and HCE demanded
payment pursuant to the sovereign performance undertakings issued by the
Minister of Finance ("MOF") on behalf of the Republic of Indonesia ("ROI") and
following the ROI's failure to pay brought an arbitration against the ROI for
breach of those undertakings.
A final award was issued by an international arbitration panel in the ROI
arbitration on October 15, 1999 which found that:
o The ROI is in breach of its performance undertakings and violated
international law.
o The ROI is required to pay HCE and PPL an aggregate amount of
approximately $575 million.
The Company carries political risk insurance on its investment in HCE and PPL
through OPIC, an agency of the U.S. Government, as well as through private
market insurers. Such insurance covers expropriation of the Company's investment
in HCE and PPL, as well as material breaches by PLN of the ESCs and by the ROI
of its performance undertakings. The Company filed claims in the amount of
approximately $290 million pursuant to such political risk insurance policies
with OPIC and the private market insurers and intends to vigorously pursue such
claims with OPIC and the private market insurers, if necessary.
Cordova
Cordova Energy Company LLC ("Cordova"), an indirect wholly owned subsidiary of
the Company, has commenced construction of a 537 MW gas-fired power plant in the
Quad Cities, Illinois area (the "Cordova Project"). Cordova has entered into
engineering, procurement and construction contract with SWEC to build the
project. Total project costs are estimated to be approximately $288.9 million.
The Company has also entered into a power sales agreement with a unit of El Paso
Energy Corporation ("El Paso"). Under the power sales agreement, El Paso will
purchase all the capacity and energy from the project until December 31, 2019.
However, Cordova has the option to
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elect on an annual basis to retain up to 50% of the project output for sales to
others. The construction of the Cordova Project is expected to be completed in
mid-2001.
On September 10, 1999 Cordova Funding Corporation ("Cordova Funding"), a wholly
owned subsidiary of the Company, closed the $225 million aggregate principal
amount financing for the construction of the Cordova Project. As part of the
financing, approximately $93.5 million of 8.64% Series A-1 Senior Secured Bonds
due 2019 were issued. Additional Series A Senior Secured Bonds will be issued as
required to fund construction. Cordova Funding will loan the proceeds to Cordova
as required. The Company has incurred $39.0 million of such costs through
September 30, 1999. Total equity funding is expected to be approximately $63.9
million.
Evolution of the Domestic Utility Industry
The U.S. utility industry continues to evolve into an increasingly competitive
environment. In virtually every region of the country, legislative and
regulatory actions are being taken which result in customers having more choices
in their energy decisions.
In the electric industry, the traditional vertical integration of generation,
delivery and marketing is being unbundled, with the generation and marketing
functions being deregulated. For local gas distribution businesses, the supply,
local delivery and marketing functions are similarly being separated and opened
to competitors for all classes of customers. While retail electric competition
is presently not permitted in Iowa, MEC's primary market, legislation to do so
was introduced in Iowa's legislature during the 1999 session. While this
legislation has not passed, it is expected to be considered again by the Iowa
legislature in 2000. Deregulation of the gas supply function related to small
volume customers is also being considered by the Iowa Utilities Board ("IUB").
MEC is actively participating in the legislative and regulatory processes.
The generation and retail portions of MEC's electric business will be most
affected 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 choice evolves, competition from other traditional
utilities, power marketers and customer-owned generation could put pressure on
utility margins.
During the transition to full competition, increased volatility in the
marketplace can be expected. With the elimination of the energy adjustment
clause in Iowa, MEC is exposed to movements in energy prices. Although MEC has
sufficient low cost generation under typical operating conditions for its retail
electric needs, a loss of adequate generation by MEC at a time of high market
prices could subject MEC to losses on its energy sales.
Legislative and Regulatory Evolution
In December 1997, the Governor of Illinois signed into law a bill to restructure
Illinois' electric utility industry and transition it to a competitive market.
Under the law, beginning October 1, 1999, larger non-residential customers in
Illinois and 33% of the remaining non-residential Illinois customers are 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.
In addition, the law provides for Illinois earnings above a certain level of
return on common equity ("ROE") to be shared equally between customers and MEC
beginning in April 2000. MidAmerican's ROE level will be based on a rolling
two-year average, with the first determination being based on an average of 1998
and 1999. The ROE level at which MEC will be required to share earnings is a
multi-step calculation of average 30-year Treasury Bond rates plus 5.50% for
1998 and 1999. Legislation passed in July 1999 increases the benchmark for 2000
through 2004 to 8.50% above the 30-year Treasury bond rate. If the resulting
average Treasury Bond rate were equal to the December 1998 30-year Treasury Bond
rate, the ROE level above which sharing must occur would be approximately 10.6%
for 1998 and 1999 and 13.6% for 2000 - 2004. The law allows MEC to mitigate
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the sharing of earnings above the threshold ROE through accelerated cost
recognition that would reduce MEC's earnings. MEC continues to evaluate its
strategy regarding the sharing mechanism.
Accounting Effects of Industry Restructuring
A possible consequence of competition in the utility industry is that SFAS 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 MEC's electric and gas
utility operations currently meet the criteria required by SFAS 71, but its
applicability is periodically reexamined. If portions of its utility operations
no longer meet the criteria of SFAS 71, MEC could 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 September 30,
1999, MEC had $266 million of regulatory assets on its balance sheet.
Domestic Rate Matters: Electric
Electric revenue from MEC's Iowa industrial customers were reduced by $6 million
annually and electric prices for MEC's Iowa commercial customers were reduced by
$4 million annually through several steps from mid-1997 to the end of 1998. The
reductions were achieved through a retail access pilot project, negotiated
individual electric contracts and a $1.5 million tariffed rate reduction for
certain non-contract commercial customers. The negotiated electric contracts
have differing terms and conditions as well as prices. The contracts range in
length from five to ten years, and some have price renegotiation and early
termination provisions exercisable by either party. The vast majority of the
contracts are for terms of seven years or less, although, some large customers
have agreed to 10-year contracts. Prices are set as fixed prices; however, many
contracts allow for potential price adjustments with respect to environmental
costs, government imposed public purpose programs, tax changes, and transition
costs. While the contract prices are fixed (except for the potential adjustment
elements), the costs MEC incurs to fulfill these contracts will vary. On an
aggregate basis, the annual revenues under contract are approximately $180
million.
