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
March 31, 2000
Commission File No. 0-25551
MIDAMERICAN ENERGY HOLDINGS COMPANY
(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
---------------
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 ____
-------
As of May 15, 2000 all 9,281,087 shares of common stock of MidAmerican Energy
Holdings Company were held by a limited group of investors.
<PAGE>
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........................... 4
Consolidated Statements of Operations................. 5
Consolidated Statements of Cash Flows................. 6
Notes to Consolidated Financial Statements............ 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 11
Part II: Other Information
ITEM 1. Legal Proceedings..................................... 21
ITEM 2. Changes in Securities................................. 21
ITEM 3. Defaults on Senior Securities......................... 21
ITEM 4. Submission of Matters to a Vote of Security Holders... 21
ITEM 5. Other Information..................................... 21
ITEM 6. Exhibits and Reports on Form 8-K...................... 22
Signatures ...................................................... 23
Exhibit Index ...................................................... 24
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<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
MidAmerican Energy Holdings Company
Des Moines, Iowa
We have reviewed the accompanying consolidated balance sheet of MidAmerican
Energy Holdings Company (successor to MidAmerican Energy Holdings Company
(predecessor), referred to as "MEHC (Predecessor)") and subsidiaries (the
"Company") as of March 31, 2000, and the related consolidated statements of
operations and cash flows for the period March 14, 2000 to March 31, 2000 for
the Company and for the period January 1, 2000 to March 13, 2000 and for the
three month period ended March 31, 1999 for MEHC (Predecessor). 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of MEHC
(Predecessor) and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated January 25,
2000 (March 14, 2000 as to Note 3), 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, 1999 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
April 21, 2000
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<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of
---------------------
MEHC
(Predecessor)
-------------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Assets
- ------
Current Assets:
Cash and cash equivalents ..................... $ 40,439 $ 316,327
Restricted cash and short term investments..... 33,322 36,294
Accounts receivable............................ 524,326 600,564
Other current assets........................... 163,827 185,128
---------- ----------
Total Current Assets........................ 761,914 1,138,313
Property, plant, contracts and equipment, net .... 5,629,120 5,463,329
Excess of cost over fair value of net assets
acquired, net................................. 3,453,804 2,712,677
Regulatory assets................................. 268,572 278,757
Long-term restricted cash......................... 104,729 133,265
Long-term restricted investments.................. 122,409 122,175
Nuclear decommissioning trust fund and other
marketable securities......................... 231,008 226,298
Equity investments................................ 211,343 208,023
Deferred charges, other investments and other
assets........................................ 768,567 483,515
---------- ----------
Total Assets................................... $11,551,466 $10,766,352
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable............................... $ 416,758 $ 449,203
Other accrued liabilities...................... 436,871 458,667
Current portion of long-term debt.............. 638,430 614,725
---------- ----------
Total Current Liabilities................... 1,492,059 1,522,595
Other long-term accrued liabilities............... 994,802 1,054,440
Parent company debt............................... 1,831,427 1,856,318
Subsidiary and project debt....................... 3,423,997 3,642,703
Deferred income taxes............................. 1,102,865 902,868
---------- ----------
Total Liabilities.............................. 8,845,150 8,978,924
---------- ----------
Deferred income................................... 69,983 65,509
Minority interest................................. 28,207 29,127
Company-obligated mandatorily redeemable convertible
preferred securities of subsidiary trusts...... 350,245 450,000
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts................ 454,772 -
Subsidiary-obligated mandatorily redeemable
preferred securities of subsidiary trust....... 100,000 101,598
Preferred securities of subsidiary................ 146,600 146,606
Shareholders' Equity:
Zero coupon convertible preferred stock -
authorized 50,000 shares, no par value,
34,563 shares outstanding...................... - -
Common stock - authorized 60,000 and 180,000 shares,
no par value; 9,281 and 82,980 shares issued,
9,281 and 59,944 shares outstanding, at March
31, 2000 and December 31, 1999, respectively... - -
Additional paid in capital........................ 1,553,073 1,249,079
Retained earnings................................. 3,436 507,726
Accumulated other comprehensive income............ - (12,029)
Treasury stock - 23,036 common shares at December
31, 1999, at cost.............................. - (750,188)
--------- ---------
Total Shareholders' Equity..................... 1,556,509 994,588
--------- ---------
Total Liabilities and Shareholders' Equity........ $11,551,466 $10,766,352
=========== ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<CAPTION>
MEHC (Predecessor)
