UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------------
Commission Registrant, State of Incorporation, IRS Employer
File Number Address and Telephone Number Identification No.
- - ----------- ----------------------------------- ------------------
1-12459 MIDAMERICAN ENERGY HOLDINGS COMPANY 42-1451822
(AN IOWA CORPORATION)
666 GRAND AVE. PO BOX 657
DES MOINES, IOWA 50303
515-242-4300
1-11505 MIDAMERICAN ENERGY COMPANY 42-1425214
(AN IOWA CORPORATION)
666 GRAND AVE. PO BOX 657
DES MOINES, IOWA 50303
515-242-4300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X * No
Indicate the number of shares outstanding of each of the issuers' classes
of common stock as of the latest practicable date.
Registrant Class Shares Outstanding at April 30, 1997
- - --------------------- ----------------- ------------------------------------
MidAmerican Energy Common Stock 99,056,513
Holdings Company without par value
MidAmerican Energy Common Stock 100,751,713 (all of which were held by
Company without par value MidAmerican Energy Holdings Company)
* MidAmerican Energy Holdings Company (Holdings) became the parent holding
company for MidAmerican Energy Company (MidAmerican) pursuant to a
statutory share exchange. The effective date of the share exchange was
December 1, 1996, and prior to such effective date, Holdings had no assets
or operations. Prior to such effective date, MidAmerican was subject to the
requirements of section 13 or 15(d) of the Securities Exchange act of 1934,
as amended (Exchange Act), and accordingly filed in a timely manner all
reports required to be filed pursuant to Sections 13 or 15(d) of the
Exchange act during the preceding 12 months.
<PAGE>
This combined Form 10-Q represents separate filings by MidAmerican Energy
Holdings Company (Company or Holdings) and MidAmerican Energy Company
(MidAmerican). MidAmerican makes no representations as to the information
relating to Holdings' nonregulated operations.
MIDAMERICAN ENERGY HOLDINGS COMPANY
AND
MIDAMERICAN ENERGY COMPANY
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements
MidAmerican Energy Holdings Company
Consolidated Statements of Income...................... 3
Consolidated Balance Sheets............................ 4
Consolidated Statements of Cash Flows.................. 5
Notes to Consolidated Financial Statements............. 6
MidAmerican Energy Company
Consolidated Statements of Income...................... 9
Consolidated Balance Sheets............................ 10
Consolidated Statements of Cash Flows.................. 11
Notes to Consolidated Financial Statements............. 12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................... 29
ITEM 6. Exhibits and Reports on Form 8-K....................... 30
Signatures...................................................... 31
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31 ENDED MARCH 31
--------------------- ------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility .................................... $ 254,316 $ 262,274 $1,091,050 $1,110,690
Gas utility ......................................... 211,565 195,986 552,332 483,222
Nonregulated ........................................ 118,514 49,336 306,029 115,040
--------- --------- ---------- ----------
584,395 507,596 1,949,411 1,708,952
--------- --------- ---------- ----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ................ 59,283 61,375 232,225 237,586
Cost of gas sold ................................. 141,833 122,736 364,111 293,190
Other operating expenses ......................... 93,607 87,601 356,180 397,440
Maintenance ...................................... 23,749 18,736 93,634 82,808
Depreciation and amortization .................... 42,008 40,944 165,656 160,975
Property and other taxes ......................... 25,490 25,177 92,943 94,544
--------- --------- ---------- ----------
385,970 356,569 1,304,749 1,266,543
--------- --------- ---------- ----------
Nonregulated:
Cost of sales .................................... 113,206 42,747 288,715 90,713
Other ............................................ 7,986 8,139 35,217 36,270
--------- --------- ---------- ----------
121,192 50,886 323,932 126,983
--------- --------- ---------- ----------
Total operating expenses ......................... 507,162 407,455 1,628,681 1,393,526
--------- --------- ---------- ----------
OPERATING INCOME .................................... 77,233 100,141 320,730 315,426
--------- --------- ---------- ----------
NON-OPERATING INCOME
Interest income ..................................... 1,553 1,505 4,060 4,930
Dividend income ..................................... 3,548 4,506 16,027 17,722
Realized gains and losses on securities, net ........ 518 2,725 (312) 2,988
Other, net .......................................... 3,985 1,672 (1,707) (10,436)
--------- --------- ---------- ----------
9,604 10,408 18,068 15,204
--------- --------- ---------- ----------
INTEREST CHARGES
Interest on long-term debt .......................... 23,463 26,105 100,267 105,143
Other interest expense .............................. 1,329 3,036 9,234 11,125
Preferred dividends of subsidiaries ................. 4,769 2,477 12,981 8,255
Allowance for borrowed funds ........................ (709) (1,436) (3,485) (5,761)
--------- --------- ---------- ----------
28,852 30,182 118,997 118,762
--------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES .............................. 57,985 80,367 219,801 211,868
INCOME TAXES ........................................ 23,811 31,962 90,271 78,705
--------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ................... 34,174 48,405 129,530 133,163
DISCONTINUED OPERATIONS
Income from operations (net of income taxes) ........ 290 2,642 (235) 5,352
Loss on disposal (net of income taxes) .............. (524) -- (15,356) --
--------- --------- ---------- ----------
(234) 2,642 (15,591) 5,352
--------- --------- ---------- ----------
NET INCOME .......................................... $ 33,940 $ 51,047 $ 113,939 $ 138,515
========= ========= ========== ==========
AVERAGE COMMON SHARES OUTSTANDING ................... 100,458 100,752 100,661 100,636
EARNINGS PER COMMON SHARE
Continuing operations ............................... $ 0.34 $ 0.48 $ 1.29 $ 1.33
Discontinued operations ............................. -- 0.03 (0.16) 0.05
--------- --------- ---------- ----------
Earnings per average common share ................... $ 0.34 $ 0.51 $ 1.13 $ 1.38
========= ========= ========== ==========
DIVIDENDS DECLARED PER SHARE ........................ $ 0.30 $ 0.30 $ 1.20 $ 1.19
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
-3-
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
-------------------------------------
MARCH 31 DECEMBER 31
----------------------- -----------
1997 1996 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric ....................................................... $4,033,782 $3,952,937 $4,010,847
Gas ............................................................ 726,906 682,725 723,491
---------- ---------- ----------
4,760,688 4,635,662 4,734,338
Less accumulated depreciation and amortization ................. 2,188,624 2,071,189 2,153,058
---------- ---------- ----------
2,572,064 2,564,473 2,581,280
Construction work in progress .................................. 39,104 69,729 49,305
---------- ---------- ----------
2,611,168 2,634,202 2,630,585
---------- ---------- ----------
POWER PURCHASE CONTRACT ........................................ 190,326 210,651 190,897
---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS .......................... 12,032 171,551 196,356
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents ...................................... 93,005 23,862 97,749
Receivables .................................................... 235,413 206,750 312,930
Inventories .................................................... 59,704 60,671 90,864
Other .......................................................... 14,932 8,824 11,696
---------- ---------- ----------
403,054 300,107 513,239
---------- ---------- ----------
INVESTMENTS .................................................... 608,147 653,552 628,791
---------- ---------- ----------
OTHER ASSETS ................................................... 395,862 407,370 399,415
---------- ---------- ----------
TOTAL ASSETS ................................................... $4,220,589 $4,377,433 $4,559,283
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity .................................... $1,225,953 $1,244,250 $1,239,946
MidAmerican preferred securities, not subject to
mandatory redemption ......................................... 31,766 81,461 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities ............................. 50,000 50,000 50,000
MidAmerican-obligated preferred securities of
subsidiary trust holding solely MidAmerican
junior subordinated debentures ............................ 100,000 -- 100,000
Long-term debt (excluding current portion) ..................... 1,117,234 1,381,240 1,395,103
---------- ---------- ----------
2,524,953 2,756,951 2,816,818
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable .................................................. 40,209 99,800 161,990
Current portion of long-term debt .............................. 154,784 64,859 79,598
Current portion of power purchase contract ..................... 13,718 13,029 13,718
Accounts payable ............................................... 148,331 155,207 169,806
Taxes accrued .................................................. 123,650 90,191 82,254
Interest accrued ............................................... 23,578 24,658 28,513
Other .......................................................... 53,911 21,030 30,229
---------- ---------- ----------
558,181 468,774 566,108
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract ........................................ 97,504 112,700 97,504
Deferred income taxes .......................................... 715,732 723,870 752,336
Investment tax credit .......................................... 87,414 93,591 88,842
Other .......................................................... 236,805 221,547 237,675
---------- ---------- ----------
1,137,455 1,151,708 1,176,357
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ........................... $4,220,589 $4,377,433 $4,559,283
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
-4-
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................... $ 33,940 $ 51,047
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization............................... 48,409 44,965
Net increase (decrease) in deferred income taxes and
investment tax credit, net............................... (34,859) (1,235)
Amortization of other assets................................ 6,878 6,034
Capitalized cost of real estate sold........................ 290 267
Loss (income) from discontinued operations.................. 234 (2,642)
Gain on sale of securities, assets and other investments.... (1,465) (3,070)
Other-than-temporary decline in value of investments........ 160 2,230
Impact of changes in working capital, net of effects
from discontinued operations............................. 144,109 65,776
Other....................................................... (4,335) 2,808
--------- --------
Net cash provided........................................ 193,361 166,180
--------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures............................... (26,603) (28,518)
Quad Cities Nuclear Power Station decommissioning trust fund.... (2,140) (2,159)
Deferred energy efficiency expenditures......................... (3,723) (1,951)
Nonregulated capital expenditures............................... (2,625) (1,292)
Purchase of securities.......................................... (63,343) (82,196)
Proceeds from sale of securities................................ 78,652 81,681
Proceeds from sale of assets and other investments.............. 13,144 183
Investment in discontinued operations........................... 182,749 6,192
Other investing activities, net................................. 1,600 (563)
--------- --------
Net cash provided (used).................................... 177,711 (28,623)
--------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid........................................... (30,179) (30,222)
Retirement of long-term debt, including reacquisition cost...... (29,025) (638)
Reacquisition of preferred shares............................... (3) (8,750)
Reacquisition of common shares.................................. (20,329) -
Decrease in MidAmerican Capital Company
unsecured revolving credit facility......................... (174,500) (22,000)
Net decrease in notes payable................................... (121,780) (85,000)
--------- ---------
Net cash used............................................... (375,816) (146,610)
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................... (4,744) (9,053)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ 97,749 32,915
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 93,005 $ 23,862
========= ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized....................... $ 30,270 $ 35,571
========= ========
Income taxes paid............................................... $ 63 $ 3,090
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
Holdings, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, all adjustments have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented. Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant (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.