If MEC's annual Iowa electric jurisdictional ROE exceeds 12%, then earnings
above the 12% level will be shared equally between customers and MEC; if the ROE
exceeds 14%, then two-thirds of MEC's share of these earnings above the 12%
level will be used for accelerated recovery of certain regulatory assets. A 1997
pricing plan settlement agreement precludes MEC from filing for increased rates
prior to 2001 unless the ROE falls below 9%. Other parties signing the agreement
are prohibited from filing for reduced rates prior to 2001 unless the ROE, after
reflecting credits to customers, exceeds 14%. On April 14, 1999, the IUB
approved, subject to additional refund, MEC's ROE calculation. During the second
quarter of 1999, MEC refunded $2.2 million to its Iowa non-contract customers
related to the 1998 ROE calculation. The agreement also eliminated MEC's energy
adjustment clause, and, as a result, the cost of fuel is not directly passed on
to customers.
Environmental Matters
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 a significant contribution to
nonattainment of the ozone standard in downwind states in the eastern half of
the United States. The nonattainment of the "downwind states" is based on the
ozone standard established prior to the 1997 revisions discussed below. In
September 1998, the EPA issued its final rules in this proceeding. Iowa is not
subject to the emissions reduction requirements in the final rules, and, as
such, MEC's facilities are not currently subject to additional emissions
reductions as a result of this initiative.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards (NAAQS) for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout each state, the
EPA will determine which states have areas that do not meet the air quality
standards (i.e., areas
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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.
In May 1999, the U.S. District Court of Appeals for the District of Columbia
Circuit remanded the standards adopted in July 1997 back to the EPA indicating
the EPA had not expressed sufficient justification for the basis of establishing
the standards and ruling that the EPA has exceeded its
constitutionally-delegated authority in setting the standards. The EPA has
appealed the court's ruling to the full panel of the U.S. District Court of
Appeals for the District of Columbia Circuit. Argument in the appeal proceeding
is scheduled for the fall of 1999. As a result of the court's decision and the
current status of the standards, the impact of any new standards on MidAmerican
is currently unknown.
Nuclear Decommissioning
Each licensee of a nuclear facility is required to provide financial assurance
for the cost of decommissioning its licensed 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, MEC expects to contribute
approximately $42 million during the period 1999 through 2003 to an external
trust established for the investment of funds for decommissioning the Quad
Cities Station. Approximately 65% of the trust's funds are now invested in
domestic corporate debt and common equity securities. The remainder is invested
in investment grade municipal and U.S. Treasury bonds.
MEC makes payments to Nebraska Public Power District ("NPPD") related to
decommissioning Cooper. These payments are reflected in operating expenses in
the income statement. NPPD estimates call for MEC to pay approximately $57
million to NPPD for Cooper decommissioning during the period 1999 through 2003.
NPPD invests the funds predominately in U.S. Treasury Bonds and other U.S.
Government securities. Approximately 20% was invested in domestic corporate
debt. MEC'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 MEC as the defendant and seeking a declaration of
MEC's rights and obligations in connection with Cooper nuclear decommissioning
funding. See Note 6 to the financial statements regarding Cooper litigation.
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. MEC currently recovers Quad Cities
Station decommissioning costs charged to Illinois customers through a rate rider
on customer billings.
Securitization of Accounts Receivable
In 1997, MEC 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 MEC. Funding
Corp. in turn sold receivable interests to outside investors. In consideration
for the sale, MEC 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, as determined by SFAS No. 125, 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 MEC or its creditors. Therefore, the accounts
receivable sold are not reflected on the balance sheet. As of September 30,
1999, $98.4 million of accounts receivable, net of reserves, were sold under the
agreement.
In December 1998, Northern entered into a revolving receivable purchase
agreement with Kitty Hawk Funding Corporation ("Kitty Hawk"), an unaffiliated
special purpose entity established to purchase accounts receivable. The
agreement, which expires in December 1999, allows Northern to sell all of its
rights, title and interest in the
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majority of its billed electricity accounts receivable and to borrow against its
unbilled electricity accounts receivable. In March 1999, Northern received $161
million in cash associated with the agreement, $143 million of which was
accounted for as a sale and $18 million of which was accounted for as a loan.
Development Activity
The Company is actively seeking to develop, construct, own and operate new
energy projects, both domestically and internationally, the completion of any of
which is subject to substantial risk. Development can require the Company to
expend significant sums for preliminary engineering, permitting, fuel supply,
resource exploration, legal and other expenses in preparation for competitive
bids which the Company may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other things,
negotiation on terms satisfactory to the Company of engineering, construction,
fuel supply and power sales contracts with other project participants, receipt
of required governmental permits and consents and timely implementation of
construction. There can be no assurance that development efforts on any
particular project, or the Company's development efforts generally, will be
successful.
The Company believes that the international independent power market holds
opportunities for financially attractive energy product development. The
financing, construction and development of projects outside the United States
entail significant political and financial risks (including, without limitation,
uncertainties associated with first time privatization efforts in the countries
involved, currency exchange rate fluctuations, currency repatriation
restrictions, political instability, civil unrest and expropriation) and other
structuring issues that have the potential to cause substantial delays or
material impairment of the value of the project being developed, which the
Company may not be fully capable of insuring against. The uncertainty of the
legal environment in certain foreign countries in which the Company may develop
or acquire projects could make it more difficult for the Company to enforce its
rights under agreements relating to such projects. In addition, the laws and
regulations of certain countries may limit the ability of the Company to hold a
majority interest in some of the projects that it may develop or acquire. The
Company's international projects may, in certain cases, be terminated by a
government. Projects in operation, construction and development are subject to a
number of uncertainties more specifically described in the Company's Form 8-K,
dated March 26, 1999, filed with the Securities and Exchange Commission.
Year 2000
What is generally known as the year 2000 ("Y2K") computer issue arose because
many existing computer programs and embedded systems use only the last two
digits to refer to a year. Therefore, those computer programs do not properly
distinguish between a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The failure to correct a material Y2K item could result in an interruption in,
or a failure of, certain normal business activities or operations including the
generation, distribution, and supply of electricity and natural gas. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition.
The Y2K issue creates uncertainty for the Company from potential issues with its
own computer systems and from third parties with whom the Company deals on
transactions worldwide. The Company's operations utilize systems and equipment
provided by other organizations. As a result, Y2K readiness of suppliers,
vendors, service providers or customers could impact the Company's operations.
The Company is assessing the readiness of such constituent entities and the
impacts on those entities that rely upon the Company's services. The Company is
unable to determine at this time whether the consequences of Y2K failures of
third parties will have a material impact on the Company's results of
operations, liquidity or financial condition.
The Company has commenced, for all of its information systems, a Y2K date
conversion project to address all necessary code changes, testing and
implementation in order to resolve the Y2K issue. The Company created a
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worldwide Y2K project team to identify, assess and correct all of its
information technology (IT) and non-IT systems, as well as, identify and assess
third party systems.