---------------------
March 14, 2000 January 1, 2000 Three Months
through through Ended
March 31, 2000 March 13, 2000 March 31, 1999
----------------- ----------------- ----------------
Revenues:
<S> <C> <C> <C>
Operating revenue...................... $213,822 $1,043,072 $797,885
Interest and other income.............. 3,494 19,484 39,960
Gain on non-recurring items............ - - 20,173
---------- ---------- ---------
Total revenues......................... 217,316 1,062,556 858,018
---------- ---------- ---------
Costs and expenses:
Cost of sales.......................... 110,547 561,386 447,198
Operating expense...................... 54,050 219,303 153,870
Depreciation and amortization.......... 22,310 97,278 79,351
Interest expense....................... 23,298 101,330 116,881
Less interest capitalized.............. (3,646) (15,516) (16,041)
Loss on non-recurring items............ - 7,605 -
--------- ---------- ---------
Total costs and expenses.................. 206,559 971,386 781,259
--------- ---------- ---------
Income before provision for income taxes.. 10,757 91,170 76,759
Provision for income taxes................ 2,301 31,008 26,065
--------- ---------- ---------
Income before minority interest........... 8,456 60,162 50,694
Minority interest......................... 5,020 8,850 10,903
--------- ---------- ---------
Income before extraordinary item.......... 3,436 51,312 39,791
Extraordinary item, net of tax............ - - (31,520)
--------- ---------- ---------
Net income available to common
shareholders........................... $ 3,436 $ 51,312 $ 8,271
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
MEHC (Predecessor)
------------------
March 14, 2000 January 1, 2000 Three
through through Months Ended
March 31, 2000 March 13, 2000 March 31, 1999
-------------- --------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income.................................................... $ 3,436 $ 51,312 $ 8,271
Adjustments to reconcile to net cash flows from
operating activities:
Gain on non-recurring items................................ - - (20,173)
Extraordinary item, net of tax............................. - - 31,520
Depreciation and amortization.............................. 17,230 83,194 67,953
Amortization of excess of cost over fair value of
net assets acquired.................................... 5,080 14,084 11,398
Amortization of deferred financing costs and other costs... 860 4,334 6,032
Provision for deferred income taxes........................ 28,918 (9,342) (78,545)
Undistributed earnings on equity investments............... 228 (3,459) 831
Changes in other items:
Accounts receivable...................................... 52,913 46,436 192,756
Accounts payable, accrued liabilities, deferred income
and other.............................................. (130,435) 80,524 577
--------- -------- --------
Net cash flows from operating activities...................... (21,770) 267,083 220,620
--------- -------- --------
Cash flows from investing activities:
Purchase of MEHC (Predecessor) and MidAmerican, net of
cash acquired............................................ (2,048,266) - (2,501,425)
Proceeds from sale of qualified facilities, net of cash disposed - - 365,074
Purchase of marketable securities............................. (1,580) (8,251) (3,087)
Proceeds from sale of marketable securities................... 1,903 10,665 2,553
Capital expenditures relating to operating projects........... (8,004) (21,685) 1,936
Construction and other development costs...................... (14,198) (56,720) (12,939)
Philippine-construction in progress........................... (3,911) (22,736) (16,674)
Decrease (increase) in restricted cash and investments........ (11,535) 42,809 43,988
Decrease (increase) in other assets........................... (380) (88,096) 1,131
---------- --------- ----------
Net cash flows from investing activities...................... (2,085,971) (144,014) (2,119,443)
----------- --------- ----------
Cash flows from financing activities:
Proceeds from issuances of common and preferred stock ....... 1,428,024 - -
Proceeds from issuance of trust preferred securities.......... 454,772 - -
Proceeds from subsidiary and project debt..................... 28,152 6,043 1,118,617
Proceeds from parent company debt............................. 10,000 - -
Repayment of subsidiary and project debt...................... (75,901) (133,060) (77,045)
Repayment of parent company debt.............................. - - (605,822)
Purchase of treasury stock.................................... - - (22,194)
Other......................................................... (478) (149) 10,621
---------- --------- -----------
Net cash flows from financing activities...................... 1,844,569 (127,166) 424,177
---------- --------- -----------
Effect of exchange rate changes on cash....................... - (8,619) (13,080)
---------- --------- -----------
Net decrease in cash and cash equivalents..................... (263,172) (12,716) (1,487,726)
Cash and cash equivalents at beginning of period.............. 303,611 316,327 1,606,148
---------- --------- -----------
Cash and cash equivalents at end of period.................... $ 40,439 $ 303,611 $ 118,422
========== ========= ===========
Interest paid, net of amount capitalized...................... $ 67,441 $ 35,057 $ 108,646
========== ========= ===========
Income taxes paid............................................. $ 47,768 $ - $ 7,661
========== ========= ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
In the opinion of management of MidAmerican Energy Holdings Company (successor
to MidAmerican Energy Holdings Company (Predecessor), referred to as "MEHC