MidAmerican is evaluating 27 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action. MidAmerican
is currently conducting field investigations at fifteen of the sites and has
completed investigations at three of the sites. In addition, MidAmerican is
currently removing contaminated soil at four of the sites, and has completed
removals at three of the sites. MidAmerican is continuing to evaluate several of
the sites to determine the future liability, if any, for conducting site
investigations or other site activity.
MidAmerican's estimate of probable remediation costs for the sites
discussed above as of March 31, 1997, is $23 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce Commission (ICC) has approved the use of a tariff rider which permits
recovery of the actual costs of litigation, investigation and remediation
relating to former MGP sites. MidAmerican's present rates in Iowa provide for a
fixed annual recovery of MGP costs. MidAmerican intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.
The estimated recorded liabilities for these properties are based upon
preliminary data. Thus, actual costs could vary significantly from the
estimates. The estimate could change materially based on facts and circumstances
derived from site investigations, changes in required remedial action and
changes in technology relating to remedial alternatives. In addition, insurance
recoveries for some or all of the costs may be possible, but the liabilities
recorded have not been reduced by any estimate of such recoveries.
Although the timing of potential incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on MidAmerican's financial position or results of operations.
C) RATE MATTERS:
On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois. The proposal would provide MidAmerican more flexibility to negotiate
with customers who have service options and to mitigate strandable costs. The
proposal would also reduce regulatory lag in implementing new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated basis, by approximately $25 million annually within five years
and eliminate automatic fuel adjustment clauses. The price reductions, possible
due to merger and restructuring related cost savings, reduce price disparity
within
-6-
<PAGE>
customer classes and would move MidAmerican closer to prices that it believes
can be sustained in a competitive market. The proposal was later withdrawn in
Illinois, and a settlement was negotiated in a related proceeding. The
settlement resulted in annual reductions of $13.1 million and $2.4 million,
effective November 3, 1996, and June 1, 1997, respectively.
On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
Iowa Utilities Board (IUB) to order MidAmerican to reduce its Iowa electric
rates by 10.7%, or approximately $101 million annually, in electric revenues. On
September 6, 1996, the IUB docketed the OCA request and initiated an
investigation into MidAmerican's rates. The IUB also consolidated the
investigation with MidAmerican's alternative regulation and pricing proposal for
purposes of the hearings which were scheduled to begin in January 1997.
Effective November 1, 1996, MidAmerican reduced its electric rates in Iowa $8.7
million annually to the levels in its pricing proposal filed on June 4, 1996.
In January 1997, a settlement agreement between MidAmerican, the OCA and
other parties to the proceeding was negotiated. The agreement, which includes a
number of characteristics of MidAmerican's pricing proposal, is subject to
approval by the IUB. A hearing on the settlement was held on April 23, 1997, and
a decision is expected in the second quarter of 1997. Prices for residential
customers would be reduced $23.5 million annually by June 1, 1998, including the
November 1, 1996, reduction. Rates for commercial and industrial customers would
be reduced a total of $10 million annually by June 1, 1998, through pilot
projects, negotiated rates with individual customers and, if needed, a base rate
reduction effective June 1, 1998. The agreement includes a tracking mechanism to
currently recover the cost of capital improvements from the Cooper Nuclear
Station Power Purchase Contract. The tracking mechanism will offset
approximately $10 million of these reductions.
In addition, the agreement accepts MidAmerican's proposal to eliminate the
energy adjustment clause (EAC) which currently is the mechanism through which
fuel costs are collected from Iowa customers. The EAC flows the cost of fuel to
customers on a current basis, and thus, fuel costs have little impact on net
income. Prospectively, base rates for Iowa customers would include a factor for
recovery of a representative level of fuel costs. To the extent actual fuel
costs vary from that factor, pre-tax earnings would be impacted. The fuel cost
factor would be reviewed in February 1999 and adjusted prospectively if actual
fuel costs vary 15% above or below the factor included in base rates.
Under the agreement, if MidAmerican's annual return on common equity
exceeds 12%, then a sharing between customers and shareholders begins, and if it
exceeds 14%, then a portion of MidAmerican's share would be used for accelerated
recovery of certain regulatory assets. The agreement permits MidAmerican to file
for increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program is limited to 60 MW of participation
the first year and can be expanded by 15 MW annually, with the approval of the
IUB, until the conclusion of the program. Any loss of revenues associated with
the pilot program would be considered part of the $10 million annual reduction
for commercial and industrial customers but may not be recovered from other
non-participating customers. The program is expected to be offered in the fall
of 1997.
As of March 31, 1997, MidAmerican had a $4.3 million liability recorded for
its Iowa electric revenues, plus interest, that were affected by the settlement.
In April 1997, MidAmerican refunded approximately $2.4 million, including
interest, for revenues between August 1, 1996, and October 31, 1996, that were
in excess of those included in the pricing proposal.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible
-7-
<PAGE>
consequence of the changes in the utility industry is that SFAS 71 may no longer
apply. MidAmerican's electric and gas utility operations are currently subject
to the provisions of SFAS 71, but its applicability is periodically reexamined.
If a portion of MidAmerican's utility operations no longer meets the criteria of
SFAS 71, MidAmerican would be required to eliminate from its balance sheet the
regulatory assets and liabilities related to those operations that resulted from
actions of its regulators. Although the amount of such an elimination would
depend on the specific circumstances, a material adjustment to earnings in the
appropriate period could result from discontinuing SFAS 71. As of March 31,
1997, MidAmerican had approximately $371 million of regulatory assets in its
Consolidated Balance Sheet because these costs are expected to be recovered in
charges to utility customers.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
The MidAmerican-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely MidAmerican Junior Subordinated Debentures
included in the Consolidated Balance Sheets were issued by MidAmerican Energy
Financing I (the Trust), a wholly-owned statutory business trust of MidAmerican.
The sole assets of the Trust are $103.1 million of MidAmerican 7.98% Series A
Debentures due 2045.
F) COMMON SHAREHOLDERS' EQUITY:
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of March 31, 1997, the
Company had repurchased 1.2 million shares for $20.3 million.