The Company has identified and assessed substantially all of its IT and non-IT
systems and is currently in the process of repairing or replacing those systems
which it believes are not Y2K compliant. As of September 30, 1999, the Company
is approximately 99% complete in repairing or replacing those systems deemed
critical. The Company expects to be 100% complete of correcting, testing, and
compliance before year-end.
Total Y2K expenditures, for both repairing or replacing non-compliant systems
and contingency planning, are expected to total approximately $23.4 million.
Through September 30, 1999, the Company has paid approximately $15.6 million of
Y2K expenditures. The Company has renovated or replaced several non-compliant
systems to gain enhanced functionalities. The cost of these types of renovations
and replacements is not reported herein since their development and installation
were not driven by Y2K concerns. The Company is not aware of any additional
material costs necessary to bring all of its systems into compliance however,
there is no assurance that additional costs will not be incurred.
Contingency plans identifying credible worst-case scenarios are being developed.
The contingency plans are comprised of both mitigation and recovery aspects.
Mitigation entails planning to reduce the impact of unresolved Y2K problems, and
recovery entails planning to restore services in the event that Y2K problems
occur. Although plans are substantially complete, they will be refined
throughout the remainder of the year, based on results of contingency planning
drills and changes in circumstances.
MEC participated in contingency planning drills coordinated by the North
American Electric Reliability Council on April 9, 1999 and September 8-9, 1999.
During those drills MEC did not experience any unexpected results.
Although management believes that the Y2K project will be substantially complete
before January 1, 2000, any unforeseen failures of the Company's and/or third
parties' computer systems could have a material impact on the Company's ability
to conduct its business.
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Forward-looking Statements
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including development uncertainty, operating
uncertainty, acquisition uncertainty, uncertainties relating to doing business
outside of the United States, uncertainties relating to geothermal resources,
uncertainties relating to domestic and international (and in particular,
Indonesia) economic and political conditions and uncertainties regarding the
impact of regulations, changes in government policy, industry deregulation and
competition. Reference is made to all of the Company's SEC filings, including
the Company's Report on Form 8-K dated March 26, 1999, incorporated herein by
reference, for a description of such factors. The Company assumes no
responsibility to update forward-looking information contained herein.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
- ------ -----------------
As of September 30, 1999, there are no material outstanding lawsuits
against the Company; however see Note 6, Commitments and Contingencies
regarding litigation involving the Company's projects and subsidiaries.
ITEM 2 CHANGES IN SECURITIES.
- ------ ---------------------
Not applicable.
ITEM 3 DEFAULTS ON SENIOR SECURITIES.
- ------ -----------------------------
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------ ---------------------------------------------------
Not applicable.
ITEM 5 OTHER INFORMATION.
- ------ -----------------
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
- ------ --------------------------------
(A) EXHIBITS:
Exhibits Filed Herewith
- -----------------------
Exhibit 10 - Executive Voluntary Deferred Compensation Plan
Exhibit 11 - Calculation of Earnings Per Share.
Exhibit 15 - Awareness Letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
(B) REPORTS ON FORM 8-K
During the quarter ended September 30, 1999 the Company filed the
following:
(i) Form 8-K dated and filed September 24, 1999 announcing that the
Company commenced a cash offer for all of its outstanding 9 1/2%
Senior Notes due 2006.
(ii) Form 8-K dated and filed September 14, 1999 containing an Amended and
Restated Rights Agreement between the Company and Chase Mellon
Shareholder Services, L.L.C.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
-----------------------------------
(Registrant)
Date: November 10, 1999 /s/ Patrick J. Goodman
-----------------------------------------------
Patrick J. Goodman
Senior Vice President & Chief Financial Officer
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EXHIBIT INDEX
Exhibit No.
10 Executive Voluntary Deferred Compensation Plan
11 Calculation of Earnings Per Share
15 Awareness Letter of Independent Accountants
27 Financial Data Schedule
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MIDAMERICAN ENERGY HOLDINGS COMPANY
EXECUTIVE VOLUNTARY DEFERRED COMPENSATION PLAN
PLAN DOCUMENT
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
EXECUTIVE VOLUNTARY DEFERRED COMPENSATION PLAN
ARTICLE I - PURPOSE; EFFECTIVE DATE
1.1. PURPOSE. The purpose of this Executive Voluntary Deferred Compensation
Plan (hereinafter, the "Plan") is to permit a select group of management
and highly compensated employees of MidAmerican Energy Holdings Company
and its subsidiaries to defer the receipt of income which would otherwise
become payable to them. It is intended that this Plan, by providing this
deferral opportunity, will assist the in retaining and attracting
individuals of exceptional ability by providing them with these benefits.
1.2. EFFECTIVE DATE. The Plan shall be effective as of July 1, 1999.
ARTICLE II - DEFINITIONS
For the purpose of this Plan, the following terms shall have the meanings
indicated, unless the context clearly indicates otherwise:
2.1. ACCOUNT(S). "Account(s)" means the account or accounts maintained on the
books of the Company used solely to calculate the amount payable to each
Participant under this Plan and shall not constitute a separate fund of
assets. The Accounts available for each Participant shall be identified as:
a) Retirement Account;
b) In-Service Account; and,
c) Education Account.
2.2. ACTUARIAL EQUIVALENT. "Actuarial Equivalent" means an equivalence in value
between two (2) or more forms and/or times of payment based on a
determination by an actuary chosen by the Company, using sound actuarial
assumptions at the time of such determination, and may be modified from
time to time consistent with sound actuarial assumptions at that time.
2.3. BENEFICIARY. "Beneficiary" means the person, persons or entity as
designated by the Participant, entitled under Article VI to receive any
Plan benefits payable after the Participant's death.
2.4. BOARD. "Board" means the Board of Directors of the Company.
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2.5. CHANGE IN CONTROL. "Change in Control" means (i) approval by the Company's
stockholders of
(a) the dissolution of the Company,
(b) a merger or consolidation of the Company where the Company is not the
surviving corporation, except for a transaction the principal purpose
of which is to change the state in which the Company is incorporated,
(c) a reverse merger in which the Company survives as an entity but in
which securities possessing more than 50 percent of the total combined
voting power of the Company's securities are transferred to a person
or persons different from those who hold such securities immediately
prior to the merger or
(d) the sale or other disposition of all or substantially all of the
Company's assets;
(ii) the direct or indirect acquisition by any Person or related group
of Persons (other than an acquisition from or by the Company or
by a Company-sponsored employee benefit plan or by a Person that
directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended) of securities possessing more than 50 percent of the
total combined voting power of the Company's outstanding voting
securities; or
(iii)a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board
members cease, by reason of one or more contested elections for
board membership or by one or more actions by written consent of
stockholders, to be comprised of individuals who either (a) have
been Board members continuously since the beginning of such
period or (b) have been elected or nominated for election as
Board members during such period by at least a majority of the
Board members described in clause (a) who were still in office at
the time such election or nomination was approved by the Board.