(Predecessor)") and subsidiaries (collectively referred to as 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 March 31, 2000 and the results of operations
and cash flows for the period March 14, 2000 to March 31, 2000 for the Company
and for the period January 1, 2000 to March 13, 2000 and for the three months
ended March 31, 1999 for MEHC (Predecessor). The results of operations for the
period March 14, 2000 to March 31, 2000 and for the Company and for the period
January 1, 2000 to March 13, 2000 and for the three months ended March 31, 199
for MEHC (Predecessor) 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, 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 1999 financial statements and supporting footnote
disclosures have been reclassified to conform to the 2000 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. Teton Transaction
On October 24, 1999, the Company and entities representing an investor group
comprised of Berkshire Hathaway Inc. ("Berkshire Hathaway"), Walter Scott, Jr.,
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 total purchase price of
approximately $2.2 billion, including transaction costs (the "Teton
Transaction"). The Teton Transaction closed on March 14, 2000 and Berkshire
Hathaway invested approximately $1.24 billion in common stock and zero coupon
convertible preferred stock and approximately $455 million in nontransferable
11% trust preferred securities due March 14, 2010. The 11% trust preferred
securities have a liquidation preference of $25 each and are subject to manda-
tory redemption in ten equal semi-annual installments, commencing December 15,
2005. Mr. Scott, Mr. Sokol and Gregory E. Abel, Chief Operating Officer of the
Company, contributed cash and current securities of the Company having a value
of approximately $310 million. The remaining purchase price was funded with the
Company's cash. Berkshire Hathaway owns 9.7% of the voting stock, Mr. Scott
owns approximately 86% of the voting stock, Mr. Sokol owns approximately 3% of
the voting stock and Mr. Abel owns approximately 1% of the voting stock.
The merger has been accounted for as a purchase business combination. The
purchase price has been allocated to assets acquired and liabilities assumed
based on preliminary valuations. The final purchase price allocation has not
been completed. The Company recorded the estimated excess of cost over fair
value of net assets acquired of approximately $885 million that is being amor-
tized using the straight-line method over a 40-year period.
Unaudited pro forma combined revenue, income before extraordinary items and net
income of the Company and MEHC (Predecessor) for the three months ended March
31, 2000 and 1999, as if the Teton Transaction and the MidAmerican Merger had
occurred at the beginning of each year after giving effect to pro forma adjust-
ments related
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<PAGE>
to the acquisitions, including the sales of the qualified facilities, the
redemption of limited recourse notes, the redemption of the senior discount
notes, and the issuance of the 11% trust preferred securities, were $1,279.9
million, $46.3 million and $46.3 million, respectively, compared to $1,260.3
million, $41.3 million and $9.8 million, respectively.
3. Comprehensive Income:
Comprehensive income for the period March 14, 2000 to March 31, 2000 does not
differ significantly from net income for the same period. Comprehensive income
(loss) of MEHC (Predecessor) for the period January 1, 2000 to March 13, 2000,
and three months ended March 31, 1999 was $40.2 million and $(4.8) million,
respectively. Comprehensive income differs from net income due primarily to
foreign currency translation adjustments.
4. Accounting Pronouncement:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial 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 is effective for the Company beginning January 1, 2001. The
Company is in the process of evaluating the impact of this accounting
pronouncement.
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<PAGE>
5. Segment Information:
The Company has identified five reportable business segments principally based
on geographic area: Domestic electricity generation, foreign electricity
generation (primarily the Philippines), domestic utility operations, foreign
utility operations (primarily the United Kingdom) and real estate operations.
Information related to the Company's reportable operating segments is shown
below (in thousands).
MEHC (Predecessor)
------------------------
March 14, 2000 January 1, 2000 Three
through through Months Ended
March 31, 2000 March 13, 2000 March 31, 1999
-------------- -------------- --------------
Revenue:
Domestic generation (2) ......... $ (12) $ 4,520 $ 82,510
Foreign generation................ 10,060 42,726 52,388
Domestic utility.................. 86,696 447,583 94,562
Foreign utility................... 99,884 499,017 562,189
Real estate....................... 21,019 66,880 25,162
-------- ---------- ---------
Segment revenue................... 217,647 1,060,726 816,811
Corporate......................... (331) 1,830 41,207
-------- ---------- --------
$217,316 $1,062,556 $858,018
======== ========== ========
Operating income: (1)
Domestic generation (2) ......... $ (226) $ 3,670 $ 44,998
Foreign generation................ 6,365 25,689 31,187
Domestic utility.................. 13,493 87,894 9,992
Foreign utility................... 14,212 79,862 60,970
Real estate....................... 685 (4,144) 2,095
-------- --------- --------
Segment operating income.......... 34,529 192,971 149,242
Corporate......................... (4,120) (15,987) 28,357
-------- --------- --------
$ 30,409 $ 176,984 $177,599
======== ========= ========
(1) Operating income excludes interest expense, net of capitalized interest.