-8-
<PAGE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED MARCH 31 ENDED MARCH 31
---------------------- ------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility .................................... $ 254,316 $ 262,274 $1,091,050 $1,110,690
Gas utility ......................................... 211,565 195,986 552,332 483,222
--------- --------- ---------- ----------
465,881 458,260 1,643,382 1,593,912
--------- --------- ---------- ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity ................... 59,283 61,375 232,225 237,586
Cost of gas sold .................................... 141,833 122,736 364,111 293,190
Other operating expenses ............................ 93,607 87,601 356,180 397,440
Maintenance ......................................... 23,749 18,736 93,634 82,808
Depreciation and amortization ....................... 42,008 40,944 165,656 160,975
Property and other taxes ............................ 25,490 25,177 92,943 94,544
Income taxes ........................................ 23,504 32,330 102,380 95,333
--------- ---------- ---------- ----------
409,474 388,899 1,407,129 1,361,876
--------- --------- ---------- ----------
OPERATING INCOME .................................... 56,407 69,361 236,253 232,036
--------- --------- ---------- ----------
NON-OPERATING INCOME
Interest and dividend income ........................ 906 512 1,992 1,432
Non-operating income taxes .......................... (919) 207 (2,847) 1,446
Other, net .......................................... 1,331 (948) 4,679 (5,947)
--------- ---------- ---------- ----------
1,318 (229) 3,824 (3,069)
--------- ---------- ---------- ----------
INTEREST CHARGES
Interest on long-term debt .......................... 19,886 19,826 79,494 79,937
Other interest expense .............................. 1,329 3,323 8,848 11,415
Preferred dividends of subsidiary trust ............. 1,995 -- 2,283 --
Allowance for borrowed funds ........................ (709) (1,436) (3,485) (5,761)
--------- --------- ---------- ----------
22,501 21,713 87,140 85,591
--------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ................... 35,224 47,419 152,937 143,376
INCOME (LOSS) FROM DISCONTINUED OPERATIONS .......... -- 6,105 (16,266) 3,394
--------- --------- ---------- ----------
NET INCOME .......................................... 35,224 53,524 136,671 146,770
PREFERRED DIVIDENDS ................................. 2,774 2,477 10,698 8,255
--------- --------- ---------- ----------
EARNINGS ON COMMON STOCK ............................ $ 32,450 $ 51,047 $ 125,973 $ 138,515
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-9-
<PAGE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
-------------------------------------
MARCH 31 DECEMBER 31
----------------------- -----------
1997 1996 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric ....................................................... $4,036,785 $3,955,941 $4,013,851
Gas ............................................................ 726,906 682,725 723,491
---------- ---------- ----------
4,763,691 4,638,666 4,737,342
Less accumulated depreciation and amortization ................. 2,190,212 2,072,255 2,154,505
---------- ---------- ----------
2,573,479 2,566,411 2,582,837
Construction work in progress .................................. 39,104 69,729 49,305
---------- ---------- ----------
2,612,583 2,636,140 2,632,142
---------- ---------- ----------
POWER PURCHASE CONTRACT ........................................ 190,326 210,651 190,897
---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS .......................... -- 289,272 --
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents ...................................... 22,920 10,831 84,215
Receivables .................................................... 194,823 179,523 253,944
Inventories .................................................... 59,704 60,671 90,864
Other .......................................................... 5,018 3,346 7,776
---------- ---------- ----------
282,465 254,371 436,799
---------- ---------- ----------
INVESTMENTS .................................................... 94,513 106,140 118,344
---------- ---------- ----------
OTHER ASSETS ................................................... 380,528 404,908 396,471
---------- ---------- ----------
TOTAL ASSETS ................................................... $3,560,415 $3,901,482 $3,774,653
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity .................................... $ 987,880 $1,244,250 $ 986,825
MidAmerican preferred securities, not subject to
mandatory redemption ......................................... 31,766 81,461 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities ............................. 50,000 50,000 50,000
MidAmerican-obligated preferred securities of
subsidiary trust holding solely MidAmerican
junior subordinated debentures ............................ 100,000 -- 100,000
Long-term debt (excluding current portion) ..................... 982,623 1,109,563 1,086,955
---------- ---------- ----------
2,152,269 2,485,274 2,255,549
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable .................................................. 40,025 99,800 161,700
Current portion of long-term debt .............................. 125,068 917 49,560
Current portion of power purchase contract ..................... 13,718 13,029 13,718
Accounts payable ............................................... 121,125 139,354 122,974
Taxes accrued .................................................. 86,570 89,654 82,338
Interest accrued ............................................... 17,611 18,519 24,245
Other .......................................................... 23,318 15,868 24,452
---------- ---------- ----------
427,435 377,141 478,987
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract ........................................ 97,504 112,700 97,504
Deferred income taxes .......................................... 616,207 618,761 616,567
Investment tax credit .......................................... 87,414 93,591 88,842
Other .......................................................... 179,586 214,015 237,204
---------- ---------- ----------
980,711 1,039,067 1,040,117
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ........................... $3,560,415 $3,901,482 $3,774,653
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
-10-
<PAGE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ..................................................... $ 35,224 $ 53,524
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ................................ 47,644 46,637
Net decrease in deferred income taxes and
investment tax credit, net ................................. (1,789) (496)
Amortization of other assets ................................. 6,620 5,258
Income from discontinued operations .......................... -- (6,105)
Other-than-temporary decline in value of investments ......... -- 2,230
Impact of changes in working capital, net of effects from
discontinued operations .................................... 87,654 60,059
Other ........................................................ (17,468) (9,576)
--------- ---------
Net cash provided .......................................... 157,885 151,531
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .............................. (26,603) (28,518)
Quad Cities Nuclear Power Station decommissioning trust fund ... (2,140) (2,159)
Deferred energy efficiency expenditures ........................ (3,723) (1,951)
Nonregulated capital expenditures .............................. (1,704) (325)
Investment in discontinued operations .......................... -- 9,818
Other investing activities, net ................................ 98 349
--------- ---------
Net cash used ................................................ (34,072) (22,786)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ................................................. (34,274) (32,699)
Retirement of long-term debt, including reacquisition cost ..... (29,156) (166)
Reacquisition of preferred shares .............................. (3) (8,750)
Net decrease in notes payable .................................. (121,675) (85,000)
--------- ---------
Net cash used ................................................ (185,108) (126,615)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (61,295) 2,130
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 84,215 8,701
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 22,920 $ 10,831
========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ...................... $ 30,448 $ 28,050
========= =========
Income taxes paid .............................................. $ 13,218 $ 4,412
========= =========
</TABLE>
The accompanying notes are an integral part of these statements
-11-
<PAGE>
MIDAMERICAN ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
MidAmerican, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of MidAmerican, all adjustments have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented. Although MidAmerican believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in
MidAmerican's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
Refer to Note B of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's environmental matters.
C) RATE MATTERS:
Refer to Note C of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Refer to Note D of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's accounting for the effects of certain types
of regulation.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
Refer to Note E of Holdings' Notes to Consolidated Financial Statements for
information regarding the MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities.
-12-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
------------
COMPANY STRUCTURE
MidAmerican Energy Holdings Company (Holdings or the Company), is an exempt
public utility holding company headquartered in Des Moines, Iowa. Effective
December 1, 1996, Holdings became the parent company of MidAmerican Energy
Company (MidAmerican), MidAmerican Capital Company (MidAmerican Capital) and
Midwest Capital Group, Inc. (Midwest Capital). Prior to December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.
MidAmerican was formed on July 1, 1995, as a result of the merger (the
merger) of Iowa-Illinois Gas and Electric Company, Midwest Resources Inc.
(Resources) and Midwest Power Systems Inc., the utility subsidiary of Resources.
MidAmerican is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital and Midwest
Capital are Holdings' nonregulated subsidiaries. Midwest Capital functions as a
regional business development company in MidAmerican's utility service
territory. During the second quarter of 1996, the Company restructured the
former InterCoast Energy Company and changed the subsidiary's name to
MidAmerican Capital Company. MidAmerican Capital manages the rail service
businesses, the marketable securities and passive investment activities,
nonregulated retail natural gas businesses and other energy related,
nonregulated activities. The Company completed the sale of MidAmerican Capital's
oil and gas exploration and development operations in January 1997.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The MidAmerican merger is accounted for as a pooling-of-interests, and the
consolidated financial statements are presented as if the merger occurred as of
the beginning of the earliest period presented. In addition, the consolidated
financial statements of MidAmerican present amounts related to MidAmerican
Capital and Midwest Capital as discontinued operations for all periods that
include months prior to December 1, 1996, in order to reflect their transfer to
Holdings in December 1996.
This management's discussion and analysis addresses the financial
statements of Holdings and MidAmerican as presented in this joint filing.
Information related to MidAmerican also relates to Holdings. Information related
to MidAmerican Capital and Midwest Capital pertains only to the discussion of
the financial condition and results of operations of Holdings. To the extent
necessary, certain discussions have been segregated to allow the reader to
identify information applicable only to Holdings.