2.6. COMMITTEE. "Committee" means the Committee appointed by the Board to
administer the Plan pursuant to Article VII.
2.7. COMPANY. "Company" means MidAmerican Energy Holdings Company, a Des Moines,
Iowa based corporation, and any directly or indirectly affiliated
subsidiary corporations, any other affiliate designated by the Board, or
any successor to the business thereof. For purposes of this Plan,
MidAmerican Energy Holdings Company, and each subsidiary, affiliate and
successor shall be treated as the Company with respect to its employees
only.
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<PAGE>
2.8. COMPENSATION. "Compensation" means the base salary payable to and bonus or
incentive compensation earned by a Participant with respect to employment
services performed for the Company by the Participant and considered to be
"wages" for purposes of federal income tax withholding. For purposes of
this Plan only, Compensation shall be calculated before reduction for any
amounts deferred by the Participant pursuant to the Company's tax qualified
plans which may be maintained under Section 401(k) or Section 125 of the
Internal Revenue Code of 1986, as amended, (the "Code"), or pursuant to
this Plan or any other non-qualified plan which permits the voluntary
deferral of compensation. Inclusion of any other forms of compensation is
subject to Committee Approval.
2.9. DEFERRAL COMMITMENT. "Deferral Commitment" means a commitment made by a
Participant to defer a portion of Compensation as set forth in Article III.
The Deferral Commitment shall apply to each payment of salary and/or bonus
payable to a Participant, and shall specify the Account or Accounts to
which the Compensation deferred shall be allocated. Such allocation shall
be made in whole percentages and shall be made in a form acceptable to the
Committee.
A Deferral Commitment shall remain in effect until amended or revoked as
provided under Section 3.2 (b), below.
2.10.DEFERRAL PERIOD. "Deferral Period" means each calendar year, except that
the initial Deferral Period shall be July 1, 1999 through and including
December 31, 1999.
2.11.DETERMINATION DATE. "Determination Date" means the last day of each
calendar month.
2.12.DISABILITY. "Disability" means a physical or mental condition that
prevents the Participant from satisfactorily performing the Participant's
usual duties for Company. The Committee shall determine the existence of
Disability, in its sole discretion, and may rely on advice from a medical
examiner satisfactory to the Committee in making the determination.
2.13.DISCRETIONARY CONTRIBUTION. "Discretionary Contribution" means the Company
contribution credited to a Participant's Account(s) under Section 4.4,
below.
2.14.EARNINGS. "Earnings" means the amount credited to a Participant's
Account(s) on each Determination Date, which shall be based on the
Valuation Funds chosen by the Participant as provided in Section 2.21,
below and in a manner consistent with Section 4.3, below. Such credits to a
Participant's Account may be either positive or negative to reflect the
increase or decrease in value of the Account in accordance with the
provisions of this Plan.
2.15.FINANCIAL HARDSHIP. "Financial Hardship" means a severe financial hardship
of the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant, loss of
the Participant's property due to casualty, or other similar extraordinary
and unforeseeable circumstance arising as a result of events beyond the
control of the Participant. Financial Hardship shall be determined based
upon such standards as are, from time to time, established by the
Committee, and such determination shall be in the sole discretion of the
Committee.
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<PAGE>
2.16.FORM OF PAYMENT DESIGNATION. "Form of Payment Designation" means the form
prescribed by the Committee and completed by the Participant, indicating
the chosen form of payment for benefits payable from each Account under
this Plan, as elected by the Participant.
2.17.401(K) PLAN. "401(k) Plan" means the MidAmerican Energy Company Retirement
Savings Plan, or any other successor defined contribution plan maintained
by the Company that qualifies under Section 401(a) of the Code and
satisfies the requirements of Section 401(k) of the Code.
2.18.PARTICIPANT. "Participant" means any employee who is eligible, pursuant to
Section 3.1, below, to participate in this Plan, and who has elected to
defer Compensation under this Plan in accordance with Article III, below.
Such employee shall remain a Participant in this Plan for the period of
deferral and until such time as all benefits payable under this Plan have
been paid in accordance with the provisions hereof.
2.19.PLAN. "Plan" means the MidAmerican Energy Holdings Company Executive
Voluntary Deferred Compensation Plan as amended from time to time.
2.20.RETIREMENT. "Retirement" means the termination of employment with the
Company of the Participant after attaining age fifty-five (55).
2.21.VALUATION FUNDS. "Valuation Funds" means one or more of the independently
established funds or indices that are identified and listed by the
Committee. These Valuation Funds are used solely to calculate the Earnings
that are credited to each Participant's Account(s) in accordance with
Article IV, below, and does not represent, nor should it be interpreted to
convey any beneficial interest on the part of the Participant in any asset
or other property of the Company. The determination of the increase or
decrease in the performance of each Valuation Fund shall be made by the
Committee in its reasonable discretion. The Committee shall select the
various Valuation Funds available to the Participants with respect to this
Plan and shall set forth a list of these Valuation Funds attached hereto as
Exhibit A, which may be amended from time to time in the discretion of the
Committee.
ARTICLE III - ELIGIBILITY AND PARTICIPATION
3.1. ELIGIBILITY AND PARTICIPATION.
a) Eligibility. Eligibility to participate in the Plan shall be limited
to those select key employees of Company who are designated by
management, from time to time, and approved by the Committee.
b) Participation. An employee's participation in the Plan shall be
effective upon notification to the employee by the Committee of
eligibility to participate, and completion and submission of a
Deferral Commitment, Distribution Election, Allocation Form, and
Beneficiary Designation to the Committee no later than thirty (30)
days prior to the beginning of the Deferral Period.
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<PAGE>
c) FIRST-YEAR PARTICIPATION. When an individual first becomes eligible to
participate during a Deferral Period, a Deferral Commitment may be
submitted to the Committee within thirty (30) days after the Committee
notifies the individual of eligibility to participate. Such Deferral
Commitment will be effective only with regard to Compensation earned
and payable following submission of the Deferral Commitment to the
Committee.
3.2. FORM OF DEFERRAL. A Participant may elect a Deferral Commitment as follows:
a) FORM OF DEFERRAL COMMITMENT. A Deferral Commitment shall be made with
respect to each payment of salary and/or bonus payable by the Company
to a Participant during the Deferral Period, and shall designate the
portion of each deferral that shall be allocated among the various
Accounts. The Participant shall set forth the amount to be deferred as
a full percentage of salary and/or bonus (the Participant may
designate a different percentage of salary and bonus that is to be
deferred under this Plan). Salary Deferral Commitments shall be made
in roughly equal amounts over the calendar year. In addition, the
Deferral Commitment shall specify the Participant's initial allocation
of the amounts deferred into each Account among the various available
Valuation Funds.
b) PERIOD OF COMMITMENT. Once a Participant has made a Deferral
Commitment, that Commitment shall remain in effect for that Deferral
Period and shall remain in effect for all future Deferral Periods
unless revoked or amended in writing by the Participant and delivered
to the Committee no later than thirty (30) days prior to the beginning
of a subsequent Deferral Period.
