<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 1995
MIDAMERICAN ENERGY COMPANY
--------------------------
(Exact name of registrant as specified in its charter)
IOWA 1-11505 42-1425214
-------------- ----------- -------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
666 GRAND AVENUE, P.O. BOX 9244 DES MOINES, IOWA 50306-9244
------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 515/242-4300
------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 1, 1995, Midwest Resources Inc., an Iowa corporation ("Midwest
Resources"), Midwest Power Systems Inc., an Iowa corporation ("Midwest
Power"), and Iowa-Illinois Gas and Electric Company, an Illinois corporation
("Iowa-Illinois"), merged with and into MidAmerican Energy Company, an Iowa
corporation ("MidAmerican Energy"), with the result that the common
shareholders of Midwest Resources and Iowa-Illinois became the common
shareholders of MidAmerican Energy and the preferred shareholders of Midwest
Power and the preference shareholders of Iowa-Illinois became the preferred
shareholders of MidAmerican Energy. Pursuant to the merger, each of the
outstanding shares of common stock of Midwest Resources was converted into
one share of MidAmerican Energy common stock, no par value, each of the
outstanding shares of preferred stock of Midwest Power was converted into one
share of MidAmerican Energy preferred stock, no par value, each of the
outstanding shares of preference stock of Iowa-Illinois was converted into
one share of MidAmerican Energy preferred stock, no par value, and each of
the outstanding shares of common stock of Iowa-Illinois was converted into
1.47 shares of MidAmerican Energy common stock, no par value. The aggregate
market value of the shares of common stock of Midwest Resources and
Iowa-Illinois converted in the Merger totaled approximately $1.2 billion and
the aggregate market value of the shares of preferred stock of Midwest Power
and the preference stock of Iowa-Illinois converted in the Merger totaled
approximately $140 million.
As a result of the Merger, MidAmerican Energy, a utility operating
company, owns all of the issued and outstanding capital stock of Midwest
Capital Group, Inc., under which its business development activities are
conducted, and InterCoast Energy Company, under which its nonregulated
businesses operate. The combined operations of MidAmerican Energy represent a
total annual revenue of approximately $1.7 billion and total assets of
approximately $4.4 billion.
A copy of the news release with respect to such transaction is attached as an
exhibit to this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS:
Financial Statements:
The following documents, previously filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended, are hereby incorporated by reference:
1. Iowa-Illinois Gas and Electric Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-3573).
2. Iowa-Illinois Gas and Electric Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995 (File No. 1-3573).
3. Midwest Resources Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-10654).
4. Midwest Resources Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 (File No. 1-10654).
5. Midwest Power Systems Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-12582).
6. Midwest Power Systems Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995 (File No. 1-12582).
Unaudited Pro Forma Combined Financial Statements:
The unaudited pro forma financial information incorporated by
reference herein combines the historical consolidated balance sheets and
statements of income of Iowa-Illinois, Midwest Resources and Midwest Power
after giving effect to the merger. Midwest Power balance sheets and statements
of income are fully consolidated with Midwest Resources and thus are not shown
separately. The unaudited proforma consolidated balance sheets give effect to
the merger under the pooling of interests accounting method as if the merger
had occurred on the balance sheet date. The unaudited pro forma combined
statements of income give effect to the merger under the pooling of interests
accounting method as if it had occurred at the beginning of each respective
period. These statements are prepared on the basis of accounting for the
merger as a pooling of interests and are based on the assumptions set forth in
the notes thereto.
The pro forma financial information incorporated by reference
herein has been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and related notes thereto of
Iowa-Illinois, Midwest Resources and Midwest Power, that are contained in their
respective Annual Reports on Form 10-K which are incorporated by reference
herein. The following information is not necessarily indicative of the
financial position or operating results that would have occurred had the
merger been consummated on the date, or at the beginning of the periods, for
which the merger is being given effect, nor is it necessarily indicative of
future operating results or financial position.
2
<PAGE>
(C) EXHIBITS.
Exhibit Number Exhibit
- -------------- -------
23 Consent of Deloitte & Touche LLP
99.1 News Release of MidAmerican Energy Company dated as of July 1, 1995
99.2 Unaudited Pro Forma Combined Financial Statements
99.3 Supplemental Consolidated Financial Statements
99.4 Supplemental Consolidated Quarterly Financial Statements
3
<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 COMPANY
Paul J. Leighton
--------------------------
Paul J. Leighton
Vice President and Secretary
July 3, 1995
4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
23 Consent of Deloitte & Touche LLP
99.1 News Release of MidAmerican Energy Company dated as of
July 1, 1995
99.2 Unaudited Pro Forma Combined Financial Statements
99.3 Supplemental Consolidated Financial Statements
99.4 Supplemental Conslidated Quarterly Financial Statements
<PAGE>
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in MidAmerican Energy Company's
Current Report on Form 8-K and in its Registration Statement on Form S-3
(Registration No. 33-60549) of our reports dated January 25, 1995, appearing in
and incorporated by reference in the Annual Report on Form 10-K of Iowa-
Illinois Gas and Electric Company for the year ended December 31, 1994.
/S/ DELOITTE & TOUCHE LLP
July 1, 1995
[DELOITTE & TOUCHE LLP LETTERHEAD]
<PAGE>
[MidAmerican Energy LETTERHEAD] NEWS RELEASE
Date: June 30, 1995
Contact: John McCarroll (515) 281-2785
For Release: Immediately
The merger of Iowa-Illinois Gas and Electric Company and Midwest Resources
Inc., forming MidAmerican Energy Company, becomes effective tomorrow.
MidAmerican is one of the 50 largest utility companies in the U.S., serving
628,000 electric customers and 592,000 natural gas customers. Assets of
the new company are $4.4 billion and annual revenues are nearly $1.7
billion. MidAmerican also has nonregulated subsidiaries.
"We are pleased that less than one year after we announced this merger, we
are doing business as MidAmerican," said Russell E. Christiansen, chairman
of MidAmerican.
Midwest Resources and Iowa-Illinois announced their intent to merge on July
27, 1994. The merger received necessary shareholder and regulatory
approvals.
The common stock of MidAmerican will be listed on the New York Stock
Exchange under the symbol, MEC. Trading will begin July 3, 1995.
MidAmerican has 75,000 shareholders who own more than 100 million shares.
The merger agreement calls for shareholders of Midwest Resources common
stock to receive one share of MidAmerican for each Midwest Resources share.
Iowa-Illinois common stock shareholders receive 1.47 shares of MidAmerican
for each Iowa-Illinois share.
"In forming MidAmerican, we have achieved greater size and greater
financial strength. We anticipate cost reductions achieved through merger-
related synergies and greater efficiencies will produce more than $500
million in savings over 10 years," said Stanley J. Bright, president of
MidAmerican. "This will benefit our customers and shareholders."
Part of the savings will result from a smaller workforce. MidAmerican will
have approximately 3,750 employees, or about 15 percent fewer than Midwest
Resources and Iowa-Illinois combined had one year ago.
MidAmerican's service territory spans the state of Iowa, serving most of
its larger cities, as well as areas of Illinois, Nebraska and South Dakota.
Corporate headquarters are in Des Moines. Electric and natural gas
headquarters will be in Davenport and Sioux City, Iowa, respectively.
Customers will continue to see the names Iowa-Illinois Gas and Electric,
Midwest Gas and Midwest Power until sometime this fall.
# # #
<PAGE>
EXHIBIT 99.2
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 166,114 $ 80,117 $ 246,231 $ - $ 246,231
Gas 100,190 72,162 172,352 - 172,352
-------------- ------------- ------------- ------------- -------------
Total 266,304 152,279 418,583 - 418,583
-------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 36,891 17,159 54,050 - 54,050
Cost of gas sold 59,434 49,137 108,571 - 108,571
Cooper Nuclear Station non-fuel costs 21,178 - 21,178 - 21,178
Other operating expenses 44,255 24,637 68,892 (261) 68,631
Maintenance 10,815 10,477 21,292 - 21,292
Depreciation and amortization 23,364 15,555 38,919 - 38,919
Income taxes 15,271 7,126 22,397 - 22,397
Property and other taxes 17,646 9,337 26,983 - 26,983
-------------- ------------- ------------- ------------- -------------
Total 228,854 133,428 362,282 (261) 362,021
-------------- ------------- ------------- ------------- -------------
OPERATING INCOME 37,450 18,851 56,301 261 56,562
-------------- ------------- ------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 29,178 13,437 42,615 - 42,615
Other income 855 6,225 7,080 - 7,080
Expenses (30,009) (18,641) (48,650) 16 (48,634)
-------------- ------------- ------------- ------------- -------------
Net income 24 1,021 1,045 16 1,061
Miscellaneous 265 (245) 20 - 20
-------------- ------------- ------------- ------------- -------------
Total 289 776 1,065 16 1,081
-------------- ------------- ------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 37,739 19,627 57,366 277 57,643
-------------- ------------- ------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 13,640 6,073 19,713 - 19,713
Other interest expense 409 895 1,304 - 1,304
Allowance for borrowed funds (436) (792) (1,228) - (1,228)
-------------- ------------- ------------- ------------- -------------
Total 13,613 6,176 19,789 - 19,789
-------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 24,126 13,451 37,577 277 37,854
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes) - - - - -
-------------- ------------- ------------- ------------- -------------
NET INCOME 24,126 13,451 37,577 277 37,854
PREFERRED AND PREFERENCE DIVIDENDS 1,370 911 2,281 - 2,281
-------------- ------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 22,756 $ 12,540 $ 35,296 $ 277 $ 35,573
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 56,022 29,828 99,869 - 99,869
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE
Continuing operations $ 0.41 $ 0.42 $ 0.35 $ - $ 0.36
Discontinued operations - - - - -
-------------- ------------- ------------- ------------- -------------
Earnings per average common share $ 0.41 $ 0.42 $ 0.35 $ - $ 0.36
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 161,275 $ 84,608 $ 245,883 $ - $ 245,883
Gas 126,232 100,256 226,488 - 226,488
-------------- ------------- ------------- ------------- -------------
Total 287,507 184,864 472,371 - 472,371
-------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 36,134 20,174 56,308 - 56,308
Cost of gas sold 87,036 75,040 162,076 - 162,076
Cooper Nuclear Station non-fuel costs 21,680 - 21,680 - 21,680
Other operating expenses 35,758 27,197 62,955 - 62,955
Maintenance 11,363 12,028 23,391 - 23,391
Depreciation and amortization 22,848 15,383 38,231 - 38,231
Income taxes 17,284 6,935 24,219 - 24,219
Property and other taxes 13,924 9,303 23,227 - 23,227
-------------- ------------- ------------- ------------- -------------
Total 246,027 166,060 412,087 - 412,087
-------------- ------------- ------------- ------------- -------------
OPERATING INCOME 41,480 18,804 60,284 - 60,284
-------------- ------------- ------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 40,424 15,775 56,199 - 56,199
Other income 3,149 9,625 12,774 - 12,774
Expenses (42,156) (21,692) (63,848) - (63,848)
-------------- ------------- ------------- ------------- -------------
Net income 1,417 3,708 5,125 - 5,125
Miscellaneous 77 508 585 - 585
-------------- ------------- ------------- ------------- -------------
Total 1,494 4,216 5,710 - 5,710
-------------- ------------- ------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 42,974 23,020 65,994 - 65,994
-------------- ------------- ------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 12,275 5,860 18,135 - 18,135
Other interest expense 824 285 1,109 - 1,109
Allowance for borrowed funds (503) (215) (718) - (718)
-------------- ------------- ------------- ------------- -------------
Total 12,596 5,930 18,526 - 18,526
-------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 30,378 17,090 47,468 - 47,468
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (759) - (759) - (759)
-------------- ------------- ------------- ------------- -------------
NET INCOME 29,619 17,090 46,709 - 46,709
PREFERRED AND PREFERENCE DIVIDENDS 1,370 1,203 2,573 - 2,573
-------------- ------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 28,249 $ 15,887 $ 44,136 $ - $ 44,136
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 54,703 29,349 97,846 - 97,846
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE
Continuing operations $ 0.53 $ 0.54 $ 0.46 $ - $ 0.46
Discontinued operations (0.01) - (0.01) - (0.01)
-------------- ------------- ------------- ------------- -------------
Earnings per average common share $ 0.52 $ 0.54 $ 0.45 $ - $ 0.45
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 665,705 $ 355,955 $ 1,021,660 $ - $ 1,021,660
Gas 292,886 199,129 492,015 - 492,015
-------------- ------------- ------------- ------------- -------------
Total 958,591 555,084 1,513,675 - 1,513,675
-------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 145,239 68,748 213,987 - 213,987
Cost of gas sold 191,585 135,197 326,782 - 326,782
Cooper Nuclear Station non-fuel costs 93,377 - 93,377 - 93,377
Other operating expenses 159,176 105,916 265,092 (4,279) 260,813
Maintenance 54,610 46,665 101,275 - 101,275
Depreciation and amortization 92,400 61,829 154,229 - 154,229
Income taxes 40,546 29,185 69,731 - 69,731
Property and other taxes 61,087 33,903 94,990 - 94,990
-------------- ------------- ------------- ------------- -------------
Total 838,020 481,443 1,319,463 (4,279) 1,315,184
-------------- ------------- ------------- ------------- -------------
OPERATING INCOME 120,571 73,641 194,212 4,279 198,491
-------------- ------------- ------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 115,629 59,685 175,314 - 175,314
Other income 8,631 30,717 39,348 - 39,348
Expenses (118,036) (81,386) (199,422) 307 (199,115)
-------------- ------------- ------------- ------------- -------------
Net income 6,224 9,016 15,240 307 15,547
Miscellaneous 3,159 380 3,539 - 3,539
-------------- ------------- ------------- ------------- -------------
Total 9,383 9,396 18,779 307 19,086
-------------- ------------- ------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 129,954 83,037 212,991 4,586 217,577
-------------- ------------- ------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 50,191 23,731 73,922 - 73,922
Other interest expense 4,995 1,644 6,639 - 6,639
Allowance for borrowed funds (2,481) (1,474) (3,955) - (3,955)
-------------- ------------- ------------- ------------- -------------
Total 52,705 23,901 76,606 - 76,606
-------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 77,249 59,136 136,385 4,586 140,971
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (5,645) - (5,645) - (5,645)
-------------- ------------- ------------- ------------- -------------
NET INCOME 71,604 59,136 130,740 4,586 135,326
PREFERRED AND PREFERENCE DIVIDENDS 5,480 5,071 10,551 - 10,551
-------------- ------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 66,124 $ 54,065 $ 120,189 $ 4,586 $ 124,775
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 55,178 29,492 98,531 - 98,531
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE
Continuing operations $ 1.30 $ 1.83 $ 1.28 $ - $ 1.32
Discontinued operations (0.10) - (0.06) - (0.06)
-------------- ------------- ------------- ------------- -------------
Earnings per average common share $ 1.20 $ 1.83 $ 1.22 $ - $ 1.27
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 664,377 $ 338,593 $ 1,002,970 $ - $ 1,002,970
Gas 332,168 206,821 538,989 - 538,989
-------------- ------------- ------------- ------------- -------------
Total 996,545 545,414 1,541,959 - 1,541,959
-------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 152,766 64,619 217,385 - 217,385
Cost of gas sold 224,337 141,712 366,049 - 366,049
Cooper Nuclear Station non-fuel costs 76,627 - 76,627 - 76,627
Other operating expenses 159,812 104,281 264,093 - 264,093
Maintenance 57,077 44,524 101,601 - 101,601
Depreciation and amortization 89,805 61,017 150,822 - 150,822
Income taxes 43,887 24,477 68,364 - 68,364
Property and other taxes 59,837 33,401 93,238 - 93,238
-------------- ------------- ------------- ------------- -------------
Total 864,148 474,031 1,338,179 - 1,338,179
-------------- ------------- ------------- ------------- -------------
OPERATING INCOME 132,397 71,383 203,780 - 203,780
-------------- ------------- ------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 82,202 54,979 137,181 - 137,181
Other income 6,401 29,105 35,506 - 35,506
Expenses (87,287) (71,583) (158,870) - (158,870)
-------------- ------------- ------------- ------------- -------------
Net income 1,316 12,501 13,817 - 13,817
Miscellaneous 13,171 461 13,632 - 13,632
-------------- ------------- ------------- ------------- -------------
Total 14,487 12,962 27,449 - 27,449
-------------- ------------- ------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 146,884 84,345 231,229 - 231,229
-------------- ------------- ------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 56,171 24,471 80,642 - 80,642
Other interest expense 3,443 1,625 5,068 - 5,068
Allowance for borrowed funds (1,207) (979) (2,186) - (2,186)
-------------- ------------- ------------- ------------- -------------
58,407 25,117 83,524 - 83,524
-------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 88,477 59,228 147,705 - 147,705
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (3,854) - (3,854) - (3,854)
-------------- ------------- ------------- ------------- -------------
NET INCOME 84,623 59,228 143,851 - 143,851
PREFERRED AND PREFERENCE DIVIDENDS 3,372 4,995 8,367 - 8,367
-------------- ------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 81,251 $ 54,233 $ 135,484 $ - $ 135,484
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 54,635 29,338 97,762 - 97,762
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE
Continuing operations $ 1.56 $ 1.85 $ 1.43 $ - $ 1.43
Discontinued operations (0.07) - (0.04) - (0.04)
-------------- ------------- ------------- ------------- -------------
Earnings per average common share $ 1.49 $ 1.85 $ 1.39 $ - $ 1.39
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(RECLASSIFIED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric $ 623,360 $ 312,667 $ 936,027 $ - $ 936,027
Gas 299,820 184,867 484,687 - 484,687
-------------- ------------- ------------- ------------- -------------
Total 923,180 497,534 1,420,714 - 1,420,714
-------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 153,658 58,266 211,924 - 211,924
Cost of gas sold 200,780 125,317 326,097 - 326,097
Cooper Nuclear Station non-fuel costs 70,699 - 70,699 - 70,699
Other operating expenses 156,901 102,311 259,212 - 259,212
Maintenance 54,233 39,536 93,769 - 93,769
Depreciation and amortization 86,190 58,456 144,646 - 144,646
Income taxes 24,096 16,320 40,416 - 40,416
Property and other taxes 63,652 33,827 97,479 - 97,479
-------------- ------------- ------------- ------------- -------------
Total 810,209 434,033 1,244,242 - 1,244,242
-------------- ------------- ------------- ------------- -------------
OPERATING INCOME 112,971 63,501 176,472 - 176,472
-------------- ------------- ------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 37,740 28,478 66,218 - 66,218
Other income (5,700) 27,350 21,650 - 21,650
Expenses (40,145) (46,351) (86,496) - (86,496)
-------------- ------------- ------------- ------------- -------------
Net income (8,105) 9,477 1,372 - 1,372
Miscellaneous 669 (984) (315) - (315)
-------------- ------------- ------------- ------------- -------------
Total (7,436) 8,493 1,057 - 1,057
-------------- ------------- ------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 105,535 71,994 177,529 - 177,529
-------------- ------------- ------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 61,440 25,793 87,233 - 87,233
Other interest expense 2,501 1,872 4,373 - 4,373
Allowance for borrowed funds (1,058) (1,104) (2,162) - (2,162)
-------------- ------------- ------------- ------------- -------------
Total 62,883 26,561 89,444 - 89,444
-------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 42,652 45,433 88,085 - 88,085