FORWARD-LOOKING STATEMENTS
From time to time, the Company or one of its subsidiaries individually may
make forward-looking statements within the meaning of the federal securities
laws that involve judgments, assumptions and other uncertainties beyond the
control of the Company or any of its subsidiaries individually. These
forward-looking statements may include, among others, statements concerning
revenue and cost trends, cost recovery, cost reduction strategies and
anticipated outcomes, pricing strategies, changes in the utility industry,
planned capital
-13-
<PAGE>
expenditures, financing needs and availability, statements of the Company's
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar comments concerning matters that are not historical facts. Investors
and other users of the forward-looking statements are cautioned that such
statements are not a guarantee of future performance of the Company and that
such forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in, or
implied by, such statements. Some, but not all, of the risks and uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory, interest rates,
inflation and federal and state regulatory actions.
RESULTS OF OPERATIONS
---------------------
Holdings:
- - ---------
The following table provides a summary of the earnings contributions of the
Company's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended March 31
--------------------------------------
Three Months Twelve Months
---------------- -------------------
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net Income (in millions)
Continuing operations
Electric utility $ 13.6 $ 22.1 $ 114.3 $ 115.3
Gas utility 18.8 22.8 27.9 19.8
------- ------- ------- -------
Total 32.4 44.9 142.2 135.1
Nonregulated operations 1.7 3.5 (12.7) (2.0)
Discontinued operations (0.2) 2.6 (15.6) 5.4
------- ------- ------- -------
Consolidated earnings $ 33.9 $ 51.0 $ 113.9 $ 138.5
======= ======= ======= =======
Earnings Per Common Share
Continuing operations
Electric utility $ 0.13 $ 0.22 $ 1.13 $ 1.15
Gas utility 0.19 0.23 0.28 0.20
------- ------- ------- -------
Total 0.32 0.45 1.41 1.35
Nonregulated operations 0.02 0.03 (0.12) (0.02)
Discontinued operations -- 0.03 (0.16) 0.05
------- ------- ------- -------
Consolidated earnings $ 0.34 $ 0.51 $ 1.13 $ 1.38
======= ======= ======= =======
</TABLE>
-14-
<PAGE>
MidAmerican:
- - ------------
The following table provides a summary of the earnings contributions of
MidAmerican's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended March 31
-------------------------------------------
Three Months Twelve Months
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
Earnings on Common Stock
Continuing operations
Electric utility $ 13.6 $ 22.1 $ 114.3 $ 115.3
Gas utility 18.8 22.8 27.9 19.8
------- ------- ------- -------
Total 32.4 44.9 142.2 135.1
Discontinued operations* -- 6.1 (16.2) 3.4
------- ------- ------- -------
Consolidated earnings $ 32.4 $ 51.0 $ 126.0 $ 138.5
======= ======= ======= =======
</TABLE>
* Includes the income (loss) of MidAmerican Capital and Midwest Capital prior
to their transfer to Holdings on December 1, 1996.
EARNINGS DISCUSSION
The Company's earnings per share for the first quarter of 1997 decreased 17
cents compared to the 1996 first quarter. Some of the significant variances
which resulted in the decrease are as follows, on a Holdings per share basis:
MidAmerican
Net reduction in electric and gas
gross margin due to -
Variation in the effect of weather $ (0.05)
Electric retail rate reduction (0.03)
Improvements due to other factors 0.02
Increase in nuclear O&M expenses (0.03)
Increase in other O&M expenses (0.03)
Losses on reaquired preferred stock
and reacquired long-term debt (0.02)
Nonregulated subsidiaries continuing operations (0.01)
Discontinued operations (0.03)
Earnings for the twelve months ended March 31, 1997, decreased 25 cents per
share compared to twelve months ended March 31, 1996. The impact of discontinued
operations resulted in a 21 cents per share decrease. Utility electric and gas
margins decreased 9 cents per share due to a less favorable impact of weather
and rate reductions. An increase in utility maintenance expenses resulted in a 6
cents per share decrease. Earnings of nonregulated subsidiaries for the twelve
months ended March 31, 1996, included 5 cents per share from gains on the sales
of a telecommunications subsidiary and a partnership interest in a gas marketing
organization. Following is a discussion of several other significant factors
affecting the twelve months ended comparison.
-15-
<PAGE>
In August 1996, the Company announced a proposal to merge with IES
Industries Inc. (IES), a holding company headquartered in Cedar Rapids, Iowa.
The IES board of directors rejected the Company's proposal in favor of a pending
merger with WPL Holdings and Interstate Power Co. (the Wisconsin Transaction).
At their September 5, 1996, annual meeting, the holders of a majority of IES
common stock voted in favor of the Wisconsin Transaction, and the Company
discontinued its attempt to merge with IES. In the effort, MidAmerican incurred
tax deductible costs of $8.7 million in 1996 which reduced earnings by 5 cents
per share for the 1997 twelve-month period.
The Company's and MidAmerican's earnings for twelve months ended March 31,
1996, were reduced by costs related to the MidAmerican merger. As part of the
process of combining the operations of MidAmerican's predecessors, the Company
developed a restructuring plan which included employee incentive early
retirement, relocation and separation programs. The Company recorded $33.4
million of restructuring costs during the twelve months ended March 31, 1996, of
which $31.9 million is included in utility operations. These costs are reflected
in Other Operating Expenses in the Consolidated Statements of Income.
In addition, MidAmerican incurred transaction costs to complete the merger.
MidAmerican expensed $4.4 million of merger transaction costs in the twelve
months ended March 31, 1996. These costs are included in Other, Net in the
Consolidated Statements of Income.
In total, restructuring and transaction costs reduced the Company's
earnings for the 1996 twelve-month period by 24 cents per share.
Write-downs of certain assets, primarily alternative energy projects, of
the Company's nonregulated subsidiaries reduced earnings for each of the twelve
months ended March 31. The write-downs, which reflect declines in the value of
those nonregulated investments, reduced earnings by approximately $9.4 million,
or 9 cents per share, and $10.2 million, or 10 cents per share, in the 1997 and
1996 twelve-month periods, respectively. The pre-tax amounts of the write-downs,
which are included in Other, Net in the Consolidated Statements of Income,
totaled $15.6 million and $18.0 million for the 1997 and 1996 periods,
respectively.
Discontinued Operations -
Holdings:
- - ---------
The Company is redeploying certain of its nonregulated investments as part
of its strategy of becoming the leading regional provider of energy and
complementary services. As discussed below, the Company discontinued some of its
nonregulated operations during the second half of 1996. The related income or
loss from operations and the anticipated losses on disposal are reflected as
discontinued operations in each of the periods presented in the Consolidated
Statements of Income. Net assets of the discontinued operations are separately
presented in the Consolidated Balance Sheets as Investment in Discontinued
Operations.
In the fourth quarter of 1996, the Company and KCS Energy, Inc. (KCS) of
Edison, New Jersey, signed a definitive agreement to sell a portion of the
Company's nonregulated operations to KCS for $210 million in cash and 435,000
warrants to purchase KCS common stock. The sale, which included the Company's
oil and gas exploration and development operations, was completed in January
1997. The Company recorded an after-tax loss of $7.1 million for the transaction
in 1996 and an additional $0.5 million in the first quarter of 1997.
-16-
<PAGE>
The Company also intends to divest a subsidiary that developed and
continues to operate a computerized information system facilitating real-time
exchange of power in the electric industry. The Company expects the disposition
to occur during the second quarter of 1997 and, accordingly, recorded a $4.0
million anticipated after-tax loss on disposal of those operations in September
1996.
MidAmerican:
- - ------------
MidAmerican received $15.3 million in cash in 1996 as final settlement for
the sale of a former coal mining subsidiary which was reflected as discontinued
operations in 1982 by one of MidAmerican's predecessors. The final settlement
included reacquisition by the buyer of preferred equity issued to MidAmerican
and the settlement of reclamation reserves. MidAmerican recorded an after-tax
loss on disposal of $3.3 million for the transaction in September 1996. This
transaction is included in discontinued operations in the consolidated financial
statements of MidAmerican as well as Holdings. Discontinued operations of
MidAmerican also includes the net earnings/loss of MidAmerican Capital and
Midwest Capital for periods including months prior to the December 1, 1996,
transfer to Holdings.