(2) Domestic generation revenue and operating income are negative for the period
March 14, 2000 through March 31, 2000 due to the equity investment loss
recorded at CE Generation for this period.
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<PAGE>
March 31, December 31,
2000 1999
------------- ------------
Identifiable assets:
Domestic generation........................ $ 871,933 $ 858,812
Foreign generation......................... 1,257,556 1,263,026
Domestic utility........................... 5,076,285 5,052,466
Foreign utility............................ 3,207,210 2,972,705
Real estate................................ 167,265 162,714
----------- -----------
Segment identifiable assets................ 10,580,249 10,309,723
Corporate.................................. 971,217 456,629
----------- -----------
$11,551,466 $10,766,352
=========== ===========
Long-lived assets:
Domestic generation........................ $ 597,307 $ 595,607
Foreign generation......................... 952,409 952,415
Domestic utility........................... 4,063,571 3,995,763
Foreign utility............................ 2,360,950 2,438,877
Real estate................................ 127,640 128,024
----------- -----------
Segment long-lived assets.................. 8,101,877 8,110,686
Corporate.................................. 981,047 65,320
----------- -----------
$ 9,082,924 $ 8,176,006
=========== ===========
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, unallocated
goodwill and related goodwill amortization, intersegment eliminations, as well
as the gain on the sale of the qualified facilities in 1999.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial condition and results of
operations during the periods included in the accompanying statements of
operations.
Acquisitions:
On October 24, 1999, the Company and entities representing an investor group
comprised of Berkshire Hathaway Inc. ("Berkshire Hathaway"), Walter Scott, Jr.,
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 total purchase price of
approximately $2.2 billion, including transaction costs (the "Teton
Transaction"). The Teton Transaction closed on March 14, 2000 and Berkshire
Hathaway invested approximately $1.24 billion in common stock and zero coupon
convertible preferred stock and approximately $455 million in nontransferable
11% trust preferred securities due March 14, 2010. The 11% trust preferred
securities have a liquidation preference of $25 each and are subject to manda-
tory redemption in ten equal semi-annual installments, commencing December 15,
2005. Mr. Scott, Mr. Sokol and Gregory E. Abel, Chief Operating Officer of the
Company, contributed cash and current securities of the Company having a value
of approximately $310 million. The remaining purchase price was funded with the
Company's cash. Berkshire Hathaway owns 9.7% of the voting stock, Mr. Scott owns
approximately 86% of the voting stock, Mr. Sokol owns approximately 3% of the
voting stock and Mr. Abel owns approximately 1% of the voting stock.
Business of MEHC:
MidAmerican Energy Holdings Company (the "Company" or "MEHC"), is a United
States-based privately owned global energy company with publicly traded fixed
income securities that generates, distributes and supplies energy to utilities,
government entities, retail customers and other customers located throughout the
world. Through its subsidiaries the Company is organized and managed on three
separate platforms:
MidAmerican:
MidAmerican Energy Company ("MEC") is the largest energy company headquartered
in Iowa and is a regulated public utility principally engaged in the business of
generating, transmitting, distributing and selling electric energy and in
distributing, selling and transporting natural gas. MEC distributes electricity
at the retail level in Iowa, Illinois and South Dakota. It also distributes
natural gas at the retail level in Iowa, Illinois, South Dakota and Nebraska. As
of March 31, 2000, MEC had 664,000 retail electric customers and 640,000 retail
natural gas customers.
In addition to retail sales, MEC delivers electric energy to other utilities,
marketers and municipalities who distribute it to end-use customers. These sales
are referred to as sales for resale or off-system sales. It also transports
natural gas through its distribution system for a number of end-use customers
who have independently secured their supply of natural gas.
MEC has a residential, agricultural, commercial and diversified industrial
customer group, in which no single industry or customer accounted for more than
5% of its total 1999 electric operating revenues or 3% of its total 1999 gas
operating margin. Among the primary industries served by MEC are those that are
concerned with the manufacturing, processing and fabrication of primary metals,
real estate, food products, farm and other non-electrical machinery, and cement
and gypsum products.
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
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<PAGE>
operations are seasonal in nature with a disproportionate percentage of revenues
and earnings historically being earned in the Company's first and third
quarters.
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.
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 that tends to operate at
lower profitability levels than the distribution business. In the market between
100kW and 1MW of electrical demand, Northern is now one of the largest
electricity suppliers in the U.K. market. As of March 31, 2000, Northern
supplied electricity to 1.3 million customers.