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes) 794 - 794 - 794
-------------- ------------- ------------- ------------- -------------
NET INCOME 43,446 45,433 88,879 - 88,879
PREFERRED AND PREFERENCE DIVIDENDS 3,706 5,029 8,735 - 8,735
-------------- ------------- ------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 39,740 $ 40,404 $ 80,144 $ - $ 80,144
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
AVERAGE COMMON SHARES OUTSTANDING 54,351 27,944 95,430 - 95,430
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
EARNINGS PER COMMON SHARE
Continuing operations $ 0.72 $ 1.45 $ 0.83 $ - $ 0.83
Discontinued operations 0.01 - 0.01 - 0.01
-------------- ------------- ------------- ------------- -------------
Earnings per average common share $ 0.73 $ 1.45 $ 0.84 $ - $ 0.84
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric $ 2,327,149 $ 1,478,460 $ 3,805,609 $ - $ 3,805,609
Gas 389,445 274,298 663,743 - 663,743
-------------- ------------- ------------- ------------- -------------
Gross plant 2,716,594 1,752,758 4,469,352 - 4,469,352
Less accumulated depreciation and
amortization 1,120,015 803,000 1,923,015 - 1,923,015
-------------- ------------- ------------- ------------- -------------
Utility plant, net 1,596,579 949,758 2,546,337 - 2,546,337
Construction work in progress 35,538 62,436 97,974 - 97,974
-------------- ------------- ------------- ------------- -------------
Total 1,632,117 1,012,194 2,644,311 - 2,644,311
-------------- ------------- ------------- ------------- -------------
POWER PURCHASE CONTRACT 221,083 - 221,083 - 221,083
-------------- ------------- ------------- ------------- -------------
INVESTMENT IN DISCONTINUED OPERATIONS 869 - 869 - 869
-------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents 21,643 33,359 55,002 - 55,002
Receivables, less reserves 124,738 54,832 179,570 - 179,570
Inventories 51,756 33,286 85,042 - 85,042
Other 7,652 15,711 23,363 - 23,363
-------------- ------------- ------------- ------------- -------------
Total 205,789 137,188 342,977 - 342,977
-------------- ------------- ------------- ------------- -------------
INVESTMENTS 191,443 543,571 735,014 - 735,014
-------------- ------------- ------------- ------------- -------------
OTHER ASSETS 275,006 147,208 422,214 - 422,214
-------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,526,307 $ 1,840,161 $ 4,366,468 $ - $ 4,366,468
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $ 713,109 $ 505,367 $ 1,218,476 $ - $ 1,218,476
Nonredeemable preferred stock 89,955 - 89,955 - 89,955
Redeemable preferred stock - 50,000 50,000 - 50,000
Long-term debt 786,763 603,008 1,389,771 - 1,389,771
-------------- ------------- ------------- ------------- -------------
Total 1,589,827 1,158,375 2,748,202 - 2,748,202
-------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Notes payable 19,600 50,000 69,600 - 69,600
Current portion of long-term debt and
purchased power contract 20,646 64,145 84,791 - 84,791
Accounts payable 79,712 36,555 116,267 - 116,267
Taxes accrued 71,178 37,555 108,733 - 108,733
Interest accrued 10,897 13,266 24,163 - 24,163
Other 13,100 34,869 47,969 - 47,969
-------------- ------------- ------------- ------------- -------------
Total 215,133 236,390 451,523 - 451,523
-------------- ------------- ------------- ------------- -------------
OTHER LIABILITIES
Power purchase contract 125,729 - 125,729 - 125,729
Deferred income taxes 434,192 283,660 717,852 - 717,852
Investment tax credit 61,071 38,653 99,724 - 99,724
Other 100,355 123,083 223,438 - 223,438
-------------- ------------- ------------- ------------- -------------
Total 721,347 445,396 1,166,743 - 1,166,743
-------------- ------------- ------------- ------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,526,307 $ 1,840,161 $ 4,366,468 $ - $ 4,366,468
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric $ 2,303,257 $ 1,461,747 $ 3,765,004 $ - $ 3,765,004
Gas 384,674 279,118 663,792 - 663,792
-------------- ------------- ------------- ------------- -------------
Gross plant 2,687,931 1,740,865 4,428,796 - 4,428,796
Less accumulated depreciation and
amortization 1,097,759 788,111 1,885,870 - 1,885,870
-------------- ------------- ------------- ------------- -------------
Utility plant, net 1,590,172 952,754 2,542,926 - 2,542,926
Construction work in progress 49,935 51,317 101,252 - 101,252
-------------- ------------- ------------- ------------- -------------
Total 1,640,107 1,004,071 2,644,178 - 2,644,178
-------------- ------------- ------------- ------------- -------------
POWER PURCHASE CONTRACT 221,998 - 221,998 - 221,998
-------------- ------------- ------------- ------------- -------------
INVESTMENT IN DISCONTINUED OPERATIONS 15,249 - 15,249 - 15,249
-------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents 9,038 24,740 33,778 - 33,778
Receivables, less reserves 141,419 63,135 204,554 - 204,554
Inventories 54,920 37,328 92,248 - 92,248
Other 6,650 20,733 27,383 - 27,383
-------------- ------------- ------------- ------------- -------------
Total 212,027 145,936 357,963 - 357,963
-------------- ------------- ------------- ------------- -------------
INVESTMENTS 194,857 553,600 748,457 - 748,457
-------------- ------------- ------------- ------------- -------------
OTHER ASSETS 281,637 146,292 427,929 - 427,929
-------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,565,875 $ 1,849,899 $ 4,415,774 $ - $ 4,415,774
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $ 701,870 $ 502,242 $ 1,204,112 $ - $ 1,204,112
Nonredeemable preferred stock 89,955 - 89,955 - 89,955
Redeemable preferred stock - 50,000 50,000 - 50,000
Long-term debt 787,377 610,878 1,398,255 - 1,398,255
-------------- ------------- ------------- ------------- -------------
Total 1,579,202 1,163,120 2,742,322 - 2,742,322
-------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Notes payable 57,000 67,500 124,500 - 124,500
Current portion of long-term debt and
purchased power contract 20,807 64,145 84,952 - 84,952
Accounts payable 72,390 37,785 110,175 - 110,175
Taxes accrued 65,413 26,240 91,653 - 91,653
Interest accrued 19,672 10,987 30,659 - 30,659
Other 24,053 30,420 54,473 - 54,473
-------------- ------------- ------------- ------------- -------------
Total 259,335 237,077 496,412 - 496,412
-------------- ------------- ------------- ------------- -------------
OTHER LIABILITIES
Power purchase contract 125,729 - 125,729 - 125,729
Deferred income taxes 434,239 291,426 725,665 - 725,665
Investment tax credit 61,677 39,194 100,871 - 100,871
Other 105,693 119,082 224,775 - 224,775
-------------- ------------- ------------- ------------- -------------
Total 727,338 449,702 1,177,040 - 1,177,040
-------------- ------------- ------------- ------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,565,875 $ 1,849,899 $ 4,415,774 $ - $ 4,415,774
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEETS
DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES IOWA-ILLINOIS PRO FORMA PRO FORMA
(AS REPORTED) (AS REPORTED) TOTAL ADJUSTMENTS COMBINATION
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric $ 2,204,107 $ 1,438,308 $ 3,642,415 $ - $ 3,642,415
Gas 368,830 270,446 639,276 - 639,276
-------------- ------------- ------------- ------------- -------------
Gross plant 2,572,937 1,708,754 4,281,691 - 4,281,691
Less accumulated depreciation and
amortization 1,051,676 749,992 1,801,668 - 1,801,668
-------------- ------------- ------------- ------------- -------------
Utility plant, net 1,521,261 958,762 2,480,023 - 2,480,023
Construction work in progress 87,736 23,990 111,726 - 111,726
-------------- ------------- ------------- ------------- -------------
Total 1,608,997 982,752 2,591,749 - 2,591,749
-------------- ------------- ------------- ------------- -------------
POWER PURCHASE CONTRACT 248,643 - 248,643 - 248,643
-------------- ------------- ------------- ------------- -------------
INVESTMENT IN DISCONTINUED OPERATIONS 22,206 - 22,206 - 22,206
-------------- ------------- ------------- ------------- -------------
CURRENT ASSETS
Cash and cash equivalents 6,445 17,844 24,289 - 24,289
Receivables, less reserves 149,199 65,571 214,770 - 214,770
Inventories 65,078 35,597 100,675 - 100,675
Other 12,155 24,040 36,195 - 36,195
-------------- ------------- ------------- ------------- -------------
Total 232,877 143,052 375,929 - 375,929
-------------- ------------- ------------- ------------- -------------
INVESTMENTS 206,173 554,135 760,308 - 760,308
-------------- ------------- ------------- ------------- -------------
OTHER ASSETS 269,295 103,131 372,426 - 372,426
-------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 2,588,191 $ 1,783,070 $ 4,371,261 $ - $ 4,371,261
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity $ 681,098 $ 499,412 $ 1,180,510 $ - $ 1,180,510
Nonredeemable preferred stock 90,042 19,829 109,871 - 109,871
Redeemable preference stock - 50,000 50,000 - 50,000
Long-term debt 726,603 614,400 1,341,003 - 1,341,003
-------------- ------------- ------------- ------------- -------------
Total 1,497,743 1,183,641 2,681,384 - 2,681,384
-------------- ------------- ------------- ------------- -------------
CURRENT LIABILITIES
Notes payable 142,035 31,000 173,035 - 173,035
Current portion of long-term debt and
purchased power contract 17,969 59,232 77,201 - 77,201
Accounts payable 84,657 44,847 129,504 - 129,504
Taxes accrued 86,010 24,913 110,923 - 110,923
Interest accrued 19,608 11,413 31,021 - 31,021
Other 22,627 29,610 52,237 - 52,237
-------------- ------------- ------------- ------------- -------------
Total 372,906 201,015 573,921 - 573,921
-------------- ------------- ------------- ------------- -------------
OTHER LIABILITIES
Power purchase contract 140,655 - 140,655 - 140,655
Deferred income taxes 395,683 274,605 670,288 - 670,288
Investment tax credit 65,374 41,355 106,729 - 106,729
Other 115,830 82,454 198,284 - 198,284
-------------- ------------- ------------- ------------- -------------
Total 717,542 398,414 1,115,956 - 1,115,956
-------------- ------------- ------------- ------------- -------------
TOTAL CAPITALIZATION AND LIABILITIES $ 2,588,191 $ 1,783,070 $ 4,371,261 $ - $ 4,371,261
-------------- ------------- ------------- ------------- -------------
-------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
FOOTNOTE INFORMATION TO UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
The preceding unaudited pro forma combined balance sheets and statements of
income show the effect of the merger of IWG, MWR and MPS into MidAmerican Energy
Company (Company). The preceding financial statements were prepared on the
pooling of interests basis of accounting.
A. Non-recurring merger costs of $4,586,000 and $277,000 have been excluded
as a pro forma adjustment in the unaudited pro forma combined statements
of income for the twelve months ended December 31, 1994, and the three
months ended March 31, 1995, respectively.
B. The merger agreement established Conversion Ratios of 1.47 shares of
Company Common Stock for each share of IWG and 1.0 share of Company Common
Stock for each share of Resources Common Stock. The pro forma average
shares are computed as the aggregate of the average shares outstanding of
MWR and IWG for the period presented, adjusted by the conversions ratios.
The earnings per share amount is calculated based on the pro forma average
share figures described above.
C. The following MWR Reclassifying schedules reflect the reclassifying
entries necessary to adjust MWR's consolidated statement of income
presentation to be consistent with the presentation expected to be used by
the Company. The reclassifying entries further reflect previously
discontinued oil and gas operations as continuing operations.
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES (RECLASSIFIED)
------------- --------- --------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $166,092 $ 22 $166,114
Gas 100,190 - 100,190
Other 28,193 (28,193) -
-------- -------- --------
Total 294,475 (28,171) 266,304
-------- -------- --------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 34,471 2,420 36,891
Cost of gas sold 59,434 - 59,434
Cooper Nuclear Station non-fuel costs 22,823 (1,645) 21,178
Other operating expenses 71,586 (27,331) 44,255
Maintenance 11,146 (331) 10,815
Depreciation and amortization 24,529 (1,165) 23,364
Income taxes - 15,271 15,271
Property and other taxes 18,156 (510) 17,646
-------- -------- --------
Total 242,145 (13,291) 228,854
-------- -------- --------
OPERATING INCOME 52,330 (14,880) 37,450
-------- -------- --------
OTHER INCOME
Subsidiaries
Revenues - 29,178 29,178
Other income - 855 855
Expenses - (30,009) (30,009)
-------- -------- --------
Net income - 24 24
Miscellaneous 1,509 (1,244) 265
-------- -------- --------
Total 1,509 (1,220) 289
-------- -------- --------
INCOME BEFORE UTILITY INTEREST CHARGES 53,839 (16,100) 37,739
-------- -------- --------
UTILITY INTEREST CHARGES
Interest on long-term debt 14,867 (1,227) 13,640
Other interest expense 464 (55) 409
Preferred stock dividends of subsidiary 1,370 (1,370) -
Allowance for borrowed funds - (436) (436)
-------- -------- --------
Total 16,701 (3,088) 13,613
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 22,756 1,370 24,126
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes) - - -
-------- -------- --------
NET INCOME 22,756 1,370 24,126
PREFERRED DIVIDENDS - 1,370 1,370
-------- -------- --------
EARNINGS ON COMMON STOCK $ 22,756 $ - $ 22,756
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES (RECLASSIFIED)
------------- --------- --------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $161,253 $ 22 $161,275
Gas 126,156 76 126,232
Other 39,412 (39,412) -
-------- -------- --------
Total 326,821 (39,314) 287,507
-------- -------- --------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 32,329 3,805 36,134
Cost of gas sold 86,924 112 87,036
Cooper Nuclear Station non-fuel costs 24,755 (3,075) 21,680
Other operating expenses 73,542 (37,784) 35,758
Maintenance 11,519 (156) 11,363
Depreciation and amortization 24,075 (1,227) 22,848
Income taxes - 17,284 17,284
Property and other taxes 14,440 (516) 13,924
-------- -------- --------
Total 267,584 (21,557) 246,027
-------- -------- --------
OPERATING INCOME 59,237 (17,757) 41,480
-------- -------- --------
OTHER INCOME
Subsidiaries
Revenues - 40,424 40,424
Other income - 3,149 3,149
Expenses - (42,156) (42,156)
-------- -------- --------
Net income - 1,417 1,417
Miscellaneous 3,586 (3,509) 77
-------- -------- --------
Total 3,586 (2,092) 1,494
-------- -------- --------
INCOME BEFORE UTILITY INTEREST CHARGES 62,823 (19,849) 42,974
-------- -------- --------
UTILITY INTEREST CHARGES
Interest on long-term debt 13,646 (1,371) 12,275
Other interest expense 735 89 824
Preferred stock dividends of subsidiary 1,370 (1,370) -
Allowance for borrowed funds - (503) (503)
-------- -------- --------
Total 15,751 (3,155) 12,596
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS 29,008 1,370 30,378
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (759) - (759)
-------- -------- --------
NET INCOME 28,249 1,370 29,619
PREFERRED DIVIDENDS - 1,370 1,370
-------- -------- --------
EARNINGS ON COMMON STOCK $ 28,249 $ - $ 28,249
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES (RECLASSIFIED)
------------- --------- --------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 665,607 $ 98 $ 665,705
Gas 292,807 79 292,886
Other 110,050 (110,050) -
---------- --------- ---------
Total 1,068,464 (109,873) 958,591
---------- --------- ---------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 134,911 10,328 145,239
Cost of gas sold 191,413 172 191,585
Cooper Nuclear Station non-fuel costs 99,006 (5,629) 93,377
Other operating expenses 265,221 (106,045) 159,176
Maintenance 55,464 (854) 54,610
Depreciation and amortization 97,866 (5,466) 92,400
Income taxes - 40,546 40,546
Property and other taxes 62,977 (1,890) 61,087
---------- --------- ---------
Total 906,858 (68,838) 838,020
---------- --------- ---------
OPERATING INCOME 161,606 (41,035) 120,571
---------- --------- ---------
OTHER INCOME
Subsidiaries
Revenues - 115,629 115,629
Other income - 8,631 8,631
Expenses - (118,036) (118,036)
---------- --------- ---------
Net income - 6,224 6,224
Miscellaneous 11,906 (8,747) 3,159
---------- --------- ---------
Total 11,906 (2,523) 9,383
---------- --------- ---------
INCOME BEFORE UTILITY INTEREST CHARGES 173,512 (43,558) 129,954
---------- --------- ---------
UTILITY INTEREST CHARGES
Interest on long-term debt 56,228 (6,037) 50,191
Other interest expense 4,754 241 4,995
Preferred stock dividends of subsidiary 5,480 (5,480) -
Allowance for borrowed funds - (2,481) (2,481)
---------- --------- ---------
Total 66,462 (13,757) 52,705
---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 71,769 5,480 77,249
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (5,645) - (5,645)
---------- --------- ---------
NET INCOME 66,124 5,480 71,604
PREFERRED DIVIDENDS - 5,480 5,480
---------- --------- ---------
EARNINGS ON COMMON STOCK $ 66,124 $ - $ 66,124
---------- --------- ---------
---------- --------- ---------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES (RECLASSIFIED)
------------- --------- --------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 664,323 $ 54 $664,377
Gas 332,168 - 332,168
Other 77,236 (77,236) -
---------- -------- --------
Total 1,073,727 (77,182) 996,545
---------- -------- --------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 140,277 12,489 152,766
Cost of gas sold 223,745 592 224,337
Cooper Nuclear Station non-fuel costs 85,987 (9,360) 76,627
Other operating expenses 235,795 (75,983) 159,812
Maintenance 57,820 (743) 57,077
Depreciation and amortization 94,656 (4,851) 89,805
Income taxes - 43,887 43,887
Property and other taxes 62,344 (2,507) 59,837
---------- -------- --------
Total 900,624 (36,476) 864,148
---------- -------- --------
OPERATING INCOME 173,103 (40,706) 132,397
---------- -------- --------
OTHER INCOME
Subsidiaries
Revenues - 82,202 82,202
Other income - 6,401 6,401
Expenses - (87,287) (87,287)
---------- -------- --------
Net income - 1,316 1,316
Miscellaneous 26,995 (13,824) 13,171
---------- -------- --------
Total 26,995 (12,508) 14,487
---------- -------- --------
INCOME BEFORE UTILITY INTEREST CHARGES 200,098 (53,214) 146,884
---------- -------- --------
UTILITY INTEREST CHARGES
Interest on long-term debt 62,021 (5,850) 56,171
Other interest expense 3,399 44 3,443
Preferred stock dividends of subsidiary 3,372 (3,372) -
Allowance for borrowed funds - (1,207) (1,207)
---------- -------- --------
Total 68,792 (10,385) 58,407
---------- -------- --------
INCOME FROM CONTINUING OPERATIONS 84,183 4,294 88,477
LOSS FROM DISCONTINUED OPERATIONS
(net of income taxes) (2,932) (922) (3,854)
---------- -------- --------
NET INCOME 81,251 3,372 84,623
PREFERRED DIVIDENDS - 3,372 3,372
---------- -------- --------
EARNINGS ON COMMON STOCK $ 81,251 $ - $ 81,251
---------- -------- --------
---------- -------- --------
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESOURCES RESOURCES RESOURCES
(AS REPORTED) RECLASSES (RECLASSIFIED)
------------- --------- --------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $623,360 $ - $623,360
Gas 299,820 - 299,820
Other 33,062 (33,062) -
-------- -------- --------
Total 956,242 (33,062) 923,180
-------- -------- --------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 134,969 18,689 153,658
Cost of gas sold 200,780 - 200,780
Cooper Nuclear Station non-fuel costs 86,455 (15,756) 70,699
Other operating expenses 187,924 (31,023) 156,901
Maintenance 55,132 (899) 54,233
Depreciation and amortization 91,207 (5,017) 86,190
Income taxes - 24,096 24,096
Property and other taxes 65,983 (2,331) 63,652
-------- -------- --------
Total 822,450 (12,241) 810,209
-------- -------- --------
OPERATING INCOME 133,792 (20,821) 112,971
-------- -------- --------
OTHER INCOME
Subsidiaries
Revenues - 37,740 37,740
Other income - (5,700) (5,700)
Expenses - (40,145) (40,145)
-------- -------- --------
Net income - (8,105) (8,105)
Miscellaneous (3,487) 4,156 669
-------- -------- --------
Total (3,487) (3,949) (7,436)
-------- -------- --------
INCOME BEFORE UTILITY INTEREST CHARGES 130,305 (24,770) 105,535
-------- -------- --------
UTILITY INTEREST CHARGES
Interest on long-term debt 67,945 (6,505) 61,440
Other interest expense 2,662 (161) 2,501
Preferred stock dividends of subsidiary 3,706 (3,706) -
Allowance for borrowed funds - (1,058) (1,058)
-------- -------- --------
Total 74,313 (11,430) 62,883
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 41,801 851 42,652
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes) (2,061) 2,855 794
-------- -------- --------
NET INCOME 39,740 3,706 43,446
PREFERRED DIVIDENDS - 3,706 3,706
-------- -------- --------
EARNINGS ON COMMON STOCK $ 39,740 $ - $ 39,740
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
MidAmerican Energy Company (the Company or MEC) is a newly created, regulated
public utility company, incorporated in the state of Iowa. On July 1, 1995,
Iowa-Illinois Gas and Electric Company (Iowa-Illinois or IWG), Midwest Resources
Inc. (Midwest Resources or MWR) and its utility subsidiary, Midwest Power
Systems Inc. (Midwest Power Systems or MPS), merged with and into MEC (the
Merger).