UTILITY GROSS MARGIN
Electric Gross Margin:
---------------------
<TABLE>
<CAPTION>
Periods Ended March 31
----------------------------
Three Months Twelve Months
------------ -------------
1997 1996 1997 1996
---- ---- ------ ------
(In millions)
<S> <C> <C> <C> <C>
Operating revenues $254 $262 $1,091 $1,111
Cost of fuel, energy and capacity 59 61 232 238
---- ---- ------ ------
Electric gross margin $195 $201 $ 859 $ 873
==== ==== ====== ======
</TABLE>
Variations in gross margin are the result of changes in revenues due to
price and sales volume variances. Changes in the cost of electric fuel, energy
and capacity (collectively, Energy Costs) reflect fluctuations in generation
levels and mix, fuel cost, and energy and capacity purchases. MidAmerican has
been allowed to recover Energy Costs from most of its electric utility customers
through energy adjustment clauses (EACs) in revenues. Variations in revenues
collected through the EACs, reflecting changes in Energy Costs per unit sold and
volumes sold, do not affect gross margin or net income. Refer to "Rate Matters"
under the Operating Activities and Other Matters section of Liquidity and
Capital Resources for proposed changes in the recovery of fuel costs in Iowa.
Electric gross margin for three months ended March 31, 1997, decreased
compared to the 1996 three-month period due to warmer 1997 temperatures and rate
reductions. Weather in the first quarter of 1997 was milder than normal
resulting in a $3 million reduction in electric gross margin in the 1997 first
quarter while weather in the 1996 first quarter was colder than normal,
contributing $2 million to the electric margin for that period. Reductions in
electric retail rates decreased margin by $5.1 million compared to the first
quarter of 1996. In total, electric retail sales increased 1% due to modest
customer growth and an improvement in sales not dependent upon weather. Sales to
the more weather-sensitive customers have a higher margin per unit than sales to
other customers and, therefore, affect gross margin to a greater degree.
The reduction in electric rates was the result of two rate reductions
effective in 1996. In October 1996, the Illinois Commerce Commission (ICC)
ordered MidAmerican to reduce rates for its Illinois customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A negotiated termination
of the rate
-17-
<PAGE>
reduction proceeding left in place the initial $13.1 million annual reduction
and included a second price reduction of $2.4 million annually to be effective
on June 1, 1997. In Iowa, MidAmerican reduced its electric retail rates by $8.7
million effective November 1, 1996. The reduction lowered rates to levels in
MidAmerican's pricing proposal filed on June 4, 1996. Refer to "Rate Matters" in
Liquidity and Capital Resources later in this discussion for further information
regarding the status of the Iowa proceeding.
Electric gross margin decreased $14 million for the twelve months ended
March 31, 1997, compared to the 1996 period. In addition to the impact of
weather discussed above, cooler weather conditions in the 1996 third quarter
compared to the 1995 third quarter caused a decrease in weather-related sales.
In total, electric retail sales increased 1% due to modest customer growth and
an improvement in sales not dependent upon weather. As mentioned above, sales to
the more weather-sensitive customers have a higher margin per unit than sales to
other customers. As a result, the decrease in sales to those customers had a
greater impact on margin than increases in sales to other customers. The rate
reductions discussed above also contributed to the decrease in electric gross
margin for the twelve months ended comparison. In addition, electric revenues
and gross margin were reduced by $3.7 million in the twelve months ended March
31, 1997, for a rate refund reserve for revenues between August 1 and October
31, 1996, in connection with the Iowa proceeding.
<TABLE>
<CAPTION>
Gas Gross Margin:
----------------- Periods Ended March 31
-------------------------------
Three Months Twelve Months
------------ -------------
1997 1996 1997 1996
---- ---- ------ ------
(In millions)
<S> <C> <C> <C> <C>
Operating revenues $212 $196 $ 552 $ 483
Cost of gas sold 142 123 364 293
---- ---- ------ ------
Gas gross margin $ 70 $ 73 $ 188 $ 190
==== ==== ====== ======
</TABLE>
Variations in gas gross margin are the result of changes in revenues due to
price and sales volume variances. MidAmerican has been allowed to recover in
revenues the cost of gas sold from most of its gas utility customers through
purchase gas adjustment clauses (PGAs). Variations in revenues collected through
the PGAs, reflecting changes in the cost of gas per unit and volumes sold, do
not affect gross margin or net income.
Gas gross margin for three months ended March 31, 1997, decreased $3
million compared to the 1996 three-month period due to warmer 1997 weather.
Weather in the first quarter of 1997 was milder than normal resulting in a $1
million decrease in gas gross margin while weather in the 1996 first quarter was
colder than normal, contributing $2 million to the gas margin for that period.
Retail sales of natural gas decreased 10% compared to the first quarter of 1996.
Gas gross margin decreased $2 million for the twelve months ended March 31,
1997, compared to the 1996 period. The decrease is due primarily to the impact
of weather. Retail sales of natural gas decreased 7% compared to twelve months
ended March 31, 1996.
UTILITY OPERATING EXPENSES
Utility other operating expenses increased for three months ended March 31,
1997, compared to the 1996 three-month period due to a $2.7 million increase in
operating costs at the Quad Cities Nuclear Station (Quad Cities Station) and
increases in consulting services fees, uncollectible accounts expense, employee
benefits costs and various operations expenses. The decrease in utility other
operating expenses for the 1997 twelve months ended period was due primarily to
costs in the 1996 period of the restructuring plan discussed under "Earnings" in
the Results of Operations section. In addition, the 1997 twelve-month period
includes
-18-
<PAGE>
a full year of cost savings resulting from the merger. Nuclear operations costs
decreased $2.2 million for the twelve months ended March 31, 1997, compared to
the 1996 period. The decreases were partially offset by increases in consulting
services fees, uncollectible accounts expense, marketing expenses and regulatory
costs related to ratemaking activity.
Maintenance expenses increased for each 1997 period compared to the
respective 1996 periods. The timing of power plant maintenance and increased
nuclear maintenance costs accounted for much of the variation between the
periods. For the 1997 three months ended period, steam power maintenance
increased $1.8 million and maintenance costs at the Quad Cities Station
increased $2.6 million compared to the 1996 period. For the twelve months ended
comparison, steam power maintenance increased $3.4 million. This increase
includes an offsetting reduction from a $6.2 million adjustment in the 1996
fourth quarter to align inventory accounting of predecessor companies.
Maintenance expense for the Quad Cities Station increased $4.7 million for the
1997 period compared to the 1996 twelve-month period. Based on information
currently available, MidAmerican expects 1997 nuclear operations and maintenance
expenses to be substantially above the 1996 level due in part to outage costs
and other activities at the Quad Cities Station.
Property and other taxes decreased for the 1997 twelve-month period
compared to the 1996 twelve-month period due to a reduction in assessments for
regulatory activities.
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- - ---------
Revenues of MidAmerican Capital and Midwest Capital increased a total of
$69.2 million and $191.0 million for the three-month and twelve-month periods
ended March 31, 1997, relative to the comparable 1996 periods. The increase was
due primarily to respective increases of $67.1 million and $182.9 million in
revenues from natural gas marketing subsidiaries, one of which did not exist in
1995. Sales volumes for the natural gas marketing firms increased 22 million
MMBtu's (150%) for the 1997 three months ended period and 69 million MMBtu's
(187%) for the 1997 twelve months ended period compared to the 1996 periods. In
addition, the average price of natural gas increased for the 1997 periods
compared to the 1996 levels.
Cost of sales includes expenses directly related to sales of natural gas.
Increases in gas sales volumes and cost per unit resulted in the increase in the
cost of sales for each 1997 period compared to the 1996 periods.
Average margins (total price less cost of gas) on sales of natural gas
decreased in the 1997 periods compared to the 1996 periods due in part to
increased competition in the nonregulated natural gas industry. Compared to the
1996 periods, total gross margin on nonregulated natural gas sales decreased
$1.7 million and $4.9 million for the three months and twelve months ended March
31, 1997, periods, respectively.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- - ------------
Other, Net -
During the first quarter of 1996, MidAmerican recorded a reserve of $2.2
million for a dispute with a vendor. In the fourth quarter of 1996, the reserve
was reversed following successful resolution of the dispute. The accrual and
reversal resulted in a $4.4 million impact on the comparison of the twelve
months ended periods. During the twelve months ended March 31, 1997, MidAmerican
recorded a pre-tax gain of $3.2
-19-
<PAGE>
million on the sale of certain storage gas supplies and $2.7 million of income
as a result of successful performance under its incentive gas procurement
program. Other, Net for the 1997 twelve months ended period was reduced by $8.7
million for costs incurred by MidAmerican for its merger proposal to IES
Industries Inc. Merger transaction costs related to MidAmerican's 1995 merger
reduced Other, Net for the twelve months ended March 31, 1996, by $4.4 million.
Interest Charges -
A decrease in the average amount of commercial paper outstanding compared
to the 1996 first quarter was the cause of the decrease in other interest
expense for the 1997 three-months ended period. Interest expense related to IRS
settlements in the 1996 twelve-month period resulted in higher expense for that
period.