3.3. LIMITATIONS ON DEFERRAL COMMITMENTS. The following limitations shall apply
to a Deferral Commitment, subject to amendment by the Committee upon
providing written notice to all Participants:
a) MAXIMUM. The maximum amount of each payment of base salary that may be
deferred shall be 50 percent (50%), and the maximum amount of each
payment of bonus or incentive compensation that may be deferred shall
be 100 percent (100%) less applicable taxes.
b) MINIMUM. The minimum amount of each payment of base salary that may be
deferred shall be 1 percent (1%), and the minimum amount of each
payment of bonus or incentive compensation that may be deferred shall
be 1 percent (1%).
3.4. COMMITMENT LIMITED BY TERMINATION. If a Participant terminates employment
with Company prior to the end of the Deferral Period, the Deferral Period
shall end as of the date of termination.
3.5. MODIFICATION OF DEFERRAL COMMITMENT. Except as provided in Section 5.5
below, a Deferral Commitment shall be irrevocable by the Participant during
a Deferral Period.
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<PAGE>
3.6. CHANGE IN EMPLOYMENT STATUS. If the Committee determines that a
Participant's employment performance is no longer at a level that warrants
reward through participation in this Plan, but does not terminate the
Participant's employment with Company, the Participant's existing Deferral
Commitment shall terminate at the end of the Deferral Period, and no new
Deferral Commitment may be made by such Participant after notice of such
determination is given by the Board, unless the Participant later satisfies
the requirements of 3.1, above. If the Committee, in its sole discretion,
determines that the Participant no longer qualifies as a member of a select
group of management or highly compensated employees, as determined in
accordance with the Employee Retirement Income Security Act of 1974, as
amended, the Committee may, in its sole discretion terminate any Deferral
Commitment for that year, prohibit the Participant from making any future
Deferral Commitments and/or distribute the Participant's Account Balances
in accordance with Article V of this Plan as if the Participant had
terminated employment with the Company as of that time.
ARTICLE IV - DEFERRED COMPENSATION ACCOUNT
4.1. ACCOUNTS. The Compensation deferred by a Participant under the Plan, any
Discretionary Contributions and Earnings shall be credited to the
Participant's Account(s). Separate accounts may be maintained to reflect
the different Accounts chosen by the Participant, and the Participant shall
designate the portion of each deferral that will be credited to each
Account as set forth in Section 3.2(a), above. These Accounts shall be used
solely to calculate the amount payable to each Participant under this Plan
and shall not constitute a separate fund of assets.
4.2. TIMING OF CREDITS; WITHHOLDING. A Participant's deferred Compensation shall
be credited to each Account designated by the Participant on the 15th day
of each month or the last business day of each month consistent with normal
payroll processing. Bonus Compensation will be credited when it would
normally be payable to the participant. Any Discretionary Contributions
shall be credited to the appropriate Account(s) as provided by the
Committee. Any withholding of taxes or other amounts with respect to
deferred Compensation that is required by local, state or federal law shall
be withheld from the Participant's corresponding non-deferred portion of
the Compensation to the maximum extent possible, and any remaining amount
shall reduce the amount credited to the Participant's Account in a manner
specified by the Committee.
4.3. VALUATION FUNDS. A Participant shall designate, at a time and in a manner
acceptable to the Committee, one or more Valuation Funds for each Account
for the sole purpose of determining the amount of Earnings to be credited
or debited to such Account. Such election shall designate the portion of
each deferral of Compensation made into each Account that shall be
allocated among the available Valuation Fund(s), and such election shall
apply to each succeeding deferral of Compensation until such time as the
Participant shall file a new election with the Committee. Upon notice to
the Committee, the Participant may also reallocate the balance in each
Valuation Fund among the other available Valuation Funds as of the next
succeeding Determination Date, but in no event shall such re-allocation
occur more frequently than monthly.
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<PAGE>
4.4. DISCRETIONARY CONTRIBUTIONS. Company may make Discretionary Contributions
to a Participant's Account. Discretionary Contributions shall be credited
at such times and in such amounts as recommended by the Committee and
approved by the Compensation Committee of the Board, or the Board in its
sole discretion shall determine. Unless the Committee specifies otherwise,
such Discretionary Contribution shall be allocated among the various
Accounts in the same proportion as set forth in section 4.1, above.
4.5. DETERMINATION OF ACCOUNTS. Each Participant's Account as of each
Determination Date shall consist of the balance of the Account as of the
immediately preceding Determination Date, adjusted as follows:
a) NEW DEFERRALS. Each Account shall be increased by any deferred
Compensation credited since such prior Determination Date in the
proportion chosen by the Participant.
b) DISCRETIONARY CONTRIBUTIONS. Each Account shall be increased by any
Discretionary Contributions credited since such prior Determination
Date in the same proportion chosen by the Participant with respect to
new deferrals as set forth above.
c) DISTRIBUTIONS. Each Account shall be reduced by the amount of each
benefit payment made from that Account since the prior Determination
Date. Distributions shall be deemed to have been made proportionally
from each of the Valuation Funds maintained within such Account based
on the proportion that such Valuation Fund bears to the sum of all
Valuation Funds maintained within such Account for that Participant as
of the Determination Date immediately preceding the date of payment.
d) EARNINGS. Each Account shall be increased or decreased by the Earnings
credited to such Account since such Determination Date as though the
balance of that Account as of the beginning of the current month had
been invested in the applicable Valuation Funds chosen by the
Participant.
4.6. VESTING OF ACCOUNTS. Each Participant shall be one hundred percent (100%)
vested at all times in the amount of Compensation elected to be deferred
under this Plan and Earnings thereon, except that the Committee may provide
that the amount of any Discretionary Contribution and Earnings thereon
shall become vested as determined by the Compensation Committee of the
Board.
4.7. STATEMENT OF ACCOUNTS. The Committee shall give to each Participant a
statement showing the balances in the Participant's Account on a quarterly
basis.
ARTICLE V - PLAN BENEFITS
5.1. RETIREMENT ACCOUNT. The Participant's Retirement Account shall be
distributed to the Participant upon the termination of employment with the
Company. Benefits under this section shall be payable as soon as
administratively practical after termination of employment. The form of
benefit payment shall be that form selected by the Participant pursuant to
Section 5.6, below, except that if the Participant terminates employment
with the Company prior to
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<PAGE>
Retirement, the full amount of the Retirement Account shall be paid in a
lump sum payable as soon as administratively practical.