Management anticipates the Merger will permit the Company to derive benefits
from more efficient and economic utilization of the combined facilities and
resources of MEC. Savings are estimated to be in excess of $500 million over
the next 10 years. The Company is in the process of reorganizing and expects to
reduce its work force by approximately 15% from the July 1994 work force levels
of its predecessors. This will result in the reduction of approximately 650
full-time positions. As a result of attrition and a hiring freeze in place
since the announcement of the Merger, the work force has been reduced by over
200 positions to date. An incentive retirement program option effective October
1, 1995, has been accepted by an additional 220 employees. Costs of the work
force reduction are estimated to reduce the Company's 1995 aftertax earnings by
approximately $9 million, or $0.09 per average share. The net savings from
these reductions are estimated to be approximately $230 million over the
remaining working careers of the affected employees. In addition, the available
generating capacity of the former IWG system can be used to satisfy certain of
the expected future capacity needs of the former MPS system, thus deferring
capital expenditures for construction of additional capacity. Another expected
benefit is more efficient utilization of generating and transmission facilities
through the use of the combined system's most economical units. As a larger
entity, MEC will have a more diverse customer base and enhanced access to
capital markets.
The Company's utility operations (the Utility) will consist of two principal
business units: an electric business unit headquartered in Davenport, Iowa, and
a natural gas business unit headquartered in Sioux City, Iowa. The Company's
corporate headquarters, which will include various staff functions, will be in
Des Moines, Iowa. InterCoast Energy Company (InterCoast or ICE) and Midwest
Capital Group, Inc. (Midwest Capital or MCG) are the nonregulated subsidiaries
of MEC. InterCoast will conduct various nonregulated activities of
the Company, while Midwest Capital will function as a regional business
development company in the utility service territory.
The merger is being accounted for as a pooling-of-interests, and the
Supplemental Consolidated Financial Statements included in this Form 8-K are
presented as if the Merger was consummated as of the beginning of the earliest
period presented. Portions of the following discussion provide information
related to material changes in the Company's financial condition and results of
operations between the periods presented, based on the combined historical
information of the predecessor companies. It is not necessarily indicative of
what would have occurred had the Merger actually been consummated at the
beginning of the earliest period.
Utility customers of the Company will continue to be served under the
separate tariffs of MPS and IWG until such time as a merged tariff is approved
by regulators. When beneficial to this discussion, the Company is referred to
as MPS or IWG in order to make distinction between activities of the predecessor
utilities.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has available to it a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, debt retirement, dividends, construction expenditures
and other capital requirements.
For 1994, the Company had net cash provided from operating activities of $354
million and net cash used of $246 million and $98 million in investing and
financing activities, respectively. For the first quarter of 1995, the Company
had net cash provided from operating activities of $132 million and net cash
used of $23 million and $88 million in investing and financing activities,
respectively.
INVESTING ACTIVITIES
Utility capital expenditures, including Cooper Nuclear Station (Cooper, a
nuclear facility from which the Company purchases 50% of the energy output)
capital improvements, nuclear fuel purchases and allowance for funds used during
construction (AFUDC), were $212 million for 1994. Of the total capital
expenditures, $165 million were for electric operations and $47 million were for
gas operations. For the first three months of 1995, utility capital
expenditures totaled $43 million.
The Company's management anticipates actual utility capital expenditures will
be less than the combined forecasts of IWG and MPS. The combined forecast for
utility capital expenditures, including AFUDC, is $213 million for 1995 and $997
million for 1995 through 1999. Included in the combined forecast is
approximately $85 million for the Company's share of capital expenditures at
Cooper and the Quad-Cities Nuclear Power Station, (Quad-Cities Station, the
Company is a 25% owner of Quad-Cities Station, operated by Commonwealth Edison).
In addition, during the 1995-1999 period, the Company expects to contribute $43
million to an external trust for Quad-Cities Station nuclear decommissioning.
The Company's budgeted construction expenditures do not include any amounts that
may be required to pay the Company's share of the cost of replacing certain
stainless steel piping at the Quad-Cities Station. Although such expenditures
could be required, they are not expected to be.
The Company expects in excess of 90% of utility capital expenditures for 1995
through 1999 will be met with cash generated from utility operations, net of
dividends.
In September 1993, Medallion Production Company, the oil and gas business of
InterCoast, acquired all the outstanding capital stock of DKM Resources Inc.
from the Dyson-Kissner-Moran Corporation, New York. The transaction totaled
more than $50 million and more than doubled Medallion's oil and gas reserve
base.
Capital expenditures for nonregulated subsidiaries during 1995 are estimated
to be approximately $71 million, almost all of which relates to InterCoast.
Actual capital expenditures are dependent on overall performance of those
subsidiaries and general market conditions.
FINANCING ACTIVITIES
As of July 1, 1995, the Utility had bank lines of credit of $250 million to
provide short-term financing for utility operations. Commercial paper is backed
by the lines of credit. The Utility currently has authority from the Federal
Energy Regulatory Commission (FERC) to issue before April 15, 1997, short-term
debt in the form of commercial paper and bank notes amounting to $400 million.
<PAGE>
The Utility also has lines of credit and revolving credit facilities which are
dedicated to provide liquidity for outstanding pollution control revenue bonds
that are periodically remarketed.
During 1993, the Utility refinanced a significant portion of its long-term
debt and replaced certain series of its preferred and preference stock. As a
result, the Company reduced its cost of debt and extended the average life of
its long-term debt.
In October 1994, the Utility issued $34.9 million of variable rate pollution
control revenue bonds due 2024. The issuance refinanced $11 million of 4.4%
Series pollution control revenue bonds due 2013 and $23.9 million of variable
interest rate pollution control revenue bonds due 2015. The refinancing of the
4.4% Series eliminated the remaining first mortgage bonds issued by a
predecessor company of MPS. In November 1994, the Utility issued $60 million of
7.875% Series mortgage bonds due 1999 to be used for general corporate purposes.
In December 1994, the Utility redeemed $19.8 million of outstanding preferred
stock.
In January 1995, $12.75 million of floating rate pollution control refunding
revenue bonds due 2025 were issued. In March 1995, proceeds from this financing
were used to redeem $12.75 million of collateralized pollution control revenue
bonds, 5.8% Series, due 2007.
The Utility has $237 million of long-term debt maturities and cash sinking
fund requirements for 1995 through 1999, of which $236 million is after 1996.
The Utility does not anticipate issuing additional long-term debt in 1995 or
1996. As of December 31, 1994, the Utility was entitled to issue approximately
$1.2 billion of bonds under the current indentures of MPS and IWG, should the
need arise.
During 1994 and the first quarter of 1995, MWR issued 1,270,335 and 336,837
shares, respectively, of authorized but unissued (original issue) shares of its
common stock through its employee stock purchase plan and dividend reinvestment
plan. During the same periods, IWG issued 431,313 and 134,877 original issue
shares, respectively, of its common stock mostly through a dividend reinvestment
and share purchase plan. The Company is filing a registration statement with
the Securities and Exchange Commission to issue up to 6,000,000 shares of MEC
common stock for its dividend reinvestment plan. The Company has authority from
the FERC to issue up to 6,000,000 shares for the MEC dividend reinvestment plan.
InterCoast's unsecured Senior Notes (Notes) are issued in private placement
transactions. All Notes are issued without recourse to the parent Company. In
November 1994, InterCoast issued $70 million of 8.52% Notes due 2002 in a
private placement transaction with four insurance companies. The Notes have
sinking fund requirements in 2000 and 2001.
Subsequent to the consummation of the Merger, the Company made a $55 million
equity contribution to a nonregulated subsidiary to allow the debt and financial
obligations dependent upon support agreements to be retired or otherwise offset
in order to achieve a financial separation from the Utility. The equity
contribution will extinguish all Midwest Capital Senior Notes and its variable
interest rate Notes Payable. In addition, the contribution will be used to
offset $17.4 million related to letters of credit. The only remaining support
agreement is expected to expire in October 1997 and relates to a $30 million
performance guarantee by Midwest Capital of a joint venture turnkey
engineering, procurement and construction contract for a cogeneration project.
<PAGE>
Excluding the debt extinguished as part of the Merger, Midwest Capital's
maturities for long-term debt outstanding at December 31, 1994, are $27 million
for 1995 through 1999, $26 million of which matures in 1996. InterCoast's
aggregate amounts of maturities and cash sinking fund requirements for long-term
debt outstanding at December 31, 1994, are $64 million for 1995 and $169 million
for the years 1996 through 1999. Amounts due in 1995 are expected to be
refinanced with debt instruments and operating cash flow.
InterCoast has a $110 million unsecured revolving credit facility agreement,
which matures in May 1999. Borrowings under this agreement may be on a fixed
rate, floating rate or competitive bid rate basis. All such borrowings are
without recourse to the Utility. Borrowings at December 31, 1994, were $35
million at a weighted average interest cost of 6.6%. Borrowings at December 31,
1993 were $44.5 million at a weighted average interest cost of 4.1%.
InterCoast is subject to certain restrictions under the terms of its
borrowing arrangements. Such restrictions include provisions which limit the
amounts that can be expended for dividends and the issuance of additional debt.
At December 31, 1994, $23.2 million was available for dividends. In addition,
at December 31, 1994, under the most restrictive of such provisions, additional
debt up to $11 million could be issued.
OPERATING ACTIVITIES
The Utility is subject to the oversight of several utility regulatory
agencies. The operating environment and the recoverability of costs from
utility customers are significantly influenced by the regulation of those
agencies. In the past several years, the utility industry has become
increasingly competitive. The Company believes that, based on factors such as
generating costs and supply arrangements, it is in a good position to
successfully operate in the competitive environment and to take advantage of the
opportunities competition offers. Competition from independent power producers,
cogeneration and other energy suppliers will pressure the Company to further
reduce costs. Regulatory assets, which represent prior costs deferred for
future recovery, may have increased risk of recovery. The Company continues to
position itself to meet the changing environment. The Merger, cost reductions,
a new transmission tariff, and new marketing strategies, including the use of
nonregulated energy subsidiaries, are all part of the Company's efforts to
continue to enhance its competitive position. Until the Company has operated in
the new environment for some time, the nature and extent of its impact on the
Company's operations and profitability cannot be determined.
In 1992, the FERC issued Order No. 636, directing a restructuring by
interstate pipeline companies for their natural gas sales and transportation
services. The Company's Supplemental Consolidated Balance Sheet as of March 31,
1995, includes a $54 million liability and regulatory asset recorded for
transition costs incurred by interstate natural gas pipelines for their
compliance with Order 636. These costs will be paid to the pipeline companies
over the next several years. In addition, the Company estimates it may incur
other future billings of approximately $30 million for transition costs. Under
current regulatory conditions, the Company anticipates continued recovery from
its customers of costs related to Order 636. The Company will continue to seek
opportunities to reduce the cost of gas.
The National Energy Policy Act (NEPA) was signed into law in 1992. This law
promotes competition in the wholesale electric power market. The FERC has taken
action to establish rules and policies in compliance with provisions of the NEPA
through a Notice of Proposed Rulemaking issued March 29, 1995. The Company has
been active in providing recommendations to the FERC in an
<PAGE>
effort to shape new transmission policies in ways that will best serve the
interests of its customers and shareholders. In conjunction with the Merger, an
open access transmission tariff was filed with the FERC in November 1994. The
transmission tariff will allow the Company to be better positioned for the
changing utility environment.
Electric and gas utilities in Iowa are required to spend 2% and 1.5%,
respectively, of their annual Iowa jurisdictional revenues on energy efficiency
activities. In 1993, the Company filed a request with the Iowa Utilities Board
(IUB) for the recovery of certain costs incurred under one of its energy
efficiency plans during the period July 1990 to December 1992, as well as lost
revenues and other related components. In August 1994, the IUB issued an order
on rehearing which allows the Company to collect approximately $19.7 million
over a four-year period. Other parties to the proceeding have appealed portions
of that order. In October 1994, the Company began collecting the $19.7 million,
approximately $6.6 million of which is being recovered subject to refund with
interest in connection with the pending appeal. The Company also began the
four-year amortization of $14.1 million of related deferred costs.
In June 1994, the Company filed a request with the IUB for recovery of energy
efficiency expenditures and related costs incurred under two of its energy
efficiency plans during the period July 1990 through December 1993. All parties
to this proceeding joined in a settlement agreement, later approved by the IUB,
that resolves all issues in the case and allows the Company to collect $18.7
million over a four-year period. Collection of revenues and the four-year
amortization of $13.4 million of related deferred costs began in January 1995.
Approximately $5.1 million of the recovery is contingent on the pending appeal
of the cost recovery proceeding mentioned above and is therefore being collected
subject to refund with interest.
In October 1994, the Company filed a request with the IUB to recover costs
incurred under another energy efficiency plan offered to electric and gas
customers since 1992. The total amount to be collected over a four-year period
is likely to be over $18 million, approximately $14 million of which is deferred
energy efficiency costs. The IUB, in an order issued June 23, 1995, has asked
for certain revised calculations of recovery amounts. Collection is anticipated
to begin in late July or early August 1995.
The Company had approximately $38 million of energy efficiency costs deferred
on its Supplemental Consolidated Balance Sheet as of March 31, 1995, which were
not part of the filings discussed above and for which recovery will be sought in
future energy efficiency filings. Approximately $7 million of these costs were
incurred for programs that are under the pending appeal in the energy efficiency
proceeding discussed above.
In July 1994, the Company filed a request with the IUB for a 6.3% rate
increase for certain of its Iowa gas customers, or approximately a $16 million
increase in annual gas revenues. In October 1994, the Company began collecting
interim rates representing a 3.2% rate increase, or approximately $8.2 million
in annual gas revenues. On May 19, 1995, the IUB issued an order in the
proceeding. The order included approval, with modification, of a proposal for an
incentive gas procurement program. Under the proposal, a market-based benchmark
for natural gas costs would be established. Any actual costs or savings which
exceed the established benchmark will be shared equally between the shareholders
and the customers. Based on an IUB agenda session related to requests for
rehearing of the IUB's May 19 order, the Company expects the increase in annual
gas revenues to be in excess of $10 million. An official order is expected in
early July 1995.
<PAGE>
In September 1994, the Company filed a request with the IUB for a 6.0% rate
increase for certain of its Iowa electric customers, or an increase in annual
electric revenues of approximately $35 million. In January 1995, the Company
began collecting interim rates, subject to refund, representing an increase of
2.3%, or approximately $13.6 million in annual electric revenues. The parties
have entered into a series of settlement agreements which, if approved by the
IUB, would permit the Company an increase of approximately $20.3 million in
annual electric revenues. All parties have agreed to the amount of the
increase; however, some parties contest certain rate design issues. The IUB
must rule on the proposed settlement by July 14, 1995.
In January 1993, the Company adopted FAS 106, which is the accounting
standard requiring accrual-basis recognition of postretirement health care and
life insurance costs. The Company began expensing these costs on an accrual
basis for its Illinois customers and certain of its Iowa customers in 1993 and
including provisions for these costs in rates for those customers. The Company
was deferring the portion of costs above the "pay-as-you-go" amount already
included in its rates for its remaining Iowa customers until recovery on an
accrual basis was established in a rate proceeding related to those customers.
As a result, the adoption of FAS 106 has had a minimal impact on earnings. In
both of the above rate filings, the interim rates include a component for the
recovery of these costs on an accrual basis. At the time interim rates were
implemented, the Company began amortizing the deferred portion of these costs
and expensing the current accruals.
Under a long-term power purchase contract with Nebraska Public Power District
(NPPD), the Company purchases one-half of the output of Cooper Nuclear Station
(Cooper). NPPD took Cooper out of service on May 25, 1994. Pending
satisfaction of the concerns of the Nuclear Regulatory Commission (NRC), Cooper
remained out of service until February 1995. Cooper returned to service in
February following NRC approval to restart. The NRC recently removed Cooper
from its list of adversely trending plants. Refer to Note (4)(c) of Notes to
Supplemental Consolidated Financial Statements for a more in-depth discussion of
Cooper.
In May 1995, the Company filed a lawsuit seeking unspecified damages related
to the outage. The lawsuit charges NPPD with inept management of Cooper
resulting in a breach of the special power purchase contract.
In January 1994, the Company was advised that the NRC had placed the
Quad-Cities Station on its list of adversely trending plants. The NRC removed
the Quad-Cities Station from its list of adversely trending plants in June
1995.
The United States Environmental Protection Agency (EPA) and the Iowa
Department of Natural Resources (IDNR) have determined that contaminated wastes
remaining at certain decommissioned manufactured gas plant (MGP) facilities may
pose a threat to the public health or the environment if such contaminants are
in sufficient quantities and at such concentrations as to warrant remedial
action. MPS is aware of 22 sites in which it may be involved as a potentially
responsible party (PRP) and IWG is investigating five such sites.
MPS and other PRPs have entered into a Consent Decree with the EPA for
remediation at one site and MPS has entered into an Administrative Order to
conduct a removal action at a second site. In addition, MPS and IDNR have
entered into Consent Orders to investigate and conduct response action at four
sites. MPS is conducting preliminary site investigations at five additional
sites and technical assistance for the sites has been requested from the IDNR.
The outcome of the investigations and environmental agency directives and
guidance will be important factors with respect to any removal or remedial
action.
<PAGE>
MPS is continuing to evaluate several sites to determine the future
liability, if any, for conducting site investigations or other site activity.
MPS' present estimate of probable remediation costs is $15.8 million. This
estimate has been recorded as a liability and a regulatory asset for future
recovery through the regulatory process. Beginning in September 1992, MPS' gas
rates in Iowa provided recovery for MGP costs of $3.1 million on an annual
basis. In October 1994, the MPS implemented interim gas rates, collected
subject to refund, which include recovery for annual MGP costs of $4.1 million.
MPS is pursuing recovery of the remediation costs from other potentially
responsible parties and its insurance carriers.
MPS' estimate of probable remediation costs is established on a site specific
basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether the Company has potential legal liability
for the site and information exists to indicate that contaminated wastes remain
at the site. If it does, the costs of performing a preliminary investigation
are accrued. Once the investigation is completed and it is determined remedial
action is required, the best estimate of remediation costs is accrued. If
necessary, the estimate is revised when a consent order is issued. The estimate
could change materially based on facts and circumstances derived from site
investigations, changes in required remedial action and changes in technology
relating to remedial alternatives. MPS estimates it will take up to 15 years to
resolve the MGP remediation issue.
IWG is investigating five properties that are owned by the Company which
were, at one time, sites of MGP facilities. The purpose of these investigations
is to determine whether waste materials are present, whether such materials
constitute an environmental or health risk, and whether the Company has any
responsibility for remedial action. One site is located in Illinois and four
sites are located in Iowa. With regard to the Illinois property, the Company
has signed a working agreement with the Illinois Environmental Protection Agency
to perform further investigation to determine whether waste materials are
present and, if so, whether such materials constitute an environmental or health
risk. At December 31, 1994, an estimated liability of $3.3 million has been
recorded for litigation, investigation and remediation related to the Illinois
site. A regulatory asset has been recorded reflecting anticipated cost recovery
through rates in Illinois. With regard to the Iowa sites, no agreement or
consent order has been negotiated to perform any site investigations or
remediation. The IWG has recorded a $4 million estimated liability for the Iowa
sites. A regulatory asset has been recorded based on the current regulatory
treatment of comparable costs in Iowa. The estimated recorded liabilities for
these properties are based upon preliminary data. Thus, actual costs could vary
significantly from the estimates. In addition, insurance recoveries for some or
all of the costs may be possible, but the liabilities recorded have not been
reduced by any estimate of such recoveries.
Although the timing of incurred costs, recoveries and the inclusion of
provision for such costs in rates may affect the results of operations in
individual periods, management believes that the outcome of the MGP issues will
not have a material adverse effect on the Company's financial position or
results of operations.