Holdings:
- - ---------
Realized Gains and Losses on Securities, Net -
Net realized gains on securities decreased for the 1997 three-month and
twelve-month periods compared to the 1996 periods. During the first quarter of
1996, MidAmerican Capital began liquidation of certain common equity fund
holdings, realizing gains on such sales. In the first quarter of 1997,
MidAmerican Capital began liquidation of its special purpose fund investments,
but did not have net gains comparable to those in the first quarter of 1996.
Losses on continued liquidation of common equity fund holdings and managed
preferred stock portfolios in the last nine months of 1996 resulted in a net
loss on securities for the twelve months ended March 31, 1997.
Other, Net -
As discussed in the "Earnings" section at the beginning of Results of
Operations, write-downs of nonregulated investments decreased Other, Net by
$15.6 million and $18.0 million for the 1997 and 1996 twelve months ended March
31 periods, respectively. The $18.0 million includes a $3.0 million write-down
in December 1995 of the Hub Tower, a Des Moines office building. The carrying
value of the property was previously written down by $5.8 million in 1992 to
reflect then anticipated market values. In the third quarter of 1996, Midwest
Capital recorded a $1.8 million pre-tax gain on the sale of the Hub Tower. The
1996 twelve-month period includes pre-tax gains totaling $8.5 million on the
sales of a partnership interest in a gas marketing organization and a
telecommunication subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has available a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, construction expenditures, dividends, debt retirement
and other capital requirements.
For the first three months of 1997, Holdings had net cash provided from
operating activities of $193 million compared to $166 million for the same
period in 1996. MidAmerican's net cash provided from operating activities was
$158 million for the first quarter of 1997 and $152 million for the first
quarter of 1996.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- - ------------
MidAmerican's primary need for capital is utility construction
expenditures. Utility construction
-20-
<PAGE>
expenditures, including allowance for funds used during construction (AFUDC),
Quad Cities Station nuclear fuel purchases and Cooper Nuclear Station (Cooper)
capital improvements, were $27 million for the first quarter of 1997. All such
expenditures were met with cash generated from utility operations, net of
dividends.
Forecasted utility construction expenditures for 1997 are $200 million
including AFUDC. Capital expenditures needs are reviewed regularly by
MidAmerican's management and may change significantly as a result of such
reviews. For the years 1997 through 2001, MidAmerican forecasts $840 million for
utility construction expenditures. MidAmerican presently expects that all
utility construction expenditures for 1997 through 2001 will be met with cash
generated from utility operations, net of dividends. The actual level of cash
generated from utility operations is affected by, among other things, economic
conditions in the utility service territory, weather and federal and state
regulatory actions.
Operators of a nuclear facility are required to set aside funds to provide
for costs of future decommissioning of their nuclear facility. In general,
decommissioning of a nuclear facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator. Based on information presently available, MidAmerican expects to
contribute approximately $47 million during the period 1997 through 2001 to an
external trust established for the investment of funds for decommissioning the
Quad Cities Station. Currently, the funds are invested predominately in
investment grade municipal and U.S. Treasury bonds. In 1997, MidAmerican
directed the trust to begin investing a portion of the funds in domestic
corporate debt and common equity securities. In addition, a portion of the
payments made under a power purchase contract with Nebraska Public Power
District (NPPD) are for decommissioning funding related to Cooper. The Cooper
costs are reflected in Other Operating Expenses in the Consolidated Statements
of Income. Based on NPPD estimates, MidAmerican expects to pay approximately $59
million to NPPD for Cooper decommissioning during the period 1997 through 2001.
NPPD invests the funds predominantly in U.S. Treasury Bonds. MidAmerican's
obligation for Cooper decommissioning may be affected by the actual plant
shutdown date and the status of the power purchase contract at that time.
MidAmerican currently recovers Quad Cities Station decommissioning costs charged
to Illinois customers through a rate rider on customer billings. Cooper and Quad
Cities Station decommissioning costs charged to Iowa customers are included in
base rates, and increases in those amounts must be sought through the normal
ratemaking process.
Holdings:
- - ---------
Capital expenditures of nonregulated subsidiaries were $3 million for the
first quarter of 1997. Capital expenditures of nonregulated subsidiaries depend
primarily upon the availability of suitable investment opportunities which meet
the Company's objectives. The Company continues to evaluate nonstrategic,
nonregulated investments and may redeploy certain assets in 1997. External
financing may also be used to provide for nonregulated capital expenditures.
MidAmerican Capital invests in a variety of marketable securities which it
holds for indefinite periods of time. In the Consolidated Statements of Cash
Flows, the lines Purchase of Securities and Proceeds from Sale of Securities
consist primarily of the gross amounts of these activities, including realized
gains and losses on investments in marketable securities.
FINANCING ACTIVITIES, PLANS AND AVAILABILITY
MidAmerican:
- - ------------
MidAmerican currently has authority from the Federal Energy Regulatory
Commission (FERC) to issue short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of
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March 31, 1997, MidAmerican had a $250 million revolving credit facility
agreement and a $10 million line of credit to provide short-term financing for
utility operations. MidAmerican's commercial paper borrowings, which totaled $40
million at March 31, 1997, are supported by the revolving credit facility and
the line of credit. MidAmerican also has a revolving credit facility which is
dedicated to provide liquidity for its obligations under outstanding pollution
control revenue bonds that are periodically remarketed.
During 1996, MidAmerican redeemed all shares of its $1.7375 Series of
preferred securities. In October, MidAmerican reacquired $28 million of its
6.95% Series first mortgage bonds due 2025 and $3.5 million of its 7.45% Series
first mortgage bonds due 2023. In December 1996, MidAmerican issued $103 million
of 7.98% Series subordinated debt debentures to a subsidiary statutory business
trust which in turn issued $100 million of 7.98% Series A redeemable preferred
securities. MidAmerican also issued in December 1996 $100 million of 6 1/2%
Medium-Term Notes due 2001. Proceeds from these financings were used to redeem
all $40 million of MidAmerican's 8.15% Series first mortgage bonds due 2001 and
the remaining $45.8 million of $1.7375 Series preferred securities mentioned
above. The balance of the proceeds was used to reduce commercial paper
outstanding.
During the first quarter of 1997, MidAmerican repurchased $19.6 million of
7.45% Series first mortgage bonds and $9.5 million of its 7.0% Series first
mortgage bonds.
MidAmerican currently has regulatory authority to issue an additional $300
million of preferred securities and long-term debt, including its medium-term
note program. It is management's intent to refinance certain MidAmerican debt
securities with additional issuances of unsecured debt and preferred securities
of a subsidiary trust as market conditions allow.
As of March 31, 1997, MidAmerican had $449 million of long-term debt
maturities and sinking fund requirements for 1997 through 2001.
Credit Ratings -
MidAmerican's access to external capital and its cost of capital are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of May 2, 1997, are shown in the table below. The ratings reflect only the
views of such rating agencies, and each rating should be evaluated independently
of any other rating. Generally, rating agencies base their ratings on
information furnished to them by the issuing company and on investigation,
studies and assumptions by the rating agencies. There is no assurance that any
particular rating will continue for any given period of time or that it will not
be changed or withdrawn entirely if in the judgment of the rating agency
circumstances so warrant. Such ratings are not a recommendation to buy, sell or
hold securities.
Moody's
Investors Standard
Service & Poor's
Mortgage Bonds A2 A+
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
The following is a summary of the meanings of the ratings shown above and
the relative rank of MidAmerican's rating within each agency's classification
system.
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<PAGE>
Moody's top four bond ratings (Aaa, Aa, A and Baa) are generally considered
"investment grade." Obligations which are rated "A" possess many favorable
investment attributes and are considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment sometime in
the future. A numerical modifier ranks the security within the category with a
"1" indicating the high end, a "2" indicating the mid-range and a "3" indicating
the low end of the category. Standard & Poor's top four bond ratings (AAA, AA, A
and BBB) are considered "investment grade". Debt rated "A" has a strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in economic conditions than debt in higher rated
categories. Standard & Poor's may use a plus (+) or minus (-) sign after ratings
to designate the relative position of a credit within the rating category.
Ratings of preferred stocks are an indication of a company's ability to pay
the preferred dividend and any sinking fund obligations on a timely basis.
Moody's top four preferred stock ratings (aaa, aa, a and baa) are generally
considered "investment grade". Moody's "a" rating is considered to be an upper
medium grade preferred stock. Earnings and asset protection are expected to be
maintained at adequate levels in the foreseeable future. Standard & Poor's top
four preferred stock ratings (AAA, AA, A and BBB) are considered "investment
grade". Standard & Poor's "A" rating indicates adequate earnings and asset
protection.