Northern also competes to supply gas inside and outside its authorized area. In
the residential market, Northern currently supplies gas to approximately 550,000
customers.
CalEnergy:
The Company indirectly owns the Upper Mahiao, Malitbog and Mahanagdong Projects
(collectively, the "Philippine Projects"), which are geothermal power plants
located on the island of Leyte in the Philippines. For purposes of consistent
presentation, capacity amounts for Upper Mahiao, Malitbog and Mahanagdong are
119, 216 and 165 net MW, respectively.
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. For purposes of consistent
presentation, plant capacity factors for Vulcan, Hoch (Del Ranch), Elmore and
Leathers (collectively the "Partnership Projects") 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 Projects")
are based on capacity amounts of 10, 20, 49.8 and 39.6 net MW, respectively (the
Partnership Projects and the Salton Sea Projects are collectively referred to as
the "Imperial Valley Projects"). Plant capacity factors for Saranac, Power
Resources and Yuma are based on capacity amounts of 240, 200, and 50 net MW,
respectively. Each plant possesses an operating margin that 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.
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.
On February 26, 1999, the Company closed the sale of all of its ownership
interests in the Navy I, Navy II and BLM, (collectively "Coso"), to Caithness
Energy, LLC for $205 million in cash.
-12-
<PAGE>
Results of Operations:
The following is a discussion of the historical results of the Company for the
period March 14, 2000 through March 31, 2000, and of its predecessor (referred
to as "MEHC (Predecessor)") for the period January 1, 2000, through March 13,
2000, and for the three months ended March 31, 1999. Results for the Company
include the results of MEHC (Predecessor) beginning March 14, 2000, in
conjunction with the Teton Transaction. The impact of the transaction is
reflected in the Company's results of operations, predominately minority
interest costs on issuance of Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts and the effects of purchase accounting,
including goodwill amortization and fair value adjustments to the carrying value
of assets and liabilities. In order to provide comparability between periods,
the Company has prepared pro forma results as if the Teton Transaction and the
MidAmerican Merger had occurred at the beginning of each year after giving
effect to pro forma adjustments related to the acquisition, including the sales
of the qualified facilities, the redemption of limited recourse notes, the
redemption of the senior discount notes and the issuance of the 11% trust pre-
ferred securites. The discussion therefore will highlight any significant
variances on a pro forma basis from 1999 to 2000.
Pro forma operating revenue for the three months ended March 31, 2000 was
$1,256.9 million compared with $1,186.2 million for the same period in 1999, an
increase of 6.0%. Northern Electric revenue increased approximately $36.4
million due to higher volumes of electricity supplied and distribution revenue
from access charges. The remaining increase primarily relates to the increase of
revenue at HomeServices, a majority owned subsidiary of the Company, due to
acquisitions in 1999.
The following data represents the supply and distribution operations in the
U.K.:
Three Months
Ended March 31,
-------------------
2000 1999
---- ----
Electricity Supplied (GWh).............. 5,224 4,564
Electricity Distributed (GWh)........... 4,420 4,224
Gas Supplied (Therms in millions) ...... 167.2 183.7
The increase in electricity supplied for the three months ended March 31, 2000
is due primarily to the increase in volumes for customers outside of the
franchise area. The increase in electricity distributed for the three months
ended March 31, 2000 is due to changes in demand in the franchise area. The
reduction in gas supplied in 2000 from 1999 reflects lower volume in the U.K.
domestic market.
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
Ended March 31,
-----------------
2000 1999
---- ----
Electric Retail Sales (GWh).............. 3,944 3,838
Electric Sales for Resale (GWh).......... 2,082 1,796
Gas Throughput (Therms in millions)...... 339 382
-13-
<PAGE>
MEC retail electric sales increased in the first quarter 2000 from the first
quarter 1999 due to increased customers and non-weather related sales increases.
Electric sales for resale increased in the first quarter 2000 from the first
quarter 1999 due to improved availability in 2000 of MEC's baseload coal plants
and favorable market conditions. Gas throughout decreased due to milder
temperatures in the first quarter of 2000 compared to the first quarter of 1999,
resulting in less heating load.
Pro forma interest and other income for the three months ended March 31, 2000
was $23.0 million compared with $54.0 million for the same period in 1999. The
decrease was due primarily to the reduced interest income resulting from lower
corporate cash balances.
As a result of the sales of Coso and an interest in CE Generation, the Company
recorded a gain of $20.2 million in the first quarter of 1999.
Pro forma cost of sales for the three months ended March 31, 2000 was $671.9
million compared with $646.1 million for the same period in 1999, an increase of
4.0%. The increase is due to increased revenue at Northern and HomeServices.