Clean Air Act legislation was signed into law in November 1990. The Company
has five jointly and five wholly owned coal-fired generating stations, which
represent approximately 65% of the Company's electric generating capability.
Each of these facilities will be impacted to varying degrees by the legislation.
One unit at the Riverside station will be impacted by the emission reduction
requirements effective in 1995. Beginning in 1995, this unit will be required
to hold allowances, issued by the federal government, in order to emit sulfur
dioxide. The compliance strategy for this unit includes
<PAGE>
modifications to allow for burning low-sulfur coal, modifications for nitrogen
oxide control and installation of a new emission monitoring system. The
Company's remaining construction expenditures relative to this work are
estimated to be $2.5 million.
The Company's other coal-fired generating units are minimally affected by the
Phase I provisions of the Clean Air Act Amendments of 1990 (CAA). These
generating units currently meet the new CAA sulfur dioxide emission rate
standards by burning low-sulfur Wyoming coal. Additional emission rate
reductions will not be required to achieve compliance. The Company estimates
that sufficient emission allowances have been allocated on a system-wide basis
for its units to operate at the capacity factors needed to meet system energy
requirements. By the year 2000, some Company coal-fired generating units will
be required to install controls to reduce emissions of nitrogen oxides.
Essentially all utility generating units are subject to CAA provisions which
address continuous emission monitoring, permit requirements and fees, and
emission of toxic substances. The Company's remaining construction costs for
the installation of low nitrogen oxide burner technology and emissions
monitoring system upgrades is estimated to be $25 million.
It is anticipated that any costs incurred by the Company to comply with the
Clean Air Act legislation would be included in the cost of service on which the
Company's rates for utility service are based.
<PAGE>
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
The following table provides a summary of the earnings contributions of the
Company's operations for the past three years:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Earnings in Millions of Dollars
Utility operations................. $110.6 $125.5 $77.9
Nonregulated operations............ 15.2 13.8 1.4
Income (Loss) from
discontinued operations.......... (5.6) (3.8) 0.8
------- ------- ------
Consolidated earnings.............. $120.2 $135.5 $80.1
------- ------- ------
------- ------- ------
Earnings Per Common Share
Utility operations................. $1.12 $1.29 $0.82
Nonregulated operations............ 0.16 0.14 0.01
Income (Loss) from
discontinued operations.......... (0.06) (0.04) 0.01
------- ------- ------
Consolidated earnings.............. $1.22 $1.39 $0.84
------- ------- ------
------- ------- ------
</TABLE>
OPERATING REVENUES
ELECTRIC:
A combination of factors resulted in an $18.7 million, or 1.9%, increase
in total electric operating revenues for 1994 compared to 1993. Electric
retail revenues increased $38.9 million in 1994 compared to 1993. The
increase of the retail revenues was partially offset by a decrease of
approximately $20 million in sales for resale revenues. Outages at Cooper in
1994 and 1993, as well as increased retail sales volumes, reduced the amount
of energy available for sales for resale. Conservation of certain coal
inventories in 1994 also limited the Company's sales for resale activity.
An increase in retail kWh sales, due mostly to increased sales to small
general service and large general service customers, was the primary cause of
the increase in retail revenues. The Company is allowed current recovery from
most of its customers for certain fuel and power purchased costs through
adjustment clauses. An increase in the cost of energy per unit sold also
increased revenues through the adjustment clauses. Variations in those
energy components of revenues reflect corresponding changes in fuel and power
purchased costs and, thus, do not affect net income. An increase in the
average rate per retail kWh also contributed to the increase in electric
revenues for 1994 compared to 1993 due mostly to rate changes discussed below.
On July 26, 1993, the Company implemented temporary electric rates for some
of its Iowa customers designed to increase annual electric revenues by $6.8
million. The IUB approved final rates at the $6.8 million increase level, which
became effective April 15, 1994.
On July 28, 1993, an annual electric rate increase in Illinois of $9.6
million became effective following Illinois Commerce Commission (ICC) approval.
On rehearing, the ICC approved a rate rider that permits the Company to recover
costs of investigation, remediation and litigation relating to former
manufactured gas plant sites. In addition, on January 1, 1994, Quad-Cities
Station nuclear decommissioning costs included in Illinois customer billings
through a rate rider were increased by $1.2 million annually. The previously
mentioned rate increases were partially offset by a $3.2 million decrease in
revenues in 1994 reflecting the expiration of the Company's Louisa Phase-In
Clause (LPIC) on June 30, 1993. Increased revenues collected through rate
riders relating to former
<PAGE>
manufactured gas plant sites and nuclear decommissioning and the decreased
revenues from expiration of the LPIC did not affect net income due to a
corresponding increase or decrease in costs.
Total electric operating revenues in 1993 were $66.9 million, or 7.2%,
greater than 1992 revenues. Electric retail revenues increased $69.5 million
primarily due to a return to more normal weather in the Company's utility
service territory. Temperatures, measured in cooling degree days, during the
1993 cooling season were significantly warmer than temperatures during the
cooling season in 1992. Total electric retail sales increased approximately 6%
for 1993 compared to 1992.
The Company began billing higher interim electric rates to some of its Iowa
customers in July 1992 which were designed to increase annual revenues by $7.5
million. Effective January 1, 1993, the IUB approved a final annual increase in
that rate proceeding of $10.4 million, including $4.8 million related to
Quad-Cities Station nuclear decommissioning costs, which did not affect net
income due to a corresponding increase in expense. As previously mentioned,
rates were also increased in July 1993 in Iowa and Illinois. These rate
increases were partially offset by a $3.3 million decrease in 1993 revenues
reflecting the expiration of the LPIC on June 30, 1993.
In September 1992, the Company implemented a rate reduction for some of its
Iowa customers reflecting a $4.6 million decrease in annual revenues. In
October 1992, the Company implemented a rate increase for customers on another
portion of its system reflecting a $19.3 million increase in revenues.
GAS:
Gas operating revenues for 1994 decreased $47.0 million, or 8.7%, compared to
1993 due to a decrease in retail natural gas sales. Temperatures, measured in
heating degree days, decreased considerably in 1994 compared to 1993, resulting
in the decrease in retail MMBtu sales. The effect of rate increases partially
offset the decrease in revenues due to lower sales volumes.
In July 1993, an annual gas rate increase in Illinois of $2 million became
effective following ICC approval. Also, on rehearing the ICC approved a rate
rider that permits the Company to recover costs of investigation, remediation
and litigation relating to former manufactured gas plant sites. Interim rates
representing approximately an $8.2 million increase in annual revenues went into
effect in October 1994 for some of the Company's Iowa gas customers.
Gas revenues increased $54.3 million, or 11.2%, in 1993 compared to 1992.
Unusually mild weather during the 1992 heating season had the most significant
influence on the fluctuation in revenues between the years 1993 and 1992.
Measured in heating degree days, temperatures in 1993 were substantially colder
than the mild temperatures in 1992. The recovery through purchased gas
adjustment clauses of higher purchased gas costs per unit also increased
revenues. Variations in purchased gas cost billings reflect corresponding
changes in the cost of gas sold and, thus, do not affect net income. In
addition to the higher rates in Illinois, as discussed previously, the Company
in July 1992 began billing higher gas rates of $4.7 million on an annual basis
to some customers in Iowa. Effective January 1, 1993, the IUB approved a final
annual increase of $5.4 million. In addition, the Company began billing its
customers for the costs of gas energy efficiency plans in
<PAGE>
Illinois in April of 1993. Such billings of approximately $1.1 million did not
affect net income due to the corresponding amortization of previously deferred
costs.
OPERATING EXPENSES
Changes in the cost of electric fuel, energy and capacity (collectively,
Energy Costs) reflect fluctuations in generation mix, fuel cost and energy and
capacity purchases. Energy Costs for 1994 decreased compared to 1993 due
primarily to the reduction in sales for resale. The decrease due to reduced
sales of electricity was partially offset by an increase in the average Energy
Cost per unit. Part of the increase in the average Energy Cost per unit was due
to the outage at Cooper which required the Company to use more expensive
generation and purchased power.
Energy Costs increased in 1993 compared to 1992 due to an increase in the
average Energy Cost per unit. A decrease in sales for resale partially offset
the effect of the increase in average Energy Cost.
Cost of gas sold decreased in 1994 compared to 1993 due primarily to
decreased sales, as discussed above. A small decrease in the average cost per
unit sold also contributed to the decrease. In 1993, the cost of gas sold
increased compared to 1992 due mostly to an increase in sales reflecting colder
temperatures during the 1993 heating season. The average cost of gas per unit
sold increased in 1993 compared to 1992.
Cooper Nuclear Station non-fuel costs increased $16.7 million and $5.9
million for 1994 and 1993, respectively, due to an increase in operations and
maintenance costs. The Company anticipates significant increases in these costs
but will continue to seek recovery of such costs through the ratemaking process.
Utility other operating and maintenance expenses were relatively unchanged
for 1994 compared to 1993. Costs related to the Merger and increased operations
and maintenance costs at the Quad-Cities Station increased expenses in 1994
compared to 1993. These increases were substantially offset by the recognition
of a regulatory asset, in order to be consistent with regulatory treatment, for
energy efficiency costs expensed in prior years, and decreases in various other
expenses.
Utility other operating and maintenance expenses in 1993 increased compared
to 1992. Increased costs at the Quad-Cities Station, the timing of generating
plant maintenance, amortization of previously deferred energy efficiency plan
costs and increases in certain employee benefit costs, in part due to the
adoption of FAS 106, were the major causes of the increase in 1993.
The provision for depreciation increased in over the three year period due
primarily to a greater provision for Quad-Cities Station nuclear
decommissioning, consistent with current ratemaking treatment, and greater
utility plant investment.
Income tax expense increased over the three year period due primarily to
higher taxable income. An increase in the income tax rate in 1993 also
contributed to the increase. The Omnibus Budget Reconciliation Act of 1993
which was signed into law on August 10, 1993, increased the rate by one
percentage point retroactive to January 1, 1993.
Property taxes increased in 1994 compared to 1993 and decreased in 1993
compared to 1992 due mostly to changes in property assessment values.
<PAGE>
OTHER INCOME
Revenues for the Company's subsidiaries increased $38.1 million in 1994
compared to 1993 and $71.0 million in 1993 compared to 1992 due primarily to
increased sales of natural gas. The increase in natural gas revenues for 1994
is mostly attributable to the purchase of the assets of an existing
nonregulated gas business on January 31, 1994. Higher production volumes
reflecting additional acquired reserves and successful drilling results also
contributed to the increase in revenues for 1994 and 1993. A reduction in
revenues due to lower oil sales prices in 1994 and 1993, and lower gas sales
prices in 1994, partially offset the increases. In the event that 1995 oil
and gas sales prices are below the 1994 prices, oil and gas operating income
could be reduced from the 1994 levels.
The main cause of the increase in other income of the subsidiaries in 1993 is
the effect of certain real estate write-downs and valuation adjustments recorded
in 1992. Gains on the sale of investments in stocks also contributed to the
1993 increase.
Expenses of the subsidiaries increased in 1994 and in 1993 compared to the
respective prior years primarily due to an increase in the cost of gas sold
related to the increase in sales discussed above. In addition, greater oil and
gas expenses, increased interest expense reflecting higher rates and greater
other operating expenses contributed to the increase.
Subsidiary expenses in 1993 increased compared to 1992 primarily due to
greater oil and gas expenses, increased interest expense reflecting InterCoast's
additional long-term debt outstanding and greater other operating expenses.
The variations in miscellaneous other income between the years presented is
due to a gain on the exchange of natural gas service territories in the third
quarter of 1993. The Company recorded an $11.5 million aftertax gain on the
transaction in 1993.
UTILITY INTEREST CHARGES
Decreased interest on long-term debt in 1994 compared to 1993 and in 1993
compared to 1992 reflects refinancing of several series of long-term debt at
lower interest rates.
DISCONTINUED OPERATIONS
In October 1994, the Company announced its intent to divest its construction
subsidiaries. As a result, the Company recorded an anticipated $3.8 million
loss on the disposal of those subsidiaries in the third quarter of 1994. The
sale of certain assets of one of the subsidiaries was completed in December
1994, and the sale of the other construction subsidiary was completed in March
1995.
<PAGE>
EXHIBIT 99.3
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 1,021,660 $ 1,002,970 $ 936,027
Gas 492,015 538,989 484,687
------------- ------------- -------------
Total
1,513,675 1,541,959 1,420,714
------------- ------------- -------------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 213,987 217,385 211,924
Cost of gas sold 326,782 366,049 326,097
Cooper Nuclear Station non-fuel costs 93,377 76,627 70,699
Other operating expenses 265,092 264,093 259,212
Maintenance 101,275 101,601 93,769
Depreciation and amortization 154,229 150,822 144,646
Income taxes 69,731 68,364 40,416
Property and other taxes 94,990 93,238 97,479
------------- ------------- -------------
Total 1,319,463 1,338,179 1,244,242
------------- ------------- -------------
OPERATING INCOME 194,212 203,780 176,472
------------- ------------- -------------
OTHER INCOME
Subsidiaries
Revenues 175,314 137,181 66,218
Other Income 39,348 35,506 21,650
Expenses (199,422) (158,870) (86,496)
------------- ------------- -------------
Net Income 15,240 13,817 1,372
Miscellaneous 3,539 13,632 (315)
------------- ------------- -------------
Total 18,779 27,449 1,057
------------- ------------- -------------
INCOME BEFORE UTILITY INTEREST CHARGES 212,991 231,229 177,529
------------- ------------- -------------
UTILITY INTEREST CHARGES
Interest on long-term debt 73,922 80,642 87,233
Other interest expense 6,639 5,068 4,373
Allowance for borrowed funds (3,955) (2,186) (2,162)
------------- ------------- -------------
Total 76,606 83,524 89,444
------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 136,385 147,705 88,085
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (net of income taxes) (5,645) (3,854) 794
------------- ------------- -------------
NET INCOME 130,740 143,851 88,879
PREFERRED AND PREFERENCE DIVIDENDS 10,551 8,367 8,735
------------- ------------- -------------
EARNINGS ON COMMON STOCK $ 120,189 $ 135,484 $ 80,144
------------- ------------- -------------
------------- ------------- -------------
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 98,531 97,762 95,430
------------- ------------- -------------
------------- ------------- -------------
EARNINGS PER AVERAGE SHARE OF COMMON SHARE
Continuing operations $ 1.28 $ 1.43 $ 0.83
Discontinued operations (0.06) (0.04) 0.01
------------- ------------- -------------
Earnings per average share of common stock $ 1.22 $ 1.39 $ 0.84
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
------------------------------------
DECEMBER 31
------------------------------------
1994 1993
---------------- ---------------
<S> <C> <C>
ASSETS
UTILITY PLANT
Electric $ 3,765,004 $ 3,642,415
Gas 663,792 639,276
---------------- ---------------
Gross plant 4,428,796 4,281,691
Less accumulated depreciation and amortization 1,885,870 1,801,668
---------------- ---------------
Utility plant, net 2,542,926 2,480,023
Construction work in progress 101,252 111,726
---------------- ---------------
Total 2,644,178 2,591,749
---------------- ---------------
POWER PURCHASE CONTRACT 221,998 248,643
---------------- ---------------
INVESTMENT IN DISCONTINUED OPERATIONS 15,249 22,206
---------------- ---------------
CURRENT ASSETS
Cash and cash equivalents 33,778 24,289
Receivables, less reserves 204,554 214,770
Inventories 92,248 100,675
Other 27,383 36,195
---------------- ---------------
Total 357,963 375,929
---------------- ---------------
INVESTMENTS 748,457 760,308
---------------- ---------------
OTHER ASSETS 427,929 372,426
---------------- ---------------
TOTAL ASSETS $ 4,415,774 $ 4,371,261
---------------- ---------------
---------------- ---------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity $ 1,204,112 $ 1,180,510
Nonredeemable preferred shares 89,955 109,871
Redeemable preference shares 50,000 50,000
Long-term debt 1,398,255 1,341,003
---------------- ---------------
Total 2,742,322 2,681,384
---------------- ---------------
CURRENT LIABILITIES
Notes payable 124,500 173,035
Current portion of long-term debt and
purchased power contract 84,952 77,201
Accounts payable 110,175 129,504
Taxes accrued 91,653 110,923
Interest accrued 30,659 31,021
Other 54,473 52,237
---------------- ---------------
Total 496,412 573,921
---------------- ---------------
OTHER LIABILITIES
Power purchase contract 125,729 140,655
Deferred income taxes 725,665 670,288
Investment tax credit 100,871 106,729
Other 224,775 198,284
---------------- ---------------
Total 1,177,040 1,115,956
---------------- ---------------
TOTAL CAPITALIZATION AND LIABILITIES $ 4,415,774 $ 4,371,261
---------------- ---------------
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31
----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 130,740 $ 143,851 $ 88,879
Adjustments to reconcile net income to net cash provided:
Depreciation, depletion and amortization 181,695 173,798 165,887
Amortization of advances from capital improvements 11,020 11,412 11,971
Amortization of nuclear fuel 5,334 7,989 7,860
Net increase (decrease) in deferred income taxes and
investment tax credit 36,926 1,932 (7,585)
Capitalized cost of real estate sold 3,723 5,737 5,525
Loss from discontinued operations 5,645 3,854 (794)
Gain on sale of assets and long-term investments (6,409) (25,428) (5,254)
Provision for unrealized loss on property and
long-term investments - - 9,915
Cash flows resulting from changes in working capital, net of
effects from discontinued operations and exchanges of assets (9,270) 20,066 (19,857)
Deferred energy efficiency program costs, net (25,302) (24,575) (11,939)
Other 19,564 1,125 7,452
---------- ---------- ----------
Net cash provided 353,666 319,761 252,060
---------- ---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (195,924) (204,746) (168,176)
Cooper Nuclear Station capital improvement advances (4,428) (3,540) (10,855)
Quad-Cities Nuclear Power Station fuel expenditures (11,317) (6,795) (9,313)
Quad-Cities Nuclear Power Station decommissioning trust fund (9,044) (7,918) (4,469)
Nonregulated capital expenditures (52,609) (86,505) (35,566)
Purchase of assets and long-term investments (123,714) (206,139) (216,264)
Proceeds from sale of assets and long-term investments 148,740 261,349 179,741
Other investing activities, net 2,000 22,365 4,168
---------- ---------- ----------
Net cash used (246,296) (231,929) (260,734)
---------- ---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on common shares (114,851) (114,054) (122,447)
Dividends paid on preferred and preference shares (10,551) (8,367) (8,735)
Long-term debt proceeds, net of issuance cost 180,410 796,897 124,035
Retirement of long-term debt, net of reacquisition cost (102,472) (895,900) (74,695)
Increase (decrease) in InterCoast Energy Company
unsecured revolving credit facility (9,500) 44,500 (15,100)
Reacquisition of preferred stock, net of reacquisition cost (20,142) (32,629) (32,158)
Issuance of preferred stock, net of issuance cost - 68,140 -
Issuance of common shares 27,760 - 79,854
Net increase (decrease) in notes payable (48,535) 52,791 52,615
---------- ---------- ----------
Net cash provided (used) (97,881) (88,622) 3,369
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,489 (790) (5,305)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,289 25,079 30,384
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,778 $ 24,289 $ 25,079
---------- ---------- ----------
---------- ---------- ----------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 105,004 $ 111,133 $ 115,446
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid $ 38,195 $ 54,346 $ 40,893
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
MIDAMERICAN ENERGY COMPANY 1 OF 2
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------------------------------------------
1994 1993
------------------------- --------------------------
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common stock, no par; 350,000,000 shares authorized;
99,686,636 and 97,782,271 shares outstanding, respectively $ 786,420 $ 759,120
Retained earnings 426,683 421,358
Other (8,991) 32
-------------- --------------
Total 1,204,112 43.9% 1,180,510 44.0%
-------------- --------- -------------- ---------
PREFERRED AND PREFERENCE SHARES
Cumulative nonredeemable preferred, without par value;
10,000,000 shares authorized:
$3.30 Series, 49,622 and 49,632 shares, respectively 4,962 4,963
$3.75 Series, 38,320 shares 3,832 3,832
$3.90 Series, 32,630 and 32,636 shares, respectively 3,263 3,263
$4.20 Series, 47,369 shares 4,737 4,737
$4.35 Series, 49,950 shares 4,995 4,995
$4.40 Series, 50,000 shares 5,000 5,000
$4.80 Series, 49,898 shares 4,990 4,990
1.7375 Series, 2,400,000 shares 58,176 58,262
Cumulative preference, subject to mandatory redemption, outstanding;
2,386,250 shares authorized:
$5.25 Series Preference, 100,000 shares 10,000 10,000
$7.80 Series Preference, 400,000 shares 40,000 40,000
Cumulative preferred, not subject to mandatory redemption, outstanding;
400,000 shares authorized:
$4.36 Series, 60,000 shares - 6,000
$4.22 Series, 40,000 shares - 4,000
$7.50 Series, 98,288 shares - 9,829
-------------- --------------
Total 139,955 5.1% 159,871 6.0%
-------------- --------- -------------- ---------
LONG-TERM DEBT
Mortgage bonds:
5 7/8% Series, due 1997 22,000 22,000
Adjustable Rate Series, due 1997 (7.6%) 25,000 25,000
5.05% Series, due 1998 50,000 50,000
6 1/4% Series, due 1998 75,000 75,000
7 7/8% Series, due 1999 60,000 -
6.0% Series, due 2000 35,000 35,000
6 3/4% Series, due 2000 75,000 75,000
8.15% Series, due 2001 40,000 40,000
7 1/8% Series, due 2003 100,000 100,000
7.70% Series, due 2004 60,000 60,000
7% Series, due 2005 100,000 100,000
7 3/8% Series, due 2008 75,000 75,000
8% Series, due 2022 50,000 50,000
7.45% Series, due 2023 30,000 30,000
8 1/8% Series, due 2023 100,000 100,000
6.95% Series, due 2025 50,000 50,000
</TABLE>
<PAGE>
MIDAMERICAN ENERGY COMPANY 2 OF 2
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------------------------------------------
1994 1993
------------------------- --------------------------
<S> <C> <C> <C> <C>
LONG-TERM DEBT (CONTINUED)
Pollution control revenue bonds:
5.15% to 5.75% Series, due periodically through 2003 7,861 8,276
5.75% Series, due 2003 3,683 3,828
5.8% Series, due 2007 (secured by first mortgage bonds) 12,750 12,750
5.95% Series, due 2023 (secured by general mortgage bonds) 29,030 29,030
Variable rate series, due 2023 (secured by general
mortgage bonds, 2.9% and 2.6%, respectively) 28,295 28,295
Variable rate series, due 2024 (4.0%) 34,900 -
Variable rate series, due 2016 (5.7% and 2.5%, respectively) 33,700 33,700
Variable rate series, due 2017 (5.7% and 2.5%, respectively) 3,900 3,900
Variable rate series, due 2023 (5.6% and 3.2%, respectively) 6,850 6,850
4 4/10% Series, due 2013 - 11,000
Louisa County, Iowa, floating 30-day municipal bond rate,
due 2015 - 23,900
Notes:
9.30% Series, due 1995 and 1996 9,000 17,000
8 7/10% Series, due annually through 1996 25,508 25,979
9% to 15% Series, due annually through 1996 22 44
Adjustable rate series, due semiannually through 1996 13,100 -
10.20% Series, due 1996 and 1997 60,000 60,000
9.87% Series, due annually through 1997 11,664 17,498
7.34% Series, due 1998 20,000 20,000
7.76% Series, due 1999 45,000 45,000
8.52% Series, due 2000 through 2002 70,000 -
9% Series, due annually through 2000 489 588
8 3/4% Series, due 2002 240 240
8% Series, due annually through 2004 613 -
6 4/10% Series, due 2003 through 2007 2,000 2,000
8.27% Series, due 1995 - 32,000
9.80% Series, due 1995 - 9,000
10.01% Series, due 1995 - 15,000
6% Series, due annually through 2002 - 766
3% Series, due annually through 2017 (non-recourse) - 5,249
Obligation under capital lease 2,356 2,529
Borrowings under unsecured revolving credit facility
(6.6% and 4.1%, respectively) 35,000 44,500
Unamortized debt premium and discount, net (4,706) (4,919)
-------------- --------------
Total 1,398,255 51.0% 1,341,003 50.0%
-------------- --------- -------------- ---------
TOTAL CAPITALIZATION $ 2,742,322 $ 100.0% $ 2,681,384 100.0%
-------------- --------- -------------- ---------
-------------- --------- -------------- ---------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Beginning of Year $ 421,358 $ 400,621 $ 443,849
Net Income 130,740 143,851 88,879
Deduct:
Loss on reacquisition of preferred and
preference shares 312 672 859
Dividends declared on preferred and
preference shares 10,141 8,350 8,732
Dividends declared on common shares 114,924 114,060 122,438
Other 38 32 78
--------- --------- ---------
Total 125,415 123,114 132,107
--------- --------- ---------
End of Year $ 426,683 $ 421,358 $ 400,621
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) MERGER AND SUPPLEMENTAL FINANCIAL STATEMENTS:
The accompanying Supplemental Consolidated Financial Statements are the
same as the restated financial statements that will be issued after the post-
merger operating results are published. On July 1, 1995, Iowa-Illinois Gas and
Electric Company (Iowa-Illinois or IWG), Midwest Resources Inc. (Resources or
MWR) and Midwest Power Systems Inc. (Midwest Power or MPS) merged with and into
MidAmerican Energy Company (MidAmerican or Company). MidAmerican is structured
as a utility company with two wholly-owned non-regulated subsidiaries:
InterCoast Energy Company (InterCoast) and Midwest Capital Group, Inc. (MCG).