5.2. IN-SERVICE ACCOUNT. The Participant's In-Service Account shall be
distributed to the Participant upon the date chosen by the Participant in
the first Deferral Commitment which designated a portion of the
Compensation deferred be allocated to the In-Service Account. The form of
benefit payment shall be that form selected by the Participant pursuant to
Section 5.6, below. However, if the Participant terminates employment with
the Company prior to the date so chosen by the Participant, the In-Service
Account shall be added to the Retirement Account as of the date of
termination of service and shall be paid in accordance with the provisions
of Section 5.1, above.
5.3. EDUCATIONAL ACCOUNT. The Participant's Educational Account shall be
distributed to the Participant upon the date chosen by the Participant in
the first Deferral Commitment which designated a portion of the
Compensation deferred be allocated to the Educational Account. The balance
of that Account shall be distributed to the Participant in four (4) annual
installments; the annual payment amount shall be equal to the balance of
the Account immediately prior to the payment, multiplied by a fraction, the
numerator of which is one (1) and the denominator of which commences at
four (4) and is reduced by one (1) in each succeeding year. However, if the
Participant terminates employment with the Company prior to the date so
chosen by the Participant, the Educational Account shall be added to the
Retirement Account as of the date of termination of service and shall be
paid in accordance with the provisions of Section 5.1, above.
5.4. DEATH BENEFIT. Upon the death of a Participant prior to the commencement of
benefits under this Plan from any Account, Company shall pay to the
Participant's beneficiary an amount equal to the Account balance in that
Account in a manner chosen by the Participant in the most recent Deferral
Commitment. In the event of the death of the Participant after the
commencement of benefits under this Plan from any Account, the benefits
from that Account(s) shall be paid to the Participant's designated
Beneficiary from that Account at the same time and in the same manner as if
the Participant had survived.
5.5. HARDSHIP DISTRIBUTIONS. Upon a finding that a Participant has suffered a
Financial Hardship or Disability, the Committee may, in its sole
discretion, amend the existing Deferral Commitment, or make distributions
from any or all of the Participant's Accounts. The amount of such
distribution shall be limited to the amount reasonably necessary to meet
the Participant's needs resulting from the Financial Hardship or
Disability, and will not exceed the Participant's Account balances. If
payment is made due to Financial Hardship, the Participant's deferrals
under this Plan shall cease for the period of the Financial Hardship or
Disability and for twelve (12) months thereafter. Any resumption of the
Participant's deferrals under the Plan after such twelve (12) month period
shall be made only at the election of the Participant in accordance with
Article III herein.
5.6. FORM OF PAYMENT. Unless otherwise specified in paragraphs 5.2 or 5.3, the
benefits payable from any Account under this Plan shall be paid in the form
of benefit as provided below, and specified by the Participant in the Form
of Payment Designation. The most recently submitted Form of Payment
Designation shall be effective for the entire Account balance unless
amended
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<PAGE>
in writing by the Participant and delivered to the Committee. If, at the
time payment of benefits under this Plan become due and payable, the
Participant's most recent election as to the form of payment was made
within one (1) year of such payment, then the most recent election made by
the Participant more that one year prior to the time of payment shall be
used to determine the form of payment. The permitted forms of benefit
payments are:
a) A lump sum amount which is equal to the Account balance; and,
b) Annual installments for a period of up to ten (10) years where the
annual payment shall be equal to the balance of the Account
immediately prior to the payment, multiplied by a fraction, the
numerator of which is one (1) and the denominator of which commences
at the number of annual payment initially chosen and is reduced by one
(1) in each succeeding year. Earnings on the unpaid balance shall be
based on the most recent allocation among the available Valuation
Funds chosen by the Participant, made in accordance with Section 4.3,
above.
5.7. SMALL ACCOUNT. If the total of a Participant's unpaid Account balances as
of the Participant's Retirement is less than $50,000, the remaining unpaid,
Account(s) may be paid in a lump sum at the discretion of the Committee,
notwithstanding any election by the Participant to the contrary.
5.8. WITHHOLDING; PAYROLL TAXES. Company shall withhold from any payment made
pursuant to this Plan any taxes required to be withheld from such payments
under local, state or federal law. A Beneficiary, however, may elect not to
have withholding of federal income tax pursuant to Section 3405(a)(2) of
the Code, or any successor provision thereto.
5.9. PAYMENT TO GUARDIAN. If a Plan benefit is payable to a minor or a person
declared incompetent or to a person incapable of handling the disposition
of the property, the Committee may direct payment to the guardian, legal
representative or person having the care and custody of such minor,
incompetent or person. The Committee may require proof of incompetency,
minority, incapacity or guardianship as it may deem appropriate prior to
distribution. Such distribution shall completely discharge the Committee
and Company from all liability with respect to such benefit.
5.10.EFFECT OF PAYMENT. The full payment of the applicable benefit under this
Article V shall completely discharge all obligations on the part of the
Company to the Participant (and the Participant's Beneficiary) with respect
to the operation of this Plan, and the Participant's (and Participant's
Beneficiary's) rights under this Plan shall terminate.
ARTICLE VI - BENEFICIARY DESIGNATION
6.1. BENEFICIARY DESIGNATION. Each Participant shall have the right, at any
time, to designate one (1) or more persons or entity as Beneficiary (both
primary as well as secondary) to whom benefits under this Plan shall be
paid in the event of Participant's death prior to complete distribution of
the Participant's Account balance. Each Beneficiary designation shall be in
a written form prescribed by the Committee and shall be effective only when
filed with the
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<PAGE>
Committee during the Participant's lifetime. Designation by a married
Participant to the Participant's spouse of less than a fifty percent (50%)
interest in the benefit due shall not be effective unless the spouse
executes a written consent that acknowledges the effect of the designation,
or it is established that the consent cannot be obtained because the spouse
cannot be located.
6.2. CHANGING BENEFICIARY. Any Beneficiary designation may be changed by an
unmarried Participant without the consent of the previously named
Beneficiary by the filing of a new Beneficiary designation with the
Committee. A married Participant's Beneficiary designation may be changed
by a Participant with the consent of the Participant's spouse as provided
for in Section 6.1 above. The filing of a new designation shall cancel all
designations previously filed.
6.3. CHANGE IN MARITAL STATUS. If the Participant's marital status changes after
the Participant has designated a Beneficiary, the following shall apply:
a) If the Participant is married at death but was unmarried when the
designation was made, the designation shall be void unless the spouse
has consented to it in the manner prescribed in Section 6.1 above.
b) If the Participant is unmarried at death but was married when the
designation was made:
i) The designation shall be void if the spouse was named as
Beneficiary.
ii) The designation shall remain valid if the spouse was not name and
a non-spouse Beneficiary was named.
c) If the Participant was married when the designation was made and is
married to a different spouse at death, the designation shall be void
unless the new spouse has consented to it in the manner prescribed in
Section 6.1 above.