Pro forma operating expenses for the three months ended March 31, 2000 was
$273.4 million compared with $281.0 million for the same period in 1999. The
decrease was due to lower costs at both Northern and MEC.
Pro forma depreciation and amortization for the three months ended March 31,
2000 increased marginally to $121.6 million from $119.1 million for the same
period in 1999.
Pro forma interest expense, less amounts capitalized, for the three months ended
March 31, 2000 was $106.4 million compared with $115.2 million for the same
period in 1999, a decrease of 7.6%. This decrease was due to the repayment of
the 9.5% Senior Notes in 1999 and other reduced indebtedness.
The loss on non-recurring items of $7.6 million in the period from January 1,
2000 through March 13, 2000 represents the costs related to the Teton
Transaction.
Pro forma tax expense for the three months ended March 31, 2000 was $28.3
million compared with $30.8 million for the same period in 1999. The decrease is
due primarily to lower taxes on foreign earnings.
Pro forma minority interest for the three months ended March 31, 2000 was $24.5
million compared with $26.8 million for the same period in 1999. Minority
interest includes the dividends on the $455 million of Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts. This decrease
was due to the conversion of TIDES I to common stock in May 1999.
On January 15, 1999, the Company redeemed its remaining outstanding Senior
Discount Notes 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 principal that were paid on March 3,
1999 at a redemption price of 110.025% plus accrued interest. Due to the early
retirement of the Senior Discount Notes and Limited Recourse Notes, the Company
recorded an extraordinary item of approximately $31.5 million, net of tax.
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.
-14-
<PAGE>
The Company's cash and cash equivalents were $40.4 million at March 31, 2000 as
compared to $316.3 million at December 31, 1999. The majority of this decrease
was due to the cash used in the Teton Transaction. In addition, the Company
recorded separately restricted cash and investments of $260.5 million and $291.7
million at March 31, 2000 and December 31, 1999, respectively. The restricted
cash balance as of March 31, 2000 is comprised primarily of amounts deposited in
restricted accounts from which the Company will fund the various projects under
construction. Additionally, the Philippine Projects' restricted cash is reserved
for the service of debt obligations.
Acquisitions
On October 24, 1999, the Company and entities representing an investor group
comprised of Berkshire Hathaway Inc., Walter Scott, Jr., 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 total purchase price of approximately
$2.2 billion, including transaction costs. The Teton Transaction closed on March
14, 2000 and Berkshire Hathaway invested approximately $1.24 billion in common
stock and zero coupon convertible preferred stock and approximately $455
million in nontransferable 11% trust preferred securities due March 14, 2010.
The 11% trust preferred securities have a liquidation preference of $25 each and
are subject to mandatory redemption in ten equal semi-annual installments,
commencing December 15, 2005. Mr. Scott, Mr. Sokol and Gregory E. Abel, Chief
Operating Officer of the Company, contributed cash and current securities of the
Company having a value of approximately $310 million. The remaining purchase
price was funded with the Company's cash. Berkshire Hathaway owns 9.7% of the
voting stock, Mr. Scott owns approximately 86% of the voting stock, Mr. Sokol
owns approximately 3% of the voting stock and Mr. Abel owns approximately 1% of
the voting stock.
Construction
Minerals Extraction
- -------------------
CalEnergy Minerals LLC, an indirect wholly owned subsidiary of the Company, is
constructing the Zinc Recovery Project that will recover zinc from the
geothermal brine. Facilities will be installed near the Imperial Valley Projects
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 the third quarter of 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. 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 Recovery Project are expected to be approximately $200.9 million.
The Company has incurred $134.1 million of such costs through March 31, 2000.
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
Cooperative Muratori
-15-
<PAGE>
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.
On November 20, 1999, the Casecnan Construction Contract was amended to extend
the Guaranteed Substantial Completion Date for the Casecnan Project to March 31,
2001. Accordingly, the Casecnan Project is now expected to become operational by
the second quarter of 2001.
Under the Project Agreement, if the National Irrigation Administration ("NIA")
has completed certain work on its irrigation system, CE Casecnan is liable to
pay NIA $5,000 per day for each day of delay in completion of the Casecnan
Project beyond July 27, 2000, increasing to $13,500 per day for each day of
delay in completion beyond November 27, 2000.
CE Casecnan's ability to make payments on any of its existing and future
obligations is dependent on NIA's and the Republic of the Philippines'
performance of their obligations under the Project Agreement and the Performance
Undertaking, respectively. No shareholders, partners or affiliates of CE
Casecnan, including the Company, and no directors, officers or employees of the
Company will guarantee or be in any way liable for payment of CE Casecnan's
obligations. As a result, payment of CE Casecnan's obligations depends upon the
availability of sufficient revenues from CE Casecnan's business after the
payment of operating expenses.