The supplemental financial statements reflect the accounting for the merger as a
pooling of interests and are presented as if the companies were merged as of the
earliest period shown.
MidAmerican issued its own stock to the shareholders of MWR and IWG.
MWR's common shareholders received one share of MidAmerican common stock for
each MWR share held and IWG's common shareholders received 1.47 shares of
MidAmerican common stock for each IWG share held.
Operating revenues, income from continuing operations and net income for
the three years in the period ended December 31, 1994, were as follows (in
millions):
<TABLE>
<CAPTION>
IOWA-ILLINOIS RESOURCES MIDAMERICAN
<S> <C> <C> <C>
Year ended December 31, 1994
Operating revenues. . . . . . . . . $ 555.1 $ 958.6* $ 1,513.7
Income from continuing
operations . . . . . . . . . . . 59.1 77.3 136.4
Net income. . . . . . . . . . . . . 59.1 71.6 130.7
Year ended December 31, 1993
Operating revenues. . . . . . . . . $ 545.4 $ 996.6* $ 1,542.0
Income from continuing
operations . . . . . . . . . . . 59.2 88.5 147.7
Net income. . . . . . . . . . . . . 59.2 84.7 143.9
Year ended December 31, 1992
Operating revenues. . . . . . . . . $ 497.5 $ 923.2* $ 1,420.7
Income from continuing
operations . . . . . . . . . . . 45.4 42.7 88.1
Net income. . . . . . . . . . . . . 45.4 43.5 88.9
<FN>
* Resources has been reclassified to reflect only utility revenues as operating
revenues consistent with MidAmerican's presentation.
</TABLE>
<PAGE>
During 1994 Iowa-Illinois reduced its other common shareholders equity
balance by recording an $8,991,000 valuation adjustment related to financial
instruments. During 1992, Iowa-Illinois increased its other common shareholders
equity balance by recording an $1,001,000 valuation adjustment related to
financial instruments.
(b) CONSOLIDATION POLICY:
The accompanying Supplemental Consolidated Financial Statements include the
Company and its wholly-owned non-regulated subsidiaries, InterCoast and MCG.
All significant intercompany transactions have been eliminated.
(c) REGULATION:
The Company's utility operations are subject to the regulation of the Iowa
Utilities Board (IUB), the Illinois Commerce Commission (ICC) the South Dakota
Public Utilities Commission, and the Federal Energy Regulatory Commission
(FERC). The Company's accounting policies and the accompanying Supplemental
Consolidated Financial Statements conform to generally accepted accounting
principles applicable to rate-regulated enterprises and reflect the effects of
the ratemaking process. Such effects concern mainly the time at which various
items enter into the determination of net income in accordance with the
principle of matching costs and revenues.
The Company's utility operations are subject to the provisions of Statement
of Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation. The following regulatory assets, primarily included in
Utility Plant, Receivables and Other Assets on the Supplemental Consolidated
Balance Sheets, represent probable future revenue to the Company because
provisions for these costs are expected to be included in charges to utility
customers through the ratemaking process (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred income taxes. . . . . . . . . . $ 139,577 $ 128,939
Energy efficiency costs. . . . . . . . . 72,694 47,392
Debt refinancing costs . . . . . . . . . 47,879 50,737
FERC Order 636 transition costs. . . . . 56,608 41,918
Postemployment benefit costs . . . . . . 18,287 10,691
Environmental costs. . . . . . . . . . . 23,535 23,270
Plant costs. . . . . . . . . . . . . . . 10,824 12,805
Enrichment facilities decommissioning. . 9,807 10,656
Other. . . . . . . . . . . . . . . . . . 10,479 18,934
-------- --------
Total . . . . . . . . . . . . . . . . $389,690 $345,342
-------- --------
-------- --------
</TABLE>
For additional information regarding deferred income taxes, energy
efficiency costs, FERC Order 636 transition costs, postemployment benefit costs
and environmental costs see notes 14, 8, 4(g), 6 and 4(b), respectively.
(d) REVENUE RECOGNITION:
Revenues are recorded as services are rendered to customers. The Company
records unbilled revenues, and related energy costs, representing the estimated
amount customers will be billed for services rendered between the meter-reading
dates in a particular month and the end of such month. Accrued unbilled
revenues are $65.6 million and $68.0 million at December 31, 1994 and 1993,
respectively, and are included in Receivables on the Supplemental Consolidated
Balance Sheets.
<PAGE>
The majority of the utility's electric and gas revenues are subject to
adjustment clauses. These clauses allow the utility to adjust the amounts
charged for electric and gas service as the costs of gas purchases, fuel for
generation or purchased power change. The costs recovered in revenues through
use of the adjustment clauses are charged to expense in the same period.
(e) NUCLEAR FUEL COSTS:
Included as a part of the cost of nuclear fuel is a provision for its
estimated disposal cost, which is being recognized at a rate of 1 mill per
kilowatt-hour of nuclear generation in conformance with United States Department
of Energy (DOE) rules. Such amounts are recoverable through the energy
adjustment clauses.
(f) DEPRECIATION AND AMORTIZATION:
The Company's provisions for depreciation for its utility operations are
based on straight-line composite rates. The average depreciation rates for the
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Electric. . . . . . . . . . 3.8% 3.8% 3.8%
Gas . . . . . . . . . . . . 3.6% 3.9% 3.9%
</TABLE>
Utility plant is stated at original cost which includes overhead costs,
administrative costs and an allowance for funds used during construction.
The cost of repairs and minor replacements is charged to maintenance
expense. Property additions and major property replacements are charged to
plant accounts. The cost of depreciable units of utility plant retired or
disposed of in the normal course of business is eliminated from the utility
plant accounts and such cost, plus net removal cost, is charged to accumulated
depreciation.
An allowance for the estimated decommissioning costs of the Quad-Cities
Nuclear Power Station (Quad-Cities) is included in depreciation expense. The
Company's share of the cost to decommission the Quad-Cities units is estimated
to be $181.9 million in 1994 dollars. Such decommissioning costs include the
cost of decontamination, dismantlement and site restoration. Electric tariffs
included provisions for the costs of nuclear decommissioning of $9.1 million,
$7.9 million and $5.0 million for 1994, 1993 and 1992, respectively.
The Company has established an external trust for the investment of funds
collected for nuclear decommissioning related to the Quad-Cities units. Electric
tariffs for 1995 include provisions for annual decommissioning costs of
approximately $8.6 million. In Illinois, nuclear decommissioning costs are
included in customer billings through a mechanism that permits annual
adjustments. Such costs are reflected in base rates in the Iowa-Illinois
tariffs for the state of Iowa.
<PAGE>
(g) SCHEDULED NUCLEAR REFUELING OUTAGE COSTS:
Consistent with the Company's regulatory treatment, incremental
operation and maintenance costs due to scheduled nuclear refueling outages at
the Quad-Cities units are accrued, based upon the planned outage schedules
and the estimated costs for such outages, over the estimated periods between
scheduled outages. Any differences between accrued and actual outage costs
are expensed in the periods in which the outages occur.
(h) INVESTMENTS:
Investments include the following amounts as of December 31:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
-------------------------
(In thousands)
<S> <C> <C>
Investments:
Marketable securities. . . . . . . . . . . . $ 199,514 $ 233,386
Oil and gas. . . . . . . . . . . . . . . . . 142,378 120,952
Equipment leases . . . . . . . . . . . . . . 123,603 123,128
Nuclear decommissioning trust fund . . . . . 49,432 39,470
Energy projects. . . . . . . . . . . . . . . 50,316 48,777
Special-purpose funds. . . . . . . . . . . . 34,767 36,021
Real estate. . . . . . . . . . . . . . . . . 72,721 80,037
Non-public preferred stock . . . . . . . . . 24,451 25,438
Coal transportation equipment. . . . . . . . 11,616 13,230
Other . . . . . . . . . . . . . . . . . . . 39,659 39,869
--------- ---------
Total investments. . . . . . . . . . . . . . . . $ 748,457 $ 760,308
--------- ---------
--------- ---------
</TABLE>
InterCoast's holdings of marketable securities generally consist of
preferred stocks, common stocks and mutual funds.
Prior to 1994, InterCoast's holdings of marketable securities were stated at
the lower of aggregate cost or market. A decline in the market value of
marketable equity securities below their cost basis was recognized in the
consolidated financial statements through the establishment of a valuation
allowance, which was reflected as a reduction of Other Common Shareholders'
Equity.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115). Upon adoption, InterCoast classified its entire holdings
of marketable securities as available-for-sale reflecting management's intention
to hold such securities for indefinite periods of time. Under this statement,
InterCoast's investments in marketable securities that are classified as
available-for-sale are reported at fair value with net unrealized gains and
losses reported as a net of tax amount in Other Common Shareholders' Equity
until realized. On August 31, 1994, InterCoast transferred certain sinking fund
preferred stocks with a market value of $40.6 million from the
available-for-sale category to the held-to-maturity category. This transfer,
which is at market value and is the new cost basis of such securities, was based
on management's intent and ability to hold such securities until maturity. The
$1.5 million excess of amortized cost over market value at August 31, 1994, will
be amortized over the life of such securities. InterCoast's investments in
marketable securities that are classified as held-to-maturity are reported at
amortized cost. An other-than-temporary decline in the value of a marketable
security is recognized through a write-down or write-off of the investment to
earnings.
Investments held by the nuclear decommissioning trust fund for the Quad-
Cities units are classified as
<PAGE>
available-for-sale and are reported at fair value with net unrealized gains and
losses reported as adjustments to the accumulated provision for nuclear
decommissioning.
The adoption of SFAS 115 did not have a material effect on the financial
position or results of operations of the Company.
(i) OIL AND GAS:
InterCoast uses the full cost method of accounting for oil and gas
activities. Under the full cost method, all acquisition, exploration and
development costs are capitalized and amortized over the estimated production
from proved oil and gas reserves. Under the full cost method, net capitalized
costs may not exceed the present value of proved reserves as determined under
the rules of the Securities and Exchange Commission.
(j) SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS:
The Company considers all cash and highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash and cash
equivalents for purposes of the Supplemental Consolidated Statements of Cash
Flows.
Net cash provided (used) from changes in working capital, net of effects
from discontinued operations and exchange of assets was as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Marketable securities. . . . . . . . . $ - $ - $ 4,298
Receivables. . . . . . . . . . . . . . 10,216 149 (12,803)
Inventories. . . . . . . . . . . . . . 8,427 (2,067) (6,855)
Prepayments and other
current assets . . . . . . . . . . 8,812 605 (16,295)
Accounts payable . . . . . . . . . . . (19,329) 13,741 (1,810)
Interest accrued . . . . . . . . . . . (362) (374) (283)
Taxes accrued. . . . . . . . . . . . . (19,270) 9,338 (294)
Other current liabilities. . . . . . . 2,236 (1,326) 14,185
---------- --------- --------
Total. . . . . . . . . . . . . . . . $ (9,270) $20,066 $(19,857)
--------- ------- ---------
--------- ------- ---------
</TABLE>
During 1993, the Company exchanged its Minnesota gas properties, with a
book value of $52 million, for Minnegasco's South Dakota gas properties, with an
appraised fair value of $32 million and $38 million cash and recorded a pretax
gain on the transaction of $18 million.
(k) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:
Under a long-term power purchase contract with Nebraska Public Power
District (NPPD), expiring in 2004, the Company purchases one-half of the output
of the 778-megawatt Cooper Nuclear Station (Cooper). The Supplemental
Consolidated Balance Sheets include a liability for the Company's fixed
obligation to pay 50% of NPPD's Nuclear Facility Revenue Bonds and other fixed
liabilities. A like amount representing the Company's right to purchase power
is shown as an asset.
The debt amortization component of the Company's payments to NPPD was $10.8
million, $9.9 million and $5.9 million and the net interest component was $5.4
million, $5.7 million and $7.4 million each for the years 1994, 1993 and 1992,
respectively. The Company's payments for the debt principle portion of the
power purchase contract obligation and the DOE enrichment plant decontamination
and decommissioning payments are $12.1 million, $13.0
<PAGE>
million, $13.6 million, $14.3 million and $15.0 million for 1995, 1996, 1997,
1998 and 1999, respectively.
Capital improvement costs for new property, including carrying costs, are
being deferred, amortized and recovered in rates over the term of the NPPD
contract. Capital improvement costs for property replacements, including
carrying costs, are being deferred, amortized and recovered in rates over a
five-year period.
The fuel cost portion of the power purchase contract is included in Cost of
Fuel, Energy and Capacity on the Supplemental Consolidated Statements of Income.
All other costs the Company incurs in relation to its long-term power purchase
contract with NPPD are included in Cooper Nuclear Station Non-fuel Costs on the
Supplemental Consolidated Statements of Income.
(2) LONG-TERM DEBT:
The Company's sinking fund requirements and maturities of long-term debt
and preferred stock for 1995, 1996, 1997, 1998 and 1999 are $73 million, $119
million, $86 million, $145 million and $106 million, respectively.
The interest rate on the Company's Adjustable Rate Series First Mortgage
Bonds is reset every two years at 160 basis points over the average yield to
maturity of 10-year Treasury securities. The rate was reset in 1993.
The Company's Variable Rate Pollution Control Revenue Bonds bear interest
at rates that are periodically established through remarketing of the bonds in
the short-term tax-exempt market. The Company, at its option, may change the
mode of interest calculation for these bonds by selection from among several
alternative floating or fixed rate modes. The interest rates shown in the
Supplemental Consolidated Statements of Capitalization are the weighted average
interest rates as of December 31, 1994 and 1993. The Company maintains backup
long-term letters of credit, dedicated long-term revolving lines of credit or
one-year renewable lines of credit to provide liquidity for holders of these
issues.
Substantially all the Iowa-Illinois' utility fixed property and franchises
and substantially all of MPS' electric utility property in Iowa is pledged to
secure mortgage bonds.
InterCoast's unsecured Senior Notes (Notes) are issued in private placement
transactions. All Notes are issued without recourse to the parent Company.
InterCoast has a $110 million unsecured revolving credit facility
agreement, which matures in May 1999. Borrowings under this agreement may be on
a fixed rate, floating rate or competitive bid rate basis. All such borrowings
are without recourse to the parent Company. Borrowings at December 31, 1994,
were $35.0 million at a weighted average interest cost of 6.6%. Borrowings at
December 31, 1993, were $44.5 million at a weighted average interest cost of
4.1%.
(3) JOINTLY OWNED UTILITY PLANT:
Under joint plant ownership agreements with other utilities, the Company
had undivided interests at December 31, 1994, in jointly owned generating plants
as shown in the table below.
<PAGE>
The dollar amounts below represent the Company's share in each jointly
owned unit. Each participant has provided financing for its share of each unit.
Operating Expenses on the Supplemental Consolidated Statements of Income include
the Company's share of the expenses of these units.