6.4. NO BENEFICIARY DESIGNATION. If any Participant fails to designate a
Beneficiary in the manner provided above, if the designation is void, or
if the Beneficiary designated by a deceased Participant dies before the
Participant or before complete distribution of the Participant's benefits,
the Participant's Beneficiary shall be the person in the first of the
following classes in which there is a survivor:
a) The Participant's surviving spouse;
b) The Participant's children in equal shares, except that if any of the
children predeceases the Participant but leaves surviving issue, then
such issue shall take by right of representation the share the
deceased child would have taken if living;
c) The Participant's estate.
6.5. EFFECT OF PAYMENT. Payment to the Beneficiary shall completely discharge
the Company's obligations under this Plan.
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ARTICLE VII - ADMINISTRATION
7.1. COMMITTEE; DUTIES. This Plan shall be administered by the Committee, which
shall consist of not less than three (3) persons appointed by the Board,
except after a Change in Control as provided in Section 7.5 below. The
Committee shall have the authority to make, amend, interpret and enforce
all appropriate rules and regulations for the administration of the Plan
and decide or resolve any and all questions, including interpretations of
the Plan, as may arise in such administration. A majority vote of the
Committee members shall control any decision. Members of the Committee may
be Participants under this Plan.
7.2. AGENTS. The Committee may, from time to time, employ agents and delegate to
them such administrative duties as it sees fit, and may from time to time
consult with counsel who may be counsel to the Company.
7.3. BINDING EFFECT OF DECISIONS. The decision or action of the Committee with
respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final, conclusive and
binding upon all persons having any interest in the Plan.
7.4. INDEMNITY OF COMMITTEE. The Company shall indemnify and hold harmless the
members of the Committee against any and all claims, loss, damage, expense
or liability arising from any action or failure to act with respect to this
Plan on account of such member's service on the Committee, except in the
case of gross negligence or willful misconduct.
7.5. ELECTION OF COMMITTEE AFTER CHANGE IN CONTROL. After a Change in Control,
vacancies on the Committee shall be filled by majority vote of the
remaining Committee members and Committee members may be removed only by
such a vote. If no Committee members remain, a new Committee shall be
elected by majority vote of the Participants in the Plan immediately
preceding such Change in Control. No amendment shall be made to Article VII
or other Plan provisions regarding Committee authority with respect to the
Plan without prior approval by the Committee.
ARTICLE VIII - CLAIMS PROCEDURE
8.1. CLAIM. Any person or entity claiming a benefit, requesting an
interpretation or ruling under the Plan (hereinafter referred to as
"Claimant"), or requesting information under the Plan shall present the
request in writing to the Committee, which shall respond in writing as soon
as practicable.
8.2. DENIAL OF CLAIM. If the claim or request is denied, the written notice of
denial shall state:
a) The reasons for denial, with specific reference to the Plan provisions
on which the denial is based;
b) A description of any additional material or information required and
an explanation of why it is necessary; and
-12-
<PAGE>
c) An explanation of the Plan's claim review procedure.
8.3. REVIEW OF CLAIM. Any Claimant whose claim or request is denied or who has
not received a response within sixty (60) days may request a review by
notice given in writing to the Committee. Such request must be made within
sixty (60) days after receipt by the Claimant of the written notice of
denial, or in the event Claimant has not received a response sixty (60)
days after receipt by the Committee of Claimant's claim or request. The
claim or request shall be reviewed by the Committee which may, but shall
not be required to, grant the Claimant a hearing. On review, the claimant
may have representation, examine pertinent documents, and submit issues and
comments in writing.
8.4. FINAL DECISION. The decision on review shall normally be made within sixty
(60) days after the Committee's receipt of claimant's claim or request. If
an extension of time is required for a hearing or other special
circumstances, the Claimant shall be notified and the time limit shall be
one hundred twenty (120) days. The decision shall be in writing and shall
state the reasons and the relevant Plan provisions. All decisions on review
shall be final and bind all parties concerned.
ARTICLE IX - AMENDMENT AND TERMINATION OF PLAN
9.1. AMENDMENT. The Board may at any time amend the Plan by written instrument,
notice of which is given to all Participants and to Beneficiary receiving
installment payments, except that no amendment shall reduce the amount
accrued in any Account as of the date such notice of the amendment is
given.
9.2. COMPANY'S RIGHT TO TERMINATE. The Board may at any time partially or
completely terminate the Plan if, in its judgement, the tax, accounting or
other effects of the continuance of the Plan, or potential payments
thereunder would not be in the best interests of Company.
a) PARTIAL TERMINATION. The Board may partially terminate the Plan by
instructing the Committee not to accept any additional Deferral
Commitments. If such a partial termination occurs, the Plan shall
continue to operate and be effective with regard to Deferral
Commitments entered into prior to the effective date of such partial
termination.
b) COMPLETE TERMINATION. The Board may completely terminate the Plan by
instructing the Committee not to accept any additional Deferral
Commitments, and by terminating all ongoing Deferral Commitments. In
the event of complete termination, the Plan shall cease to operate and
Company shall distribute each Account to the appropriate Participant.
Payment shall be made as a lump sum within ninety (90) days of plan
termination.
-13-
<PAGE>
ARTICLE X - MISCELLANEOUS
10.1.UNFUNDED PLAN. This plan is an unfunded plan maintained primarily to
provide deferred compensation benefits for a select group of "management or
highly-compensated employees" within the meaning of Sections 201, 301, and
401 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4
of Title I of ERISA. Accordingly, the Board may terminate the Plan and make
no further benefit payments or remove certain employees as Participants if
it is determined by the United States Department of Labor, a court of
competent jurisdiction, or an opinion of counsel that the Plan constitutes
an employee pension benefit plan within the meaning of Section 3 (2) of
ERISA (as currently in effect or hereafter amended) which is not so exempt.
10.2.COMPANY OBLIGATION. The obligation to make benefit payments to any
Participant under the Plan shall be an obligation solely of the appropriate
Company with respect to the deferred Compensation receivable from, and
contributions by, that Company and shall not be an obligation of another
company, including any other subsidiary, affiliate or subsidiary.
10.3.UNSECURED GENERAL CREDITOR. Notwithstanding any other provision of this
Plan, Participants and Participants' Beneficiary shall be unsecured general
creditors, with no secured or preferential rights to any assets of the
appropriate Company or any other party for payment of benefits under this
Plan. Any property held by Company for the purpose of generating the cash
flow for benefit payments shall remain its general, unpledged and
unrestricted assets. Company's obligation under the Plan shall be an
unfunded and unsecured promise to pay money in the future.