Moody's top three commercial paper ratings (P-1, P-2 and P-3) are generally
considered "investment grade". Issuers rated "P-1" have a superior ability for
repayment of senior short-term debt obligations and repayment ability is often
evidenced by a conservative structure, broad margins in earnings coverage of
fixed financial charges and well established access to a range of financial
markets and assured sources of alternate liquidity. Standard & Poor's commercial
paper ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity less than 365 days. The top three Standard &
Poor's commercial paper ratings (A-1, A-2 and A-3) are considered "investment
grade". Issues rated "A-1" indicate that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety are denoted with a plus (+) sign designation.
Preferred Dividends -
Preferred dividends include net gains or losses on the reacquisition of
MidAmerican preferred shares. Net losses on reacquisitions totaled $1.4 million
and $2.8 million for the 1997 three-month and twelve-month periods,
respectively, and $0.2 million for the comparable 1996 periods. Excluding these
losses, preferred dividends increased for the first quarter of 1997 compared to
the first quarter of 1996 due to the increase in preferred stock outstanding.
Holdings:
- - ---------
As of March 31, 1997, Holdings had lines of credit in the amount of $40
million available to provide for short-term financing needs.
In addition, Holdings has the necessary authority to issue shares of its
common stock through its Shareholder Options Plan (a dividend reinvestment and
stock purchase plan). Since July 1, 1995, the Company has used open market
purchases of its common stock rather than original issue shares to meet share
obligations under its Employee Stock Purchase Plan and the Shareholder Options
Plan. Holdings currently plans to continue using open market purchases to meet
share obligations under these plans.
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of March 31, 1997,
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<PAGE>
the Company had repurchased 1.2 million shares.
On April 23, 1997, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable June 1, 1997. The dividend
represents an annual rate of $1.20 per share.
As of March 31, 1997, continuing operations of MidAmerican Capital had
unsecured revolving credit facilities in the amount of $114 million. Currently
MidAmerican Capital has a zero balance outstanding under these facilities. In
January 1997, MidAmerican Capital paid off $90 million outstanding under the
revolving credit facilities with proceeds from the sale transaction with KCS.
Another $100 million revolving credit facility related to discontinued
operations was terminated in January 1997, and the $84 million outstanding was
paid off. In addition, MidAmerican Capital terminated two $32 million
floating-rate-to-fixed-interest-rate swaps related to amounts previously
outstanding under one of the revolving credit facilities.
MidAmerican Capital has $142 million of long-term debt maturities and
sinking fund requirements for 1997 through 2001, of which $30 million is in
1997.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at March 31, 1997.
OPERATING ACTIVITIES AND OTHER MATTERS
The Company continues to adjust its strategies and operations for changes
it expects in the electric utility industry. The merger that resulted in
MidAmerican and the subsequent reorganization of utility operations were some of
the first steps taken to better position the Company for competition. In June
1996, MidAmerican filed an electric pricing proposal in Iowa and Illinois that
it believes benefits customers and is designed to allow MidAmerican to function
more effectively in a competitive environment. Refer to the following discussion
under the heading "Rate Matters" for the current status of those filings. The
following discussion addresses some of the changes affecting the industry and
actions the Company is taking to better position itself as the industry evolves.
Holdings:
- - ---------
During 1996, the Company began to reevaluate its nonregulated investments.
Through the evaluation process, management will determine which investments fit
the Company's objectives and which should be divested. The method of divestiture
could include alternatives from finding an immediate buyer to holding the
investment until maturity. The Company holds approximately 50 different
investments within its MidAmerican Capital and Midwest Capital subsidiaries
which it is evaluating. In the twelve months ended March 31, 1997, the
evaluation of nonregulated investments resulted in a $20.9 million reduction in
earnings because of asset impairments or a decision to pursue the sale of an
investment at an amount below its carrying value. The process will continue for
the next 15 to 21 months and could result in additional losses if the Company
decides to divest of investments for less than carrying value.
MidAmerican:
- - ------------
Regulatory Evolution and Competition -
MidAmerican is subject to regulation by several utility regulatory
agencies. The operating environment and the recoverability of costs from utility
customers are significantly influenced by the regulation
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<PAGE>
of those agencies. MidAmerican supports changes in the electric utility industry
that will create a more competitive environment for the entire electric
industry, as long as appropriate transitional steps are in place to accommodate
moving from a regulated cost-of-service industry to a competitive industry.
Although these anticipated changes may create opportunities, they will also
create additional challenges and risks for utilities.
MidAmerican is taking steps to address the future entrance of retail
competition in the electric utility industry. MidAmerican is, and will be,
negotiating long-term contracts with its industrial and commercial customers,
the customer classes currently mostly likely to have alternate supplier choices.
In March 1997, MidAmerican initiated an advertising campaign designed to
establish MidAmerican's brand identity within MidAmerican's service territory. A
distinctive brand identity will become increasingly important as the electric
industry is restructured to allow customer choice.
In December 1996, MidAmerican was selected from among 20 potential
suppliers to provide electric service for the Resale Power Group of Iowa (RPGI).
The RPGI includes 27 municipal utilities, a rural electric cooperative and an
investor-owned utility. Members of the RPGI serve nearly 27,000 retail customers
and purchase approximately 500,000 megawatt hours annually. Under the five-year
contract beginning January 1, 1999, MidAmerican will also offer electric system
maintenance services, energy efficiency services and economic development
assistance. Electricity to RPGI utilities presently is supplied by IES
Utilities. This opportunity provided MidAmerican valuable experience in the
evolving competitive electric market.
MidAmerican is a member of the Illinois Coalition for Responsible
Electricity Choice (the Coalition). The Coalition has produced draft legislation
(the Proposal) that would restructure Illinois' electric industry and allow
Illinois customers to choose their electric service provider. The Proposal is
designed to, among other things, balance tax and regulatory burdens; transition
the industry to a competitive electric marketplace in phases between the years
2000 and 2005; stabilize or reduce tariffed electric rates; provide for recovery
of prior mandated investments of the utilities; and increase flexibility for
utilities while providing for oversight of reliability and safety by the ICC.
The Proposal and others are being addressed by the Illinois legislature in 1997,
and MidAmerican is an active participant in the legislative subcommittee that is
developing a single bill. The Illinois legislature previously passed laws
allowing the filing of alternative pricing plans by utilities and increased
flexibility for agreements with industrial customers.
In Iowa, no legislation has yet been introduced to allow generation or
retail service competition. MidAmerican expects legislation on competition and
utility industry restructuring may be introduced in the 1998 Iowa legislative
session since the 1997 session is closed. MidAmerican is preparing its own
legislative proposal regarding electric industry restructuring to be offered at
the appropriate time.
In 1996, the IUB directed MidAmerican and another Iowa investor-owned
utility to sign alternative energy contracts by March 11, 1997. MidAmerican has
reached agreement with Zond Development Corporation to supply MidAmerican with
wind-generated energy, subject to IUB approval. Zond is required to begin
supplying the energy to MidAmerican within three years after regulatory agencies
approve the agreement. Energy received under the 20-year contract with Zond,
together with 10 MW of electricity already received from other alternate energy
producers, will fulfill MidAmerican's requirement under Iowa law to purchase 55
MW of electricity generated by alternate energy sources in Iowa. Due to the
declining per unit cost over the life of the contract, the impact on the
Company's financial position or results of operations will be minimal.
The Energy Policy Act (EPAct) was enacted in 1992 to promote competition in
the wholesale electric market. In April 1996, the FERC issued final rules
(Orders 888 and 889) to direct the implementation of EPAct. In general, Orders
888 and 889, require public utilities and other transmission providers and users
to provide other companies the same transmission access, service and pricing
that they provide themselves. In
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<PAGE>
compliance with Order 888, which was effective July 9, 1996, MidAmerican has
filed a pro forma open access transmission tariff and is currently operating
under it. In accordance with Order 889, which was effective January 3, 1997,
MidAmerican has separated its electric wholesale marketing and transmission
operation functions. Order 889 establishes standards of conduct for this
functional separation and further requires transmission providers such as
MidAmerican to either create or participate in an Open Access Same Time
Information System (OASIS). MidAmerican is a long-time member of the
Mid-Continent Area Power Pool (MAPP) and has elected to participate in the MAPP
OASIS. These developments assure that all transmission customers of MidAmerican,
including MidAmerican's own wholesale marketing function, can obtain
transmission information at the same time and can request service on the same
basis.