<TABLE>
<CAPTION>
Nuclear Coal-fired
--------- ------------------------------------------------------------------------------
Council
Quad-Cities Neal Bluffs Neal Ottumwa Louisa
Units Unit Unit Unit Unit Unit
No. 1 & 2 No.3 No. 3 No. 4 No. 1 No. 1
---------- ------ ------- ------- ------- -------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
In service date. . . . . . . . . . 1972 1975 1978 1979 1981 1983
Utility plant in service . . . . . $ 194.6 $ 114.9 $ 292.6 $ 156.9 $ 204.5 $ 530.4
Unit capacity-MW . . . . . . . . . 1,539 515 675 624 716 650
Percent ownership. . . . . . . . . 25.0% 72.0% 79.1% 40.6% 52.0% 88.0%
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES:
(a) CAPITAL EXPENDITURES:
Utility construction expenditures for 1995 are estimated to be $232
million, including $9 million for Quad-Cities nuclear fuel and $10 million for
Cooper capital improvements. Capital expenditures for non-regulated
subsidiaries during 1995 are estimated to be approximately $71 million. Actual
capital expenditures for non-regulated subsidiaries are dependent on overall
performance and general market conditions.
(b) ENVIRONMENTAL MATTERS:
The United States Environmental Protection Agency (EPA) and the Iowa
Department of Natural Resources (IDNR) have determined that contaminated wastes
remaining at certain decommissioned manufactured gas plant (MGP) facilities may
pose a threat to the public health or the environment if such contaminants are
in sufficient quantities and at such concentrations as to warrant remedial
action. MPS is aware of 22 sites in which it may be involved as a potentially
responsible party (PRP) and IWG is investigating five such sites.
MPS and other PRPs have entered into a Consent Decree with the EPA for
remediation at one site and MPS has entered into an Administrative Order to
conduct a removal action at a second site. In addition, MPS and IDNR have
entered into Consent Orders to investigate and conduct response action at four
sites. MPS is conducting preliminary site investigations at five additional
sites and technical assistance for the sites has been requested from the IDNR.
The outcome of the investigations and environmental agency directives and
guidance will be important factors with respect to any removal or remedial
action.
MPS is continuing to evaluate several sites to determine the future
liability, if any, for conducting site investigations or other site activity.
MPS' present estimate of probable remediation costs is $15.8 million. This
estimate has been recorded as a liability and a regulatory asset for future
recovery through the regulatory process. Beginning in September 1992, MPS' gas
<PAGE>
rates in Iowa provided recovery for MGP costs of $3.1 million on an annual
basis. In October 1994, MPS implemented interim gas rates, collected subject to
refund, which include recovery for annual MGP costs of $4.1 million. MPS is
pursuing recovery of the remediation costs from other potentially responsible
parties and its insurance carriers.
MPS' estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether the Company has potential legal liability
for the site and information exists to indicate that contaminated wastes remain
at the site. If it does, the costs of performing a preliminary investigation
are accrued. Once the investigation is completed and it is determined remedial
action is required, the best estimate of remediation costs is accrued. If
necessary, the estimate is revised when a consent order is issued. The estimate
could change materially based on facts and circumstances derived from site
investigations, changes in required remedial action and changes in technology
relating to remedial alternatives. MPS estimates it will take up to 15 years to
resolve the MGP remediation issue.
IWG is investigating five properties that are owned by the Company which
were, at one time, sites of MGP facilities. The purpose of these investigations
is to determine whether waste materials are present, whether such materials
constitute an environmental or health risk, and whether the Company has any
responsibility for remedial action. One site is located in Illinois and four
sites are located in Iowa. With regard to the Illinois property, the Company
has signed a working agreement with the Illinois Environmental Protection Agency
to perform further investigation to determine whether waste materials are
present and, if so, whether such materials constitute an environmental or health
risk. At December 31, 1994, an estimated liability of $3.3 million has been
recorded for litigation, investigation and remediation related to the Illinois
site. A regulatory asset has been recorded reflecting anticipated cost recovery
through rates in Illinois. With regard to the Iowa sites, no agreement or
consent order has been negotiated to perform any site investigations or
remediation. IWG has recorded a $4 million estimated liability for the Iowa
sites. A regulatory asset has been recorded based on the current regulatory
treatment of comparable costs in Iowa. The estimated recorded liabilities for
these properties are based upon preliminary data. Thus, actual costs could vary
significantly from the estimates. In addition, insurance recoveries for some or
all of the costs may be possible, but the liabilities recorded have not been
reduced by any estimate of such recoveries.
Although the timing of incurred costs, recoveries and the inclusion of
provision for such costs in rates may affect the results of operations in
individual periods, management believes that the outcome of the MGP issues will
not have a material adverse effect on the Company's financial position or
results of operations.
Clean Air Act legislation was signed into law in November 1990. The
Company has five jointly and five wholly owned coal-fired generating stations,
which represent approximately 65% of the Company's electric generating
capability. Each of these facilities will be impacted to varying degrees by the
legislation.
One unit at the Riverside station will be impacted by the emission
reduction requirements effective in 1995. Beginning in 1995, this unit will be
required to hold allowances, issued by the federal government, in order to emit
sulfur dioxide. The compliance strategy for this unit includes modifications to
allow for burning low-sulfur coal, modifications for nitrogen oxide control and
installation of a new emission monitoring system. The Company's remaining
construction expenditures relative to this work are estimated to be $2.5
million.
The Company's other coal-fired generating units are minimally affected by
the Phase I provisions of the Clean Air Act Amendments of 1990 (CAA). These
generating units currently meet the new CAA sulfur dioxide emission rate
standards by burning low-sulfur Wyoming coal. Additional emission rate
reductions will not be required to achieve compliance. The Company estimates
that sufficient emission allowances have been allocated on a system-wide basis
for its units to operate at the capacity factors needed to meet system energy
requirements. By the year 2000, some Company coal-fired generating units will
be required to install controls to reduce emissions of nitrogen oxides.
Essentially all utility generating units are subject to CAA provisions which
address continuous emission monitoring, permit requirements and fees, and
emission of toxic substances. The Company's remaining construction costs for
the installation of low nitrogen oxide burner technology and emissions
monitoring system upgrades is estimated to be $25
<PAGE>
million.
It is anticipated that any costs incurred by the Company to comply with the
Clean Air Act legislation would be included in the cost of service on which the
Company's rates for utility service are based.
(c) LONG-TERM POWER PURCHASE CONTRACT:
Payments to NPPD cover one-half of the fixed and operating costs of Cooper
(excluding depreciation but including debt service) and the Company's share of
nuclear fuel cost (including nuclear fuel disposal) based on energy delivered.
The debt service portion on a monthly basis is approximately $1.5 million for
1995 and is not contingent upon the plant being in service.
In January 1994, the Nuclear Regulatory Commission (NRC) determined that
the performance of Cooper warranted increased NRC attention. The Company has
been informed that the NRC's concern about the unit relates to, among other
matters, the effectiveness of the operator of the unit in identifying causes of,
and responding to, certain operational problems or deficiencies.
NPPD provided written and verbal responses to the NRC concerns and advised
the Company that they will diligently work to satisfy the NRC concerns. The
Company is monitoring actions undertaken by NPPD in response to the NRC
concerns. Cooper had been out of service since May 25, 1994, pending
satisfaction of the concerns of the NRC, which had formed a panel of NRC
personnel to oversee a formal process for placing the unit back in service. In
February 1995, NPPD received approval to restart Cooper and placed the unit back
in service. Cooper has operated at or near full capacity since February 1995.
A normal refueling outage has been scheduled for the fall of 1995.
The Company does not expect a material adverse impact on its results of
operations or financial condition as a result of Cooper being out of service.
Increased energy costs to purchase power from other sources were collected from
customers through the energy adjustment clause.
The Company pays one-half of NPPD's decommissioning funding related to
Cooper. NPPD has filed a decommissioning plan with the NRC and established an
external trust for nuclear decommissioning funds.
Based on a site-specific study that includes decontamination, dismantling,
site restoration and dry fuel storage cost, the Company's share of expected
Cooper decommissioning costs is $212.2 million, in 1993 dollars. This site-
specific estimate is being used as the basis for decommissioning funding. For
purposes of developing a decommissioning funding plan, NPPD assumes
decommissioning costs will escalate at an annual rate of four percent. Based on
this assumption, the Company's share of expected decommissioning costs is $220.7
million, in 1994 dollars. Although the operating license expires in 2014, the
funding plan assumes decommissioning will start in 2004, the currently
anticipated plant shutdown date.
As of December 31, 1994, the Company's share of funds set aside by NPPD in
internal and external accounts for decommissioning was $37.8 million. In
addition, the funding plan also assumes various funds and reserves currently
held to satisfy NPPD Bond Resolution requirements will be available for plant
decommissioning costs after the bonds are retired in early 2004. The funding
schedule assumes a long-term return on funds in the trust of six percent
annually. Certain funds will be required to be invested on a short-term basis
when decommissioning begins and are assumed to earn at a rate of four percent
annually. NPPD is recognizing decommissioning costs over the expected service
life of the plant, and 50% of the costs are included as a component of the
Company's power purchased costs. During 1994, $8.9 million of the Company's
power purchase costs were for Cooper decommissioning and are included in the
Company's service rates. Earnings from the internal and external trust funds,
which are recognized by NPPD as the owner of the plant, are tax exempt and serve
to reduce future funding requirements.
The Company maintains financial protection against catastrophic loss
associated with this obligation through a
<PAGE>
combination of insurance purchased by NPPD, insurance purchased directly by the
Company, and the mandatory industry-wide loss funding mechanism afforded under
the Price-Anderson Amendments Act of 1988. The coverage falls into three
categories: nuclear liability, property coverage and nuclear worker liability.
NPPD purchases nuclear liability insurance in the maximum available amount
of $200 million. In accordance with the Price-Anderson Amendments Act of 1988,
excess liability protection above that amount is provided by a mandatory
industry-wide program under which the owners of nuclear generating facilities
could be assessed for liability incurred due to a serious nuclear incident at
any commercial nuclear reactor in the United States. Currently, the Company's
maximum potential share of such an assessment is $39.6 million per incident,
payable in installments not to exceed $5 million annually.
The property coverage provides for several items which include
decontamination of the facility, disposal of the decontaminated material,
business interruption, debt service, replacement power and premature
decommissioning. NPPD purchases primary and excess property insurance for
Cooper of $500 million and $850 million, respectively, and the Company purchases
$700 million of excess property coverage directly from an industry-mutual
insurance company. The combination of these coverages protects the Company for
its 50% obligation in the event of a loss totalling $2.75 billion, which is the
maximum amount of insurance coverage currently available to the Company. NPPD
has been informed by American Nuclear Insurers that the $850 million excess
property insurance will not be available beyond 1995. NRC regulations require
operators to directly purchase a minimum of $1.06 billion of property coverage.
The Company and NPPD have been assured that sufficient replacement coverage will
be available and believe that it will be secured at a cost that is not
significantly different than the cost of the current coverage. The Company also
directly purchases extra expense/business interruption coverage to cover the
cost of replacement power and/or other continuing costs in the event of a
covered accidental outage at Cooper. The coverages purchased directly by the
Company contain provisions for retrospective premium assessments should two or
more full policy-limit losses occur in one policy year. Currently, the maximum
retrospective amounts that could be assessed against the Company total $7
million.
The master nuclear worker liability coverage is an industry-wide policy
with an aggregate limit of $200 million for the nuclear industry as a whole,
which is in effect to cover tort claims of workers as a result of radiation
exposure on or after January 1, 1988. The Company's share, based on its power
purchase obligation with NPPD, of a maximum potential share of a retrospective
assessment under this program is $1.5 million.
(d) QUAD-CITIES NUCLEAR INSURANCE:
The Company is a member of Nuclear Mutual Limited (NML), an industry mutual
insurer established to provide property damage coverage for members' nuclear
generating facilities. The Company would be subject to a maximum retrospective
premium assessment of approximately $2 million based on its 25% share of the NML
premium for Quad-Cities coverage in the event covered losses of NML members
exceed the financial resources of the insurance company. At December 31, 1994,
NML had accumulated capital to a level that would make it unlikely the Company
would have an exposure to a retrospective premium assessment in the event of a
single incident to a member's facility.
The Company is also a member of Nuclear Electric Insurance Limited (NEIL),
an industry mutual insurance company, and an insured of American Nuclear
Insurers/Mutual Atomic Energy Liability Underwriters (ANI/MAELU). The related
policy provisions provide that expenses for decontamination and the removal of
debris shall be paid before any payment in respect of claims for property
damage. A separate NEIL insurance policy covers the extra costs that would be
incurred in obtaining replacement power during a prolonged covered outage of a
member's nuclear plant. The Company is subject to retrospective premium
assessments of approximately $4.1 million and $843,000 for its 25% share of the
premium under the NEIL portion of the property damage coverage and the
replacement power coverage, respectively. At December 31, 1994, NEIL had
accumulated capital to a level that would make it unlikely the Company would
have an exposure to a retrospective premium assessment in the event of a single
incident to a member's facility.
<PAGE>
A Master Worker Policy issued by ANI/MAELU provides coverage for worker
tort claims filed for bodily injury caused by the nuclear energy hazard. The
coverage applies to workers whose "nuclear related employment" began after
January 1, 1988. Under this policy, the Company could be subject to a maximum
retrospective premium assessment of $1.5 million.
Under the Price-Anderson federal legislation adopted in 1988, nuclear
public liability coverage is supported by a mandatory industry-wide program
under which owners of nuclear generating facilities could be assessed in the
event of nuclear incidents. The Company, based on its Quad-Cities interest,
would currently be subject to a maximum assessment of $39.6 million in the event
of an incident, to be paid in increments of no more than $5 million per year per
incident.
(e) FINANCIAL GUARANTEES AND SUPPORT AGREEMENTS:
The Company has provided support agreements for MCG and its subsidiaries
relating to their debt issuances, bonding requirements and letters of credit.
The agreements call for the Company to maintain $200 million of equity and 80%
ownership of MCG. The agreements also call for MCG to maintain net worth of at
least $20 million and a cash coverage ratio of 1.25 times its interest expense.
The Company is in compliance with the provisions of these support agreements.
The Company has letters of credit amounting to $25.2 million and financial
guarantees amounting to $21.8 million which are not reflected in the
consolidated financial statements. Letters of credit and financial guarantees
are conditional commitments issued by, or on behalf of, the Company to secure
performance for a third party. The guarantees are primarily issued to support
public and private borrowing arrangements and similar transactions.
Management believes that the likelihood of material cash payments by the
Company under these agreements is remote.
(f) REAL ESTATE:
The Company owns investments in real estate with a book value of $73
million which consists primarily of two major holdings: an office tower complex
in downtown Des Moines, Iowa, and a 2,000-acre planned residential and business
community near Sioux City, Iowa. The major construction phase of the planned
community is complete, and the marketing phase to sell the residential and
commercial lots is in progress. Future lot development will occur as demand for
lots in the community warrant expanding the development area. There are no
material firm contracts for
<PAGE>
lot development outstanding at this time. Management intends to complete the
planned community and to sell the lots in the ordinary course of business.
Management also intends to sell its other real estate holdings. A valuation
allowance of $5.4 million has been recorded to recognize market conditions and
property values consistent with management's long-term plans for these holdings.
(g) COAL AND NATURAL GAS CONTRACT COMMITMENTS:
The Company has entered into coal supply and transportation contracts for
its fossil-fueled generating stations. The contracts, require minimum payments
of $32 million, $32 million, $28 million, $20 million and $16 million for the
years 1995, 1996, 1997, 1998 and 1999, respectively, and $27 million for the
years thereafter. The Company expects to supplement these coal contracts with
spot market purchases to fulfill its future fossil fuel needs.
The Company has entered into various natural gas supply and transportation
contracts for its utility operations. The minimum commitment under these
contracts is $69 million, $60 million, $46 million, $18 million and $18 million
for the years 1995, 1996, 1997, 1998 and 1999, respectively, and $54 million for
the years thereafter. During 1993 FERC Order 636 became effective, requiring
interstate pipelines to restructure their services. The pipeline will recover
the transition costs related to Order 636 from the local distribution companies.
The Company has recorded a liability and regulatory asset for the transition
costs which are being recovered by the Company through the energy adjustment
clause. The unrecovered balance recorded by the Company as of December 31,
1994, was $57 million.
(5) COMMON SHAREHOLDERS' EQUITY:
Common shares outstanding changed during the years ended December 31 as
shown in the table below (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
Amount Shares Amount Shares Amount Shares
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year . . . . . . . . $759,120 97,782 $759,610 97,778 $682,946 93,171
Changes due to:
Issuance of common shares . . . . . . . 27,760 1,911 - - 79,854 4,602
Capital stock expense . . . . . . . . . (377) - (442) - (2,580)
Gain (loss) on reacquisition of
preferred shares . . . . . . . . . . . 1 - (124) - (675) -
Other . . . . . . . . . . . . . . . . . (84) (6) 76 4 65 5
-------- ------ -------- ------ -------- ------
Balance, end of year . . . . . . . . . . . $786,420 99,687 $759,120 97,782 $759,610 97,778
-------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------
</TABLE>
The following are the components of Other Common Shareholders' Equity as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Premium on preferred shares. . . . . . . . . $ $ 32
Marked to market valuation, net of
deferred tax. . . . . . . . . . . . . . . . (8,991) -
------- -------
$(8,991) $ 32
-------- --------
-------- --------
</TABLE>
<PAGE>
(6) RETIREMENT PLANS:
The Company has noncontributory defined benefit pension plans covering
substantially all employees. Benefits under the plans are based on participants'
compensation, years of service and age at retirement.
Funding is based upon the actuarially determined costs of the plans and the
requirements of the Internal Revenue Code and the Employee Retirement Income
Security Act. The utility has been allowed to recover funding contributions in
rates.
Net periodic pension cost includes the following components for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost-benefit earned during the period. . . . . . . . $ 13,241 $ 11,140 $ 9,545
Interest cost on projected benefit obligation. . . . . . . . 26,822 25,431 23,220
Decrease in pension costs from actual
return on assets. . . . . . . . . . . . . . . . . . . . . (7,835) (22,149) (21,252)
Net amortization and deferral. . . . . . . . . . . . . . . . (21,030) (6,075) (6,840)
-------- ------- -------
Pension cost . . . . . . . . . . . . . . . . . . . . . . . . 11,198 8,347 4,673
Regulatory recognition of incurred cost. . . . . . . . . . . (2,871) (2,018) 590
-------- ------- -------
Net periodic pension cost. . . . . . . . . . . . . . . . . . $ 8,327 $ 6,329 $ 5,263
--------- --------- --------
--------- --------- --------
</TABLE>
<PAGE>
The plan assets are stated at fair market value and are primarily comprised
of insurance contracts, federal government debt and corporate equity securities.
The following table presents the plans' funding status and amounts recognized in
the Company's Supplemental Consolidated Balance Sheets as of December 31 (in
thousands):
<TABLE>
<CAPTION>
Plans in Which:
------------------------------------------------------------
Assets Exceed Accumulated Accumulated Benefits Exceed
Benefits Assets
--------------------------- ---------------------------
1994 1993 1994 1993
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation. . . . . . . . . . . . . . . $(224,488) $ (245,481) $ (18,915) $ (16,268)
Nonvested benefit obligation . . . . . . . . . . . . . (5,881) (10,368) (1,744) (5,569)
--------- ------------ ---------- ----------
Accumulated benefit obligation . . . . . . . . . . . . (230,369) (255,849) (20,659) (21,837)
Provision for future pay increases . . . . . . . . . . (66,414) (90,621) (2,357) (3,106)
--------- ----------- ---------- ----------
Projected benefit obligation . . . . . . . . . . . . . (296,783) (346,470) (23,016) (24,943)
Plan assets at fair value. . . . . . . . . . . . . . . 335,809 327,853 - -
--------- ----------- ---------- ----------
Projected benefit obligation (greater) less
than plan assets. . . . . . . . . . . . . . . . . . 39,026 (18,617) (23,016) (24,943)
Unrecognized prior service cost. . . . . . . . . . . . 22,520 26,073 6,896 6,876
Unrecognized net loss (gain) . . . . . . . . . . . . . (40,151) 21,356 2,603 6,332
Unrecognized net transition asset. . . . . . . . . . . (24,112) (26,713) - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . - - (7,142) (10,102)
--------- ----------- ---------- -----------
Pension asset (liability) recognized in the
Supplemental Consolidated Balance Sheet. . . . . . $ (2,717) $ 2,099 $ (20,659) $ (21,837)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
Assumptions used were: 1994 1993
<S> <C> <C>
Discount rate. . . . . . . . . . . . . . . . . . . 8.5% 7.0-7.25%
Rate of increase in compensation levels. . . . . . 5.0% 5.0-5.5%
Expected long-term rate of return on assets. . . . 8.75-9.0% 8.75-9.0%
</TABLE>
In addition to defined benefit pension plans, the Company provides
certain health care and life insurance benefits for retired employees. Under
the current plans, substantially all of the Company's employees may become
eligible for these benefits if they reach retirement age while working for the
Company. However, the Company retains the right to change these benefits
anytime at its discretion.