10.4.TRUST FUND. Company shall be responsible for the payment of all benefits
provided under the Plan. At its discretion, Company may establish one (1)
or more trusts, with such trustees as the Board may approve, for the
purpose of assisting in the payment of such benefits. Although such a trust
shall be irrevocable, its assets shall be held for payment of all Company's
general creditors in the event of insolvency. To the extent any benefits
provided under the Plan are paid from any such trust, Company shall have no
further obligation to pay them. If not paid from the trust, such benefits
shall remain the obligation of Company.
10.5.NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are, expressly declared to be unassignable and
non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any
debts, judgements, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
10.6.NOT A CONTRACT OF EMPLOYMENT. This Plan shall not constitute a contract of
employment between Company and the Participant. Nothing in this Plan shall
give a Participant the right to be retained in the service of Company or to
interfere with the right of the Company to discipline or discharge a
Participant at any time.
-14-
<PAGE>
10.7.PROTECTIVE PROVISIONS. A Participant will cooperate with Company by
furnishing any and all information requested by Company, in order to
facilitate the payment of benefits hereunder, and by taking such physical
examinations as Company may deem necessary and taking such other action as
may be requested by Company.
10.8.GOVERNING LAW. The provisions of this Plan shall be construed and
interpreted according to the laws of the State of Iowa, except as preempted
by federal law.
10.9.VALIDITY. If any provision of this Plan shall be held illegal or invalid
for any reason, said illegality or invalidity shall not affect the
remaining parts hereof, but this Plan shall be construed and enforced as if
such illegal and invalid provision had never been inserted herein.
10.10.NOTICE. Any notice required or permitted under the Plan shall be
sufficient if in writing and hand delivered or sent by registered or
certified mail. Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification. Mailed notice to
the Committee shall be directed to the company's address. Mailed notice to
a Participant or Beneficiary shall be directed to the individual's last
known address in company's records.
10.11.SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of Company and its successors and assigns. The term successors as
used herein shall include any corporate or other business entity which
shall, whether by merger, consolidation, purchase or otherwise acquire all
or substantially all of the business and assets of Company, and successors
of any such corporation or other business entity.
-15-
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
EXECUTIVE VOLUNTARY DEFERRED COMPENSATION PLAN
EXHIBIT A
Following are the valuation funds for the Executive Voluntary Deferred
Compensation Plan as of July 1, 1999:
o Russell 1000 Value Index (Large Cap Value)
o S&P 500 Index [dividends reinvested] (Large Cap Core)
o Russell 1000 Growth Index (Large Cap Growth)
o Russell 2000 Value Index (Small Cap Value)
o Russell 2000 Growth Index (Small Cap Growth)
o Morgan Stanley EAFE (International)
o Lehman Brothers Aggregate (Core Bond)
o 1 Year Treasury Bill Yield to Maturity [4.3% for 1999, future years set to
yield to maturity on 10/15] (Stable Value)
The Company reserves the right to change the valuation funds at any time.
-16-
EXHIBIT 11
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CALCULATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actual weighted average shares
outstanding for the period ........... 60,591,723 59,673,981 59,944,986 60,330,157
Dilutive stock options and warrants
using average market prices .......... 888,309 539,438 857,729 616,726
Additional dilutive stock options assuming
conversion of convertible preferred
securities of subsidiary trusts ...... 9,849,600 13,326,683 11,594,510 13,326,683
------------ ----------- ------------ -----------
Diluted shares outstanding ............... 71,329,632 73,540,102 72,397,225 74,273,566
============ =========== ============ ===========
Income before extraordinary item ......... $ 49,696 $ 47,623 $ 150,548 $ 107,384
Extraordinary item, net of tax ........... (3,170) - (40,056) -
------------ ----------- ------------ -----------
Net income available to
common stockholders .................. $ 46,526 $ 47,623 $ 110,492 $ 107,384
============ =========== ============ ===========
Income per share before
extraordinary item ................... $ .82 $ .80 $ 2.51 $ 1.78
Extraordinary item ....................... (.05) - (.67) -
------------ ----------- ------------ -----------
Net income per share ..................... $ .77 $ .80 $ 1.84 $ 1.78
============ =========== ============ ===========
Diluted income per share before
extraordinary item(1) ................ $ .76 $ .72 $ 2.29 $ 1.67
============ =========== ============ ===========
Diluted income per share based on SEC
interpretive release No. 34-9083(1) .. $ .72 $ .72 $ 1.73 $ 1.67
============ =========== ============ ===========
</TABLE>
(1)-Net income available to common stockholders for the three and nine months
ended September 30, 1999 was increased by dividends on convertible preferred
securities of subsidiary trusts, net of tax effect, of $4,464 and $14,919,
respectively, compared with $5,471 and $16,412 respectively, for the same
periods in 1998.
EXHIBIT 15
AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS
MidAmerican Energy Holdings Company
Des Moines, Iowa
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of MidAmerican Energy Holdings Company for the three and nine month
periods ended September 30, 1999 and 1998 as indicated in our report dated
October 25, 1999; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, is
incorporated by reference in Registration Statements No. 33-26256, No. 33-38431,
No. 33-41152, No. 33-44934, No. 33-52147, No. 33-64897, No. 333-30395 and No.
333-74691 on Form S-8 and Registration Statements No. 333-30537, No. 333-45615
and No. 333-62697 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of a Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Des Moines, Iowa
November 10, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Holdings Company as of
September 30, 1999, and the related consolidated statements of operations and
cash flows for the nine months ended September 30, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001081316
<NAME> MIDAMERICAN ENERGY HOLDINGS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 551,812
<SECURITIES> 100,178
<RECEIVABLES> 461,927
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,848,787
<DEPRECIATION> 586,846
<TOTAL-ASSETS> 11,009,554
<CURRENT-LIABILITIES> 0
<BONDS> 6,297,636
551,598
147,192
<COMMON> 0
<OTHER-SE> 933,377
<TOTAL-LIABILITY-AND-EQUITY> 11,009,554
<SALES> 0
<TOTAL-REVENUES> 3,063,377
<CGS> 0
<TOTAL-COSTS> 2,127,448
<OTHER-EXPENSES> 337,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321,787
<INCOME-PRETAX> 276,860
<INCOME-TAX> 90,783
<INCOME-CONTINUING> 150,548
<DISCONTINUED> 0
<EXTRAORDINARY> (40,056)
<CHANGES> 0
<NET-INCOME> 110,492
<EPS-BASIC> 1.84
<EPS-DILUTED> 1.73
</TABLE>