NIA's payments of obligations under the Project Agreement are substantially
denominated in United States dollars and are expected to be CE Casecnan's sole
source of operating revenues. Because of CE Casecnan's dependence on NIA, any
material failure of NIA to fulfill its obligations under the Project Agreement
and any material failure of the Republic of the Philippines to fulfill its
obligations under the Performance Undertaking would significantly impair the
ability of CE Casecnan to meet its existing and future obligations.
Cordova
- -------
Cordova Energy Company LLC ("Cordova Energy"), 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
Energy has entered into an engineering, procurement and construction ("EPC")
contract with Stone & Webster Engineering Corporation ("SWEC") to build the pro-
ject. 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 Energy has the option to 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 in 2019 were issued. An additional $31.3 million of 8.79% Series A-2 Senior
Secured Bonds were issued on December 15, 1999 and $29.3 million of 9.07% Series
A-3 Senior Secured Bonds were issued on March 15, 2000. Additional Series A
Senior Secured Bonds will be issued as required to fund construction. Cordova
Funding has loaned the proceeds to Cordova Energy. The Company has incurred
$106.6 million of construction costs through March 31, 2000. Total equity
funding is expected to be approximately $63.9 million.
The EPC contractor's parent, Stone & Webster, Incorporated, has recently
announced that it is having current liquidity problems and intends to sell
substantially all of its assets to Jacobs Engineering Group, Inc. in exchange
for an immediate $50 million secured revolving credit facility, assumption of
substantially all of Stone & Webster's balance sheet liabilities, and $150
million in cash and stock, and subsequently intends to seek bankruptcy court
approval of the asset sale and credit agreement. The Company does not believe
this will have any material adverse effect on the final completion of the
Cordova Project or the Company.
-16-
<PAGE>
Evolution of the Domestic Utility Industry
The utility industry continues to evolve into an increasingly competitive
environment. In many regions 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 becoming 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. Retail electric competition
is presently not permitted in Iowa, MEC's primary market. Legislation to
initiate competition was introduced in the Iowa legislature in the 2000 session,
but it did not pass. MEC cannot predict the timing or ultimate outcome of any
potential electric restructuring legislation in Iowa. Deregulation of the gas
supply function related to small volume customers is also being considered by
the Iowa Utilities Board. MEC has actively participated 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 financially 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.
Domestic 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.
Accounting Effects of Industry Restructuring
A possible consequence of competition in the utility industry is that Statement
of Financial Accounting Standards ("SFAS") No. 71 may no longer apply. SFAS 71
sets forth accounting principles for operations that are regulated and meet
certain criteria. For operations that meet the criteria, SFAS 71 allows, among
other things, the deferral of costs that would otherwise be expensed when
incurred. A majority of 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 if regulatory assets are not recovered in transition
provisions of any resulting legislation. As of March 31, 2000, the Company had
$268.6 million of net regulatory assets on its consolidated balance sheet.
-17-
<PAGE>
Domestic Rate Matters: Electric
Under a 1997 pricing plan settlement agreement resulting from an Iowa Utilities
Board rate proceeding, electric prices for MEC's Iowa industrial and commercial
customers were reduced through a retail access pilot project, negotiated
individual electric contracts and a tariffed rate reduction for some
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 ten-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. MEC presently intends to manage this risk through hedging
and other similar arrangements. On an aggregate basis, the annual revenues under
contract are approximately $180 million.
Under the 1997 pricing plan settlement agreement, if MEC's annual Iowa electric
jurisdictional return on common equity exceeds 12%, then earnings above the 12%
level will be shared equally between customers and MEC. If the return exceeds
14%, then two-thirds of MEC's share of those earnings above the 14% level will
be used for accelerated recovery of certain regulatory assets. The pricing plan
settlement agreement precludes MEC from filing for increased rates prior to 2001
unless the return falls below 9%. Other parties signing the agreement are
prohibited from filing for reduced rates prior to 2001 unless the return, after
reflecting credits to customers and after the accelerated recovery of certain
assets, exceeds 14%. 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
The U.S. Environmental Protection Agency, or EPA, and state environmental
agencies have determined that contaminated wastes remaining at decommissioned
manufactured gas plant facilities may pose a threat to the public health or the
environment if these contaminants are in sufficient quantities and at sufficient
concentrations as to warrant remedial action.
MEC has evaluated or is evaluating 27 properties which were, at one time, sites
of gas manufacturing plants in which it may be a potentially responsible party.
The purpose of these evaluations is to determine whether waste materials are
present, whether the materials constitute an environmental or health risk, and
whether MEC has any responsibility for remedial action. MEC's estimate of the
probable costs for these sites as of March 31, 2000, was $28 million. This
estimate has been recorded as a liability and a regulatory asset for future
recovery through the regulatory process.