In January 1993, the Company adopted Statement of Financial
Accounting Standard No. 106 (SFAS 106), Employers Accounting for
Postretirement Benefits Other Than Pensions. The Company began expensing
these costs on an accrual basis for its Illinois customers and certain of its
Iowa customers in 1993 and including provisions for these costs in rates for
those customers. The Company was deferring the portion of costs above the
"pay-as-you-go" amount already included in its rates for its remaining Iowa
customers until recovery on an accrual basis was established in a rate
proceeding related to those customers. As a result, the adoption of SFAS 106
has had a minimal impact on earnings. The Company's interim rates include a
component for the recovery of these costs on an accrual basis. At the time
interim rates were implemented, the Company began amortizing the deferred
portion of these costs and expensing the current accruals.
<PAGE>
Net periodic postretirement benefit cost includes the following
components for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Service cost-benefit earned during the period. . . . . . . . . . . . . . . . . $ 2,147 $ 2,252
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,221 8,644
Increase (decrease) in benefit cost from actual return on assets . . . . . . . 894 (468)
Amortization of unrecognized transition obligation . . . . . . . . . . . . . . 5,442 5,449
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,991) 293
--------- ----------
Postretirement benefit cost. . . . . . . . . . . . . . . . . . . . . . . . . . 13,713 16,170
Regulatory recognition of incurred cost. . . . . . . . . . . . . . . . . . . . (6,218) (9,126)
--------- ----------
Net periodic postretirement benefit cost . . . . . . . . . . . . . . . . . . . $ 7,495 $ 7,044
--------- ----------
--------- ----------
</TABLE>
The Company has established external trust funds to meet its expected
obligation. The trust funds assets are comprised primarily of guaranteed rate
investment accounts and money market investment accounts. A reconciliation of
the funded status of the plan to the amounts realized as of December 31 is
presented below (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Accumulated present value of benefit obligations:
Retiree benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . $(55,233) $ (72,589)
Active employees fully eligible for benefits . . . . . . . . . . . . . . . (6,127) (14,472)
Other active employees . . . . . . . . . . . . . . . . . . . . . . . . . (26,939) (43,633)
--------- ----------
Accumulated benefit obligation. . . . . . . . . . . . . . . . . . . . . . (88,299) (130,694)
Plan assets at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,200 11,058
--------- ----------
Accumulated benefit obligation greater than plan assets. . . . . . . . . . . . (70,099) (119,636)
Unrecognized net loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . (25,894) 16,228
Unrecognized transition obligation . . . . . . . . . . . . . . . . . . . . . . 95,993 103,408
--------- ----------
Postretirement benefit liability recognized in the
Supplemental Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . $ - $ -
--------- ----------
--------- ----------
Assumptions used were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5% 7.0-7.25%
Expected long-term rate of return on assets (after taxes):
MWR union plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0% 9.0%
MWR salaried plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6% 6.2%
IWG plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0% 3.0%
</TABLE>
For purposes of calculating the postretirement benefit obligation,
assumptions differed between certain plans. For one set of plans, it was
assumed that health care costs for covered individuals prior to age 65 would
increase by 14% in 1994, and that the rate of increase thereafter will decline
by 1% annually to an ultimate rate of 5.5% by the year 2003. For covered
individuals age 65 and older, it was assumed that health care costs would
increase by 11% in 1994, and that the rate of increase thereafter will decline
by 1% annually to an ultimate rate of 5.5% by the year 2000. For the second set
of plans, it was assumed that health care costs for covered individuals prior to
age 65 would increase by 13% in 1994, and that the rate of increase thereafter
will decline by 1% annually to an ultimate rate of 5.0% by the year 2002. For
individuals age 65 and older, the retiree pays the full cost of coverage under
the plans.
<PAGE>
If the assumed health care trend rates used to measure the expected cost of
benefits covered by the plans were increased by one percent, the total service
and interest cost would increase by $1.2 million and the accumulated
postretirement benefit obligation would increase by $10.2 million.
On January 1, 1994, the Company adopted Financial Accounting Standard 112
"Employers' Accounting for Postemployment Benefits", which requires the accrual
of the estimated cost of benefits provided to former or inactive employees after
employment but before retirement. Adoption did not have a material effect on
financial position or results of operations.
(7) SHORT-TERM BORROWING:
Interim financing of working capital needs and the construction program may
be obtained from the sale of commercial paper or short-term borrowing from
banks. Information regarding short-term debt follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Balance at year-end. . . . . . . . . . $124,500 $173,035 $120,244
Weighted average interest rate
on year-end balance . . . . . . . . 6.1 % 3.4% 3.7%
Average daily amount outstanding
during the year . . . . . . . . . . $105,728 $117,445 $77,086
Weighted average interest rate
on average daily amount
outstanding during the year . . . . 4.4 % 3.3% 3.9%
</TABLE>
At December 31, 1994, the Company had bank lines of credit of $242 million
to provide short-term financing for its utility operations, of which $185
million were unused. The Company maintains compensating balances under a
portion of its bank line of credit arrangements. As of December 31, 1994, the
Company has regulatory authority to incur up to $350 million of short-term debt
for its utility operations.
<PAGE>
(8) RATE MATTERS:
The table below shows the Company's material general rate activities during
1994 (dollars in thousands):
<TABLE>
<CAPTION>
MPS-Gas MPS-Electric
Iowa Iowa
---------- ------------
<S> <C> <C>
Date filed . . . . . . . . . . . . . . . . . July 21, 1994 September 15, 1994
Final revenue increase requested
Amount . . . . . . . . . . . . . . . . . $16,000 $35,000
Percent. . . . . . . . . . . . . . . . . 6.3% 6.0%
Interim revenue increase requested
Amount . . . . . . . . . . . . . . . . . $9,800 $25,600
Percent. . . . . . . . . . . . . . . . . 3.9% 4.4%
Interim revenue increase granted
Amount . . . . . . . . . . . . . . . . . $8,200 $15,600
Percent. . . . . . . . . . . . . . . . . 3.2% 2.7%
Date interim collection began . . . . . . . October 18, 1994 January 1, 1995
Final decision due . . . . . . . . . . . . . May 20, 1995 July 14, 1995
</TABLE>
The table below summarizes the results of the Company's material energy
efficiency cost recovery filing activities during 1994 (dollars in thousands):
<TABLE>
<CAPTION>
Midwest Power Midwest Power Iowa-
Systems Systems Illinois
------------------ ----------------- ----------------
<S> <C> <C> <C>
Date filed . . . . . . . . . . . . . . . . . September 13, 1993 June 15, 1994 October 17, 1994
Final revenue increase requested*. . . . . . $22,700 $23,200 $18,600
Final revenue increase granted*. . . . . . . $19,700 $18,700 NA
Deferred charges to be amortized . . . . . . $14,100 $13,400 NA
Date collection began. . . . . . . . . . . . October 21, 1994 January 21, 1995 NA
<FN>
* Recovery over a four-year period
</TABLE>
<PAGE>
(9) DISCONTINUED OPERATIONS:
All construction activities of the Company's construction subsidiaries were
reflected as discontinued operations by the Company at September 30, 1994. A
subsidiary that constructs generating facilities and essentially all of the
assets of a subsidiary that constructs electrical distribution and transmission
systems were sold prior to March 31, 1995.
The Company has provided certain support agreements for the construction
subsidiaries which remain in effect. MCG has guaranteed performance on an
estimated $95 million joint venture turnkey engineering, procurement and
construction contract for a cogeneration project, and the Company has provided a
support agreement for MCG related to this project. Should the project not meet
certain performance factors, the liquidated damages provisions of the contract
could result in cash payments not exceeding 30% of the total contract price.
MCG has indemnified the purchasers of the construction subsidiaries for
specified losses or claims related to complete projects or which occurred prior
to the date of the sale to a maximum of $5 million on a combined basis. MCG has
been indemnified for any losses or claims related to active projects except for
a portion of liquidated damages which may arise associated with the joint
venture discussed above. Management believes that the likelihood of a material
adverse impact to the Company under the liquidated damage provisions of the
construction contracts or material cash payments by the Company under the
support agreements is remote.
Net assets of the construction subsidiaries are separately presented on the
Supplemental Consolidated Balance Sheets as Investment in Discontinued
Operations. Proceeds received from the disposition of the construction
investments through December 31, 1994, were $2.4 million. Revenues from
discontinued activities, as well as the results of operations and the estimated
income (loss) on the disposal of discontinued operations for the years ended
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . $ 69,958 $ 94,350 $ 77,102
--------- --------- --------
--------- --------- --------
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations
before income taxes. . . . . . . . $ (2,788) $ (7,033) $ 2,055
Income tax benefit (expense) . . . . 908 3,179 (1,261)
--------- --------- --------
Total . . . . . . . . . . . . . $ (1,880) $ (3,854) $ 794
--------- --------- --------
--------- --------- --------
LOSS ON DISPOSAL
Loss on disposal before
income taxes . . . . . . . . . . . $ (11,576) $ - $ -
Income tax benefit . . . . . . . . . 7,811 - -
--------- --------- --------
Total . . . . . . . . . . . . . $ (3,765) $ - $ -
--------- --------- --------
--------- --------- --------
</TABLE>
<PAGE>
(10) CONCENTRATION OF CREDIT RISK:
The Company's electric utility operations serve 543,000 customers in Iowa,
83,000 customers in western Illinois and 3,000 customers in southeastern South
Dakota. The Company's gas utility operations serve 465,000 customers in Iowa,
64,000 customers in western Illinois, 58,000 customers in southeastern South
Dakota and 4,000 customers in Nebraska. The largest communities served by the
Company are the Iowa and Illinois Quad-Cities, Des Moines, Sioux City, Cedar
Rapids, Waterloo, Iowa City and Council Bluffs, Iowa, and Sioux Falls, South
Dakota. The Company's utility operations grant unsecured credit to customers,
substantially all of whom are local businesses and residents. As of December
31, 1994, billed receivables from the Company's utility customers totalled $114
million.
InterCoast has entered into leveraged lease agreements with members of the
airline industry. As of December 31, 1994, the receivables under these
agreements totalled $49.4 million.
(11) PREFERRED AND PREFERENCE SHARES:
On December 15, 1994, the Company redeemed all of its outstanding $4.36
Series, $4.22 Series and $7.50 Series preferred shares. The redemption was made
at a premium, which resulted in a charge to net income on common shares of
$312,000. In addition, during 1994, the Company redeemed 10 and 6 shares of its
$3.30 and $3.90 series of preferred stock, respectively.
The $5.25 Series Preference Shares, which are not redeemable prior to
November 1, 1998 for any purpose, are subject to mandatory redemption on
November 1, 2003 at $100 per share. The $7.80 Series Preference Shares, which
are not redeemable prior to May 1, 1996 for any purpose, have sinking fund
requirements under which 66,600 shares will be redeemed at $100 per share each
May 1, beginning in 2001 through May 1, 2006.
The total outstanding cumulative nonredeemable preferred stock of $90.0
million may be redeemed at the option of the Company at prices which, in the
aggregate, total $95.9 million. The aggregate total the holders of all
preferred stock outstanding at December 31, 1995, are entitled to upon
involuntary bankruptcy is $141.8 million plus accrued dividends. Annual
dividend requirements for preferred stock outstanding at December 31, 1994,
total $9.1 million.
<PAGE>
(12) SEGMENT INFORMATION:
Information related to segments of the Company's business is as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INFORMATION
Electric-
Operating revenues. . . . . . . . . . . . . . . $1,021,660 $1,002,970 $ 936,027
Operating expenses
excluding income taxes . . . . . . . . . . . 788,712 771,788 750,533
---------- ---------- ----------
Pre-tax operating income. . . . . . . . . . . . 232,948 231,182 185,494
Income taxes. . . . . . . . . . . . . . . . . . 63,428 58,516 34,248
---------- ---------- ----------
Operating income. . . . . . . . . . . . . . . . $ 169,520 $ 172,666 $ 151,246
---------- ---------- ----------
---------- ---------- ----------
Depreciation expense. . . . . . . . . . . . . . $ 132,886 $ 129,814 $ 125,056
Capital expenditures. . . . . . . . . . . . . . $ 164,870 $ 178,903 $ 146,001
Gas-
Operating revenues. . . . . . . . . . . . . . . $ 492,015 $ 538,989 $ 484,687
Operating expenses
excluding income taxes . . . . . . . . . . . 461,020 498,027 453,293
---------- ---------- ----------
Pre-tax operating income. . . . . . . . . . . . 30,995 40,962 31,394
Income taxes. . . . . . . . . . . . . . . . . . 6,303 9,848 6,168
---------- ---------- ----------
Operating income. . . . . . . . . . . . . . . . $ 24,692 $ 31,114 $ 25,226
---------- ---------- ----------
---------- ---------- ----------
Depreciation expense. . . . . . . . . . . . . . $ 21,343 $ 21,008 $ 19,590
Capital expenditures. . . . . . . . . . . . . . $ 46,799 $ 36,178 $ 42,343
Other-
Revenues and other income . . . . . . . . . . . $ 214,662 $ 172,687 $ 87,868
Expenses excluding
income taxes . . . . . . . . . . . . . . . . 203,832 163,377 98,829
---------- ---------- ----------
Pre-tax income. . . . . . . . . . . . . . . . . $ 10,830 $ 9,310 $ (10,961)
---------- ---------- ----------
---------- ---------- ----------
Depreciation, depletion
and amortization . . . . . . . . . . . . . . $ 24,884 $ 18,771 $ 14,283
Capital expenditures. . . . . . . . . . . . . . $ 52,609 $ 86,505 $ 35,566
<CAPTION>
As of December 31,
-------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------
Asset information
Identifiable assets-
Electric (a). . . . . . . . . . . . . . . . $2,649,418 $2,622,607 $2,523,357
Gas (a) . . . . . . . . . . . . . . . . . . 556,737 522,198 504,361
Used in overall utility
operations . . . . . . . . . . . . . . . . 591,390 597,507 504,822
Other . . . . . . . . . . . . . . . . . . . 618,229 628,949 579,513
--------- ---------- ----------
Total assets. . . . . . . . . . . . . . . . . . $4,415,774 $4,371,261 $4,112,053
---------- ---------- ----------
---------- ---------- ----------
<FN>
(a) Utility plant less accumulated provision for depreciation, accounts
receivable, accrued unbilled revenues, inventories, deferred gas expense,
energy adjustment clause balance, nuclear decommissioning trust fund and
regulatory assets.
</TABLE>
<PAGE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
at December 31, 1994 and 1993 of each class of financial instruments for which
it is practicable to make such estimates. Tariffs for the Company's utility
services are established based on historical cost ratemaking. Therefore, the
impact of any realized gains or losses related to financial instruments
applicable to the Company's utility operations is dependent on the treatment
authorized under future ratemaking proceedings.
Cash and cash equivalents - The carrying amount approximates fair value due
to the short maturity of these instruments.
Quad-Cities nuclear decommissioning trust fund - Fair value is based on
quoted market prices of the investments held by the fund.
Marketable securities - Fair value is based on quoted market prices.
Debt securities - Fair value is based on the discounted value of the future
cash flows expected to be received from such investments.
Equity investments carried at cost - Fair value is based on an estimate of
the Company's share of partnership equity or on the discounted value of the
future cash flows expected to be received from such investments. Certain
investments are excluded from the amounts shown because a reasonable estimate of
fair value could not be made without incurring excessive costs. These
investments consist primarily of the noncurrent portion of an investment
representing all the issued preferred stock of an untraded company which is
carried at $23.1 million and $25.2 million as of December 31, 1994 and 1993,
respectively. The terms of this preferred stock investment provide that no
dividends will be paid and require $2.2 million to be redeemed annually each
February 1 through 2002, $3.9 million in 2003 and $3.8 million in 2004.
Equity investments in developing companies - It is not practicable to
determine the fair value of such investments as they represent new ventures for
which no market price exists.
Notes payable - Fair value is estimated to be the carrying amount due to
the short maturity of these issues.
Preference shares - Fair value of preference shares with mandatory
redemption provisions is estimated based on the quoted market prices for similar
issues.
Long-term debt - Fair value of long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Electric and gas utility:
Quad-Cities nuclear decommissioning
trust fund . . . . . . . . . . . . . . . $ 49,432 $ 49,432 $ 39,470 $ 41,588
Preference shares. . . . . . . . . . . . . 50,000 50,836 50,000 54,850
Long-term debt, including current
portion. . . . . . . . . . . . . . . . . 1,109,808 1,033,792 1,050,283 1,096,988
Subsidiary Companies:
Marketable securities. . . . . . . . . . . $ 199,514 $ 198,140 $ 233,386 $ 239,114
Debt securities. . . . . . . . . . . . . . 17,320 15,510 18,391 20,320
Equity investments carried at
costs. . . . . . . . . . . . . . . . . . 22,352 23,930 27,374 28,005
Long-term debt, including current
portion. . . . . . . . . . . . . . . . . 362,490 355,051 358,121 378,813
</TABLE>
The amortized cost, gross unrealized gain and losses and estimated fair
value of investments in debt and equity securities at December 31, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Investments in debt and equity securities-
Electric and gas utility:
Quad-Cities nuclear decommissioning
trust fund:
Available-for-sale
Equity securities. . . . . . . . . . . $ 5,836 $ - $ - $ 5,836
Municipal bonds. . . . . . . . . . . . 43,034 749 (1,773) 42,010
Other. . . . . . . . . . . . . . . . . 1,586 - - 1,586
--------- -------- --------- ---------
$ 50,456 $ 749 $ (1,773) $ 49,432
--------- -------- --------- ---------
--------- -------- --------- ---------
Subsidiary Companies
Available-for-sale
Equity securities. . . . . . . . . . . $ 171,201 $ 2,388 $ (14,703) $ 158,886
Debt securities. . . . . . . . . . . . 2,516 - - 2,516
Held-to-maturity
Equity securities. . . . . . . . . . . 40,628 - (1,374) 39,254
Debt securities. . . . . . . . . . . . 14,804 39 (1,849) 12,994
</TABLE>
<PAGE>
At December 31, 1994, the debt securities held by the Quad-Cities nuclear
decommissioning trust fund and the Company's subsidiaries had the following
maturities:
<TABLE>
<CAPTION>
Quad-Cities
Nuclear Decommissioning
Trust Fund Subsidiaries
----------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year. . . . . . . . . . . . . . . . $ 2,862 $ 2,757 $ 2,266 $ 2,257
1 through 5 years. . . . . . . . . . . . . . 9,405 9,018 2,415 2,365
5 through 10 years . . . . . . . . . . . . . 16,409 16,023 5,284 4,271
Over 10 years. . . . . . . . . . . . . . . . 14,358 14,212 7,355 6,617
</TABLE>
The proceeds and the gross realized gains and losses on the disposition of
investments held by the Quad-Cities nuclear decommissioning trust fund and the
Company's subsidiaries for 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1994
------------------------
(In thousands)
<S> <C>
Quad-Cities nuclear decommissioning trust fund:
Proceeds from sales . . . . . . . . . . . . . . . . $ 2,214
Gross security gains. . . . . . . . . . . . . . . . 2
Gross security losses . . . . . . . . . . . . . . . (85)
Subsidiary companies:
Proceeds from sales . . . . . . . . . . . . . . . . 133,555
Gross security gains. . . . . . . . . . . . . . . . 10,336
Gross security losses . . . . . . . . . . . . . . . (5,149)
</TABLE>
<PAGE>
(14) INCOME TAX EXPENSE:
Income tax expense includes the following for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(thousands)
<S> <C> <C> <C>
Income Taxes
Current
Federal. . . . . . . . . . . . . . . . $ 23,358 $ 45,057 $ 27,810
State. . . . . . . . . . . . . . . . . 6,789 12,658 8,154
--------- --------- ---------
30,147 57,715 35,964
Deferred
Federal. . . . . . . . . . . . . . . . 37,240 15,076 10,569
State. . . . . . . . . . . . . . . . . 8,203 1,534 26
--------- --------- ---------
45,443 16,610 10,595
Investment tax credit, net. . . . . . . . (5,859) (5,961) (6,143)
--------- --------- ---------
Total included in Operating Expenses. . . $ 69,731 $ 68,364 $ 40,416
--------- --------- ---------
--------- --------- ---------
Included in Other Income. . . . . . . . . (7,383) 2,570 (11,669)
--------- --------- ---------
Total Income Tax Expense. . . . . . . . . $ 62,348 $ 70,934 $ 28,747
--------- --------- ---------
--------- --------- ---------
</TABLE>
Included in Deferred Income Taxes and Other Current Assets on the
Supplemental Consolidated Balance Sheets as of December 31 are deferred tax
assets and deferred tax liabilities as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred Tax Assets
Related to:
Investment tax credits . . . . . . . . . . $ 67,279 $ 71,150
Unrealized losses. . . . . . . . . . . . . 4,008 5,407
Pensions . . . . . . . . . . . . . . . . . 11,509 7,652
AMT credit carry forward . . . . . . . . . 34,555 37,756
Nuclear reserves and decommissioning . . . 8,551 6,708
Other. . . . . . . . . . . . . . . . . . . 8,350 5,382
-------- --------
Total. . . . . . . . . . . . . . . . . . . $134,252 $134,055
-------- --------
-------- --------
Deferred Tax Liabilities
Related to:
Depreciable property . . . . . . . . . . . $698,800 $715,455
Income taxes recoverable
through future rates. . . . . . . . . . 84,550 75,212
Reacquired debt. . . . . . . . . . . . . . 16,276 3,295
FERC Order 636. . . . . . . . . . . . . . . 17,425 -
Other. . . . . . . . . . . . . . . . . . . 42,707 18,933
-------- --------
Total. . . . . . . . . . . . . . . . . . . $859,758 $812,895
-------- --------
-------- --------
</TABLE>
<PAGE>
The following table is a reconciliation between the effective income tax
rate, before preferred stock dividends, indicated by the Supplemental
Consolidated Statements of Income and the statutory federal income tax rate for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Effective federal and state
income tax rate . . . . . . . . . . . . . . 31% 33% 24%
Amortization of investment tax credit. . . . . 4 4 6
Resolution of prior year tax issue . . . . . . 2 - 1
State income tax, net of federal income
tax benefit . . . . . . . . . . . . . . . . (4) (5) (3)
Dividends received deduction . . . . . . . . . 2 2 4
Other . . . . . . . . . . . . . . . . . . . . - 1 2
--- --- ---
Statutory federal income tax rate. . . . . . . 35% 35% 34%
--- --- ---
--- --- ---
</TABLE>
(15) INVENTORIES:
Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Materials and supplies, at average costs. . . . . $ 31,688 $ 31,932
Coal stocks, at average costs . . . . . . . . . . 26,878 24,679
Fuel oil, at average cost . . . . . . . . . . . . 1,907 1,786
Gas in storage, at LIFO costs . . . . . . . . . . 31,775 42,278
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . $ 92,248 $100,675
-------- --------
-------- --------
</TABLE>
At December 31, 1994 prices, the current cost of gas in storage was $38.6
million.
<PAGE>
(16) UNAUDITED QUARTERLY OPERATING RESULTS:
<TABLE>
<CAPTION>
1994 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . . . $ 472,371 $ 326,726 $ 346,466 $ 368,112
Operating income . . . . . . . . . . . . . . . . 60,284 41,151 56,886 35,891
Income from continuing operations. . . . . . . . 47,468 24,747 42,125 22,045
Loss from discontinued operations. . . . . . . . (759) (603) (4,236) (47)
Earnings on common stock . . . . . . . . . . . . 44,136 21,570 35,316 19,167
Earnings per average common share:
Income from continuing operations. . . . . . . $ 0.46 $ 0.23 $ 0.40 0.19
Loss from discontinued operations. . . . . . . (0.01) (0.01) (0.04) -
--------- --------- --------- ---------
Earnings per average common share. . . . . . . . $ 0.45 $ 0.22 $ 0.36* $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
1993 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
Operating revenues . . . . . . . . . . . . . . . $ 458,124 $ 326,766 $ 362,481 $ 394,588
Operating income . . . . . . . . . . . . . . . . 63,958 41,523 62,824 35,475
Income from continuing operations. . . . . . . . 46,559 25,494 54,063 21,589
Income (loss) from discontinued operations . . . (1,492) (1,877) (1,292) 807
Earnings on common stock . . . . . . . . . . . . 43,026 21,582 50,924 19,952
Earnings per average common share:
Income from continuing operations. . . . . . . $ 0.46 $ 0.24 $ 0.53 $ 0.19
Income (loss) from discontinued operations . . (0.02) (0.02) (0.01) 0.01
--------- --------- --------- ---------
Earnings per average common share. . . . . . . . $ 0.44 $ 0.22 $ 0.52** $ 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
* Includes the estimated loss on the disposal of the construction
subsidiaries.
** Includes the gain on the gas property exchange.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MidAmerican Energy Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets and consolidated statements of capitalization of
Midwest Resources Inc. and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income and retained earnings and cash
flows for each of the three years in the period ended December 31, 1994 included
in Midwest Resources Inc's. Annual Report on Form 10-K for the year ended
December 31, 1994, which also includes our report dated January 27, 1995. Our
report expressed an unqualified opinion on those statements and included an
explanatory paragraph with respect to the change in method of accounting for
postretirement benefits other than pensions in 1993, as discussed in Note 14 to
the consolidated financial statements.
We have also made a similar audit of the accompanying supplemental
consolidated balance sheets and supplemental consolidated statements of
capitalization of MidAmerican Energy Company (an Iowa Corporation) and
subsidiaries as of December 31, 1994 and 1993, and the related supplemental
consolidated statements of income, retained earnings and cash flows for each of
the three years in the period ended December 31, 1994. The supplemental
consolidated statements give retroactive effect to the merger between Midwest
Resources Inc., Iowa-Illinois Gas and Electric Company and Midwest Power Systems
Inc. on July 1, 1995, which has been accounted for as a pooling of interests as
described in Note (1)(a). These supplemental financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental financial statements based on our audits.
We did not audit the financial statements of Iowa-Illinois Gas and
Electric Company for the years ended December 31, 1994 and 1993, included in
the supplemental consolidated financial statements of MidAmerican Energy
Company, which statements reflect total assets constituting 42% and 41% in
1994 and 1993, respectively, and total revenues constituting 37% and 35% in
1994 and 1993, respectively, of the related supplemental consolidated totals.
These statements were audited by other auditors whose report thereon has
been furnished to us, and our opinion expressed herein, insofar as it relates
to the amounts included for Iowa-Illinois Gas and Electric Company, is based
solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
<PAGE>
In our opinion, based upon our audit and the report of the other
auditors, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
MidAmerican Energy Company and its subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, after giving
retroactive effect to the merger between Midwest Resources Inc.,
Iowa-Illinois Gas and Electric Company and Midwest Power Systems Inc. as
described in Note (1)(a), all in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Chicago, Illinois
July 1, 1995
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1995, COMPARED TO THREE
MONTHS ENDED MARCH 31, 1994
The following table provides a summary of the earnings contributions of the
Company's operations for each three-month period discussed below:
<TABLE>
<CAPTION>
MARCH 31
1995 1994
-------- --------
<S> <C> <C>
Earnings in Millions of Dollars
Utility operations................... $ 34.3 $ 39.8
Nonregulated operations.............. 1.0 5.1
Loss from discontinued
operations........................ - (0.8)
-------- --------
Consolidated earnings................ $ 35.3 $ 44.1
-------- --------
-------- --------
Earnings Per Common Share
Utility operations................... $ 0.34 $ 0.41
Nonregulated operations.............. 0.01 0.05
Loss from discontinued
operations......................... - (0.01)
-------- --------
Consolidated earnings................ $ 0.35 $ 0.45
-------- --------
-------- --------
</TABLE>
OPERATING REVENUES
ELECTRIC:
Interim rates for an Iowa electric rate case went into effect in
January 1995. Included in interim rates is recovery of other postretirement
employee benefits (OPEB) costs on an accrual basis, which is significantly
greater than the pay-as-you-go method previously used. Recovery of certain
energy efficiency costs for which the Company had recorded a regulatory asset
until recovery of such costs could be sought through the regulatory process
contributed to an increase in the rate per kWh. The Company began collecting
the energy efficiency costs in October 1994 for one filing and January 1995
for a second filing. Although recovery of OPEB and energy efficiency costs
increases the Company's revenues, the impact on net income is minimal due to
the increase in other operating expenses from the amortization of the energy
efficiency and OPEB regulatory assets and the accrual-basis recognition of
current OPEB costs. Amortization of energy efficiency costs increased other
operating expenses by $1.1 million for the quarter, and OPEB costs increased
$1.8 million compared to the first quarter of 1994, $1.0 million of which was
the amortization of the regulatory asset.
Increases due to rates were offset by a decrease in retail sales reflecting
milder weather in 1995, and a decrease in sales for resale.
GAS:
Gas operating revenues in the first quarter of 1995 decreased significantly
compared to the first quarter of 1994. A reduction in the cost of gas per unit
was the primary cause of the decrease in revenues. The Company is allowed
current recovery from most of its customers for purchased gas
<PAGE>
costs through purchased gas adjustment clauses. As a result, fluctuations in
the cost per unit of gas purchased for those customers has no impact on net
income.
Gas operating revenues were further reduced by a decrease in sales due to
milder temperatures in the Company's service territory.
The above decreases were partially offset by an increase in rates due to
the current gas rate case and the collection of certain energy efficiency costs.
A portion of the increase in rates relates to the recovery of OPEB costs on an
accrual basis, as discussed above. Other operating expenses for the 1995
quarter are approximately $0.9 million greater than the 1994 quarter as a result
of the current expensing of OPEB costs and the amortization of energy efficiency
and OPEB regulatory assets.
OPERATING EXPENSES
Changes in the cost of electric fuel, energy and capacity (collectively,
Energy Costs) reflect fluctuations in generation mix, fuel cost and energy and
capacity purchases. Energy Costs for the 1995 quarter decreased compared to the
1994 quarter due primarily to the reduction in total sales. An increase in the
average Energy Cost per unit partially offset the decrease due to sales. A
Cooper outage that ended in February 1995 had the most significant impact on
average Energy Cost per unit. As a result of the outage, the Company had to use
more expensive purchased power and Company-owned generation to meet sales
requirements.
Cost of gas sold decreased in the first quarter of 1995 compared to the
first quarter of 1994 primarily due to decreased purchased gas costs from
suppliers and lower gas purchases reflecting warmer temperatures in the first
quarter of 1995.
The decrease in Cooper non-fuel costs was due to an adjustment for 1994
operations and maintenance costs which were not billed to the Company as
anticipated. However, the Company expects Cooper operations and maintenance
costs to continue to increase.
Other operating and maintenance expenses increased for the first quarter of
1995 compared to the first quarter of 1994. In addition to the effect of energy
efficiency and OPEB expense increases in 1995, as discussed above, expenses for
the 1994 quarter were reduced by $3.0 million due to capitalizing previously
expensed energy efficiency costs to comply with the IUB regulation of these
costs. These increases were partially offset by lower operating and maintenance
costs at the Quad-Cities Station.
Property taxes increased due to higher assessed values.
OTHER INCOME
Revenues of subsidiaries decreased due primarily to reduced nonregulated
natural gas sales. In addition, lower margins on gas marketed and lower gas
prices on gas produced reduced revenues.
Other income of subsidiaries in the first quarter of 1995 decreased
compared to the first quarter of 1994 due to gains on the disposition of
special-purpose funds in 1994 which were not duplicated in 1995. The Company's
first quarter 1994 sale of an investment in a leveraged lease, which resulted in
a $1.6 million aftertax gain for that period, also contributed to the decrease
in 1995 compared to the 1994 first quarter.
<PAGE>
Expenses of subsidiaries decreased in the first quarter of 1995 compared to
the first quarter of 1994 due to reduced nonregulated sales of natural gas and
lower expenses associated with gas marketed.
PREFERRED AND PREFERENCE DIVIDENDS
The decrease in the preferred and preference dividends in the first
quarter of 1995 compared to the first quarter of 1994 is due to the
redemption of certain series of outstanding preferred shares in December 1994.
<PAGE>
EXHIBIT 99.4
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS
ENDED MARCH 31
----------------------------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Electric $ 246,231 $ 245,883
Gas 172,352 226,488
--------- ---------
Total 418,583 472,371
--------- ---------
OPERATING EXPENSES AND TAXES
Cost of fuel, energy and capacity 54,050 56,308
Cost of gas sold 108,571 162,076
Cooper Nuclear Station non-fuel costs 21,178 21,680
Other operating expenses 68,892 62,955
Maintenance 21,292 23,391
Depreciation and amortization 38,919 38,231
Income taxes 22,397 24,219
Property and other taxes 26,983 23,227
--------- ---------
Total 362,282 412,087
--------- ---------
OPERATING INCOME 56,301 60,284
--------- ---------
OTHER INCOME
Subsidiaries
Revenues 42,615 56,199
Other Income 7,080 12,774
Expenses (48,650) (63,848)
--------- ---------
Net Income 1,045 5,125
Miscellaneous 20 585
--------- ---------
Total 1,065 5,710
--------- ---------
INCOME BEFORE UTILITY INTEREST CHARGES 57,366 65,994
--------- ---------
UTILITY INTEREST CHARGES
Interest on long-term debt 19,713 18,135
Other interest expense 1,304 1,109
Allowance for borrowed funds (1,228) (718)
--------- ---------
Total 19,789 18,526
--------- ---------
INCOME FROM CONTINUING OPERATIONS 37,577 47,468
LOSS FROM DISCONTINUED OPERATIONS (net of income taxes) - (759)
--------- ---------
NET INCOME 37,577 46,709
PREFERRED AND PREFERENCE DIVIDENDS 2,281 2,573
--------- ---------
EARNINGS ON COMMON STOCK $ 35,296 $ 44,136
--------- ---------
--------- ---------
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 99,869 97,846
--------- ---------
--------- ---------
EARNINGS PER AVERAGE SHARE OF COMMON STOCK
Continuing operations $ 0.35 $ 0.46
Discontinued operations - (0.01)
--------- ---------
Earnings per average share of common stock $ 0.35 $ 0.45
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
AS OF
------------
MARCH 31
------------
1995
------------
(Unaudited)
<S> <C>
ASSETS
UTILITY PLANT
Electric $3,805,609
Gas 663,743
------------
Gross plant 4,469,352
Less accumulated depreciation and amortization 1,923,015
------------
Utility plant, net 2,546,337
Construction work in progress 97,974
------------
Total 2,644,311
------------
POWER PURCHASE CONTRACT 221,083
------------
INVESTMENT IN DISCONTINUED OPERATIONS 869
------------
CURRENT ASSETS
Cash and cash equivalents 55,002
Receivables, less reserves 179,570
Inventories 85,042
Other 23,363
------------
Total 342,977
------------
INVESTMENTS 735,014
------------
OTHER ASSETS 422,214
------------
TOTAL ASSETS $4,366,468
------------
------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity $1,218,476
Nonredeemable preferred shares 89,955
Redeemable preference shares 50,000
Long-term debt 1,389,771
------------
Total 2,748,202
------------
CURRENT LIABILITIES
Notes payable 69,600
Current portion of long-term debt and
purchased power contract 84,791
Accounts payable 116,267
Taxes accrued 108,733
Interest accrued 24,163
Other 47,969
------------
Total 451,523
------------
OTHER LIABILITIES
Power purchase contract 125,729
Deferred income taxes 717,852
Investment tax credit 99,724
Other 223,438
------------
Total 1,166,743
------------
TOTAL CAPITALIZATION AND LIABILITIES $4,366,468
------------
------------
</TABLE>
The accompanying notes are an integral part of these
supplemental consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31
----------------------------------------
1995 1994
---------- ----------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 37,577 46,709
Adjustments to reconcile net income to net cash provided:
Depreciation, depletion and amortization 46,030 44,729
Amortization of advances from capital improvements 2,494 2,755
Amortization of nuclear fuel 2,102 2,213
Net decrease in deferred income taxes and investment
tax credit (9,161) (2,523)
Capitalized cost of real estate sold 465 809
Loss from discontinued operations - 759
Gain on sale of assets and long-term investments (820) (528)
Cash flows resulting from changes in working capital, net of
effects from discontinued operations and exchanges of assets 46,382 53,441
Deferred energy efficiency program costs, net (3,935) (5,092)
Other 10,498 12,863
---------- ----------
Net cash provided 131,632 156,135
---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (40,612) (32,089)
Cooper Nuclear Station capital improvement advances (2,797) (1,752)
Quad-Cities Nuclear Power Station fuel expenditures - (3,202)
Quad-Cities Nuclear Power Station decommissioning trust fund (2,201) (2,186)
Nonregulated capital expenditures (12,569) (16,230)
Purchase of assets and long-term investments (13,637) (41,872)
Proceeds from sale of assets and long-term investments 15,195 36,195
Other investing activities, net 33,943 436
---------- ----------
Net cash used (22,678) (60,700)
---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on common shares (29,118) (28,587)
Dividends paid on preferred and preference shares (2,281) (2,573)
Long-term debt proceeds, net of issuance cost 12,554 15,958
Retirement of long-term debt, net of reacquisition cost (13,618) (345)
Increase (decrease) in InterCoast Energy Company
unsecured revolving credit facility (8,000) 12,500
Issuance of common shares 7,633 3,976
Net decrease in notes payable (98,083)
---------- ----------
Net cash used (87,730) (97,154)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,224 (1,719)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,778 24,289
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 55,002 22,570
---------- ----------
---------- ----------
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized 33,170 36,612
---------- ----------
---------- ----------
Income taxes paid (benefits received) 3,955 (24)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(1) MERGER AND SUPPLEMENTAL FINANCIAL STATEMENTS:
The accompanying Supplemental Consolidated Financial Statements are the same
as the restated financial statements that will be issued after the post-merger
operating results are published. On July 1, 1995, Iowa-Illinois Gas and
Electric Company (Iowa-Illinois or IWG), Midwest Resources Inc. (Resources or
MWR) and Midwest Power Systems Inc. (Midwest Power or MPS) merged with and into
MidAmerican Energy Company (MidAmerican or Company). MidAmerican is structured
as utility company with two wholly-owned non-regulated subsidiaries: InterCoast
Energy Company (InterCoast) and Midwest Capital Group Inc. (MCG). The
supplemental financial statements reflect the accounting for the merger as a
pooling of interests and are presented as if the companies were merged as of the
earliest period shown.
MidAmerican issued its own stock to the shareholders of MWR and IWG.
MWR's common shareholders received one share of MidAmerican common stock for
each MWR share held and IWG's Common shareholders received 1.47 shares of
MidAmerican common stock for each IWG share held.
Operating revenues, income from continuing operations and net income for
the three months ended March 31, 1995, and 1994, were as follows (millions):
<TABLE>
<CAPTION>
Iowa-Illinois Resources MidAmerican
<S> <C> <C> <C>
Year ended March 31, 1995
Operating revenues........... $ 152.3 $ 266.3* $ 418.6
Income from continuing
operations.............. 13.5 24.1 37.6
Net income................... 13.5 24.1 37.6
Year ended March 31, 1994
Operating revenues........... $ 184.9 $ 287.5* $ 472.4
Income from continuing
operations.............. 17.1 30.4 47.5
Net income................... 17.1 29.6 46.7
<FN>
* Resources has been reclassified to reflect only utility revenues as
operating revenues consistent with MidAmerican's presentation.
</TABLE>
These supplemental Consolidated Financial Statements reflect all
adjustments (which include only normal, recurring adjustments) necessary in the
opinion of the Company for a fair presentation of the interim results. These
statements should be read in conjunction with Exhibit 99-3 in this Current
Report on Form 8-K, Resource's 1994 Annual Report on Form 10-K (Commission File
Number 1-10654), Iowa-Illinois' Annual report on Form 10-K (Commission File
Number 1-3573) and Midwest Power's Annual Report on Form 10-K (Commission File
Number 1-12582).