Although the timing of potential incurred costs and recovery of costs in rates
may affect the results of operations in individual periods, management believes
that the outcome of these issues will not have a material adverse effect on the
Company's financial position or results of operations.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards for ozone and a new standard for fine particulate matter. In May 1999,
the U.S. 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. As a result of the court's initial decision and the
current status of the standards, the impact of any new standards on MEC is
currently unknown. If the EPA successfully appeals the court's decision,
however, and the new standards are implemented, then MEC would incur increased
costs and a decrease in revenues.
-18-
<PAGE>
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 2000 through 2004 to an external
trust established for the investment of funds for decommissioning 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.
In addition, MEC makes payments to the Nebraska Public Power District ("NPPD")
related to decommissioning the Cooper power station. These payments are
reflected as operating expense. NPPD estimates call for MEC to pay approximately
$57 million to NPPD for Cooper decommissioning during the period 2000 through
2004. 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.
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. Cooper decommissioning costs
charged to Illinois customers are recovered through a rate rider on customer
billings that is reviewed annually.
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 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.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative
-19-
<PAGE>
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial posi-
tion and measure those instruments at fair value. This statement is effective
for the Company beginning January 1, 2001. The Company is in the process of
evaluating the impact of this accounting pronouncement.
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 and construction
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.
-20-
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal proceedings.
- ------ -----------------
As of March 31, 2000, there are no material outstanding lawsuits
against the Company; however as discussed in the Company's December 31,
1999 Form 10-K, several of the Company's projects and subsidiaries are
involved in ongoing litigation.
Item 2 Changes in Securities and Use of Proceeds.
- ------ ---------------------
On March 14, 2000, MidAmerican Energy Holdings Company, an Iowa
corporation ("MidAmerican"), announced that an investor group
including Berkshire Hathaway Inc., Walter Scott, Jr., David L. Sokol,
Gregory E. Abel and certain of their affiliates had completed its
acquisition of MidAmerican pursuant to a previously disclosed
Agreement and Plan of Merger, dated as of October 24, 1999, among
MidAmerican, Teton Formation L.L.C. and Teton Acquisition Corp. As a
result of the merger, an aggregate of 9,281,087 shares of common
stock, no par value, of MidAmerican, and 34,563,395 shares of Zero
Coupon Convertible Preferred Stock, no par value, of MidAmerican, were
issued to the members of the investor group in exchange for an
aggregate of $1,428,024,379.65 in cash and securities of MidAmerican.
The Zero Coupon Convertible Preferred Stock is convertible into common
stock of MidAmerican pursuant to the terms set forth in MidAmerican's
Amended and Restated Articles of Incorporation (filed as Exhibit 3.1
to MidAmerican's Report on Form 10-K/A for year ending December 31,
1999) which is incorporated herein by reference. The securities were
issued in a transaction exempt from registration under Section 4(2) of
the Securities Act of 1933.
Item 3 Defaults on Senior Securities.
- ------ -----------------------------
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
The Company held a special meeting of shareholders on January 27, 2000.
At the meeting, shareholders voted on one issue. The result of the vote is as
follows:
For Against Abstaining
--- ------- ----------
A. Vote regarding approval on an
Agreement and Plan of Merger among 44,556,736 3,240,176 50,997
Teton Formation L.L.C., Teton Acquisition
Corp. and the Company, and the merger
of Teton Acquisition Corp. with and into
the Company
Item 5 Other Information.
- ------ -----------------
Not applicable.
-21-
<PAGE>
Item 6 Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits:
Exhibits Filed Herewith
- -----------------------
Exhibit 15 - Awareness Letter of Independent Accountants.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended March 31, 2000 the Company filed the
following:
(i) Current Report on Form 8-K dated and filed March 14, 2000
announcing the consummation of the merger between the Company
and Teton Formation L.L.C. and Teton Acquisition Corp.
-22-
<PAGE>
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: May 15, 2000 /s/ Patrick J. Goodman
------------------------------------
Patrick J. Goodman
Senior Vice President & Chief
Financial Officer
-23-
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
- ----------- --------
15 Awareness Letter of Independent Accountants 25
27 Financial Data Schedule 26
-24-
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 and subsidiaries for the
period March 14, 2000 to March 31, 2000 for MidAmerican Energy Holdings Company
and for the period January 1, 2000 to March 13, 2000 and for the three month
period ended March 31, 1999 for MidAmerican Energy Holdings Company
(Predecessor), as indicated in our report dated April 21, 2000; 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 March 31, 2000, is
incorporated by reference in 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
May 15, 2000
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