A possible consequence of competition in the utility industry is that
Statement of Financial Accounting Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth accounting principles for operations that are regulated and
meet certain criteria. For operations that meet the criteria, SFAS 71 allows,
among other things, the deferral of costs that would otherwise be expensed when
incurred. MidAmerican's electric and gas utility operations are currently
subject to the provisions of SFAS 71, but its applicability is periodically
reexamined. If a portion of MidAmerican's utility operations no longer meets the
criteria of SFAS 71, MidAmerican would be required to eliminate from its balance
sheet the assets and liabilities related to those operations that resulted from
actions of its regulators. Although the amount of such an elimination would
depend on the specific circumstances, a material adjustment to earnings in the
appropriate period could result from the discontinuance of SFAS 71. As of March
31, 1997, MidAmerican had $371 million of regulatory assets in its Consolidated
Balance Sheet.
Energy Efficiency -
On July 1, 1996, new legislation became effective enhancing energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency programs and allowing more timely recovery of energy efficiency
expenditures as determined by the IUB. Previously, electric and gas utilities in
Iowa were required to spend approximately 2% and 1.5%, respectively, of their
annual Iowa jurisdictional revenues on energy efficiency activities. On April
24, 1997, the IUB issued an order adopting final rules, effective June 25, 1997,
for energy efficiency cost recovery and prudence review under the new
legislation. MidAmerican plans to file in the third quarter of 1997 for approval
to accelerate recovery of deferred and current energy efficiency costs. The
Consolidated Balance Sheet as of March 31, 1997, included $113 million of
deferred energy efficiency costs. Of that total, approximately $21 million has
been approved for collection from customers. Currently, MidAmerican is
collecting approximately $14.3 million annually related to those costs. The
remaining $92 million of deferred energy efficiency costs will be included in
future energy efficiency cost recovery filings.
Rate Matters -
On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois. The proposal would provide MidAmerican more flexibility to negotiate
with customers who have service options and to mitigate strandable costs. The
proposal would also reduce regulatory lag in implementing new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated basis, by approximately $25 million annually within five years
and eliminate automatic fuel adjustment clauses. The price reductions, possible
due to merger and restructuring related cost savings, reduce price disparity
within customer classes and would move MidAmerican closer to prices that it
believes can be sustained in a competitive market. The proposal was later
withdrawn in Illinois, and a settlement was negotiated in a related proceeding.
The settlement resulted in annual reductions of $13.1 million and $2.4 million,
effective November 3, 1996, and June 1, 1997, respectively.
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<PAGE>
On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
IUB to order MidAmerican to reduce its Iowa electric rates by 10.7%, or
approximately $101 million annually, in electric revenues. On September 6, 1996,
the IUB docketed the OCA request and initiated an investigation into
MidAmerican's rates. The IUB also consolidated the investigation with
MidAmerican's alternative regulation and pricing proposal for purposes of the
hearings which were scheduled to begin in January 1997. Effective November 1,
1996, MidAmerican reduced its electric rates in Iowa $8.7 million annually to
the levels in its pricing proposal filed on June 4, 1996.
In January 1997, a settlement agreement between MidAmerican, the OCA and
other parties to the proceeding was negotiated. The agreement, which includes a
number of characteristics of MidAmerican's pricing proposal, is subject to
approval by the IUB. A hearing on the settlement was held on April 23, 1997, and
a decision is expected in the second quarter of 1997. Prices for residential
customers would be reduced approximately $23.5 million annually by June 1, 1998,
including the November 1, 1996, reduction. Rates for commercial and industrial
customers would be reduced a total of $10 million annually by June 1, 1998,
through pilot projects, negotiated rates with individual customers and, if
needed, a base rate reduction effective June 1, 1998. The agreement includes a
tracking mechanism to currently recover the cost of capital improvements from
the Cooper Nuclear Station Power Purchase Contract. The tracking mechanism will
offset approximately $9 million of these reductions.
In addition, the agreement accepts MidAmerican's proposal to eliminate the
energy adjustment clause (EAC) which currently is the mechanism through which
fuel costs are collected from Iowa customers. The EAC flows the cost of fuel to
customers on a current basis, and thus, fuel costs have little impact on net
income. Prospectively, base rates for Iowa customers would include a factor for
recovery of a representative level of fuel costs. To the extent actual fuel
costs vary from that factor, pre-tax earnings would be impacted. The fuel cost
factor would be reviewed in February 1999 and adjusted prospectively if actual
fuel costs vary 15% above or below the factor included in base rates.
Under the agreement, if MidAmerican's annual return on common equity
exceeds 12%, then a sharing between customers and shareholders begins, and if it
exceeds 14%, then a portion of MidAmerican's share would be used for accelerated
recovery of certain regulatory assets. The agreement permits MidAmerican to file
for increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program is limited to 60 MW of participation
the first year and can be expanded by 15 MW annually, with the approval of the
IUB, until the conclusion of the program. Any loss of revenues associated with
the pilot program would be considered part of the $10 million annual reduction
for commercial and industrial customers but may not be recovered from other
non-participating customers. The program is expected to be offered by the fall
of 1997.
As of March 31, 1997, MidAmerican had a $4.3 million liability recorded for
its Iowa electric revenues, plus interest, that were affected by the settlement.
In April 1997, MidAmerican refunded approximately $2.4 million, including
interest, for revenues between August 1, 1996, and October 31, 1996, that were
in excess of those included in the pricing proposal.
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<PAGE>
Environmental Matters -
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
The Company is evaluating 27 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether the Company has any responsibility for remedial action. The
Company's present estimate of probable remediation costs for these sites is $23
million. This estimate has been recorded as a liability and a regulatory asset
for future recovery through the regulatory process. Refer to Note (B) of Notes
for further discussion of the Company's environmental activities related to
manufactured gas plant sites and cost recovery.
Although the timing of potential incurred costs and recovery of such cost
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on the Company's financial position or results of operations.
Other Matters -
MidAmerican has initiated an incentive compensation plan which covers all
of its salaried employees. One goal in the plan is achievement of a designated
earnings target. The 1997 earnings target, which was established by management,
results in a 12.9% return on average common equity for MidAmerican.
ACCOUNTING ISSUES
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure Draft, "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets," which addresses the accounting for closure and
removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for such decommissioning are
changed, the annual provision for decommissioning could increase relative to the
current level, and the total estimated cost for decommissioning could be
recorded as a liability with recognition of an increase in the cost of related
nuclear power plant. Due to the continuing evolution of the exposure draft, the
Company is uncertain as to the impact on its results of operations and financial
position.
The Financial Accounting Standards Board has issued a new statement of
financial accounting standards No. 128 regarding the calculation of earnings per
share which is effective for periods ending after December 15, 1997. The new
standard is not expected to have a material effect on the Company's calculation
of earnings per share.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - --------------------------
The Company and its subsidiaries have no material legal proceedings except
for the following:
Environmental Matters
- - ---------------------
For information relating to the Company's Environmental Matters, reference
is made to Part I, Note (B) of Holdings' Notes to Consolidated Financial
Statements.
Rate Matters
- - ------------
For information relating to the Company's Rate Matters, reference is made
to Part I. Note C of Holdings' Notes to Consolidated Financial Statements.
Cooper Litigation
- - -----------------
On May 26, 1995, a predecessor of MidAmerican filed a lawsuit naming
Nebraska Public Power District (NPPD) as defendant. The action is filed in the
U.S. District Court for the Southern District of Iowa and is identified as No.
4-95-CV-803556. The legal proceeding is based upon a long-term power purchase
agreement between MidAmerican and NPPD, pursuant to which MidAmerican purchases
one-half the output of NPPD's Cooper Nuclear Station (Cooper) and pays one-half
the cost of operating Cooper. NPPD, in turn, is obligated to operate the plant
in an efficient and economical manner consistent with good business and utility
practices and in compliance with the terms of its operating license issued to it
by the Nuclear Regulatory Commission (NRC). In 1993 and 1994, as a response to
NPPD actions, the NRC issued numerous notices of violations to NPPD; as a result
of these violations and other safety issues identified by the NRC and NPPD,
Cooper experienced unplanned outages and outages were unduly extended.
MidAmerican's position is that NPPD's failure to meet its obligations with
respect to the operation of Cooper deprived MidAmerican of the benefits it was
entitled to under the power sales contract, causing MidAmerican to lose profits
and incur increased costs of operation, which damages MidAmerican seeks to
collect from NPPD. A settlement has been reached that eliminates the need for
trial. The settlement agreement results in no negative impact on earnings and
provides for discussion by the Company and NPPD of potential future changes in
their relationship regarding Cooper. Similar litigation has been filed against
NPPD by the Lincoln Electric System (LES), a municipal utility serving the City
of Lincoln, Nebraska, and purchasing one-eighth of the output of Cooper pursuant
to a similar power purchase contract. The LES legal proceeding is pending in
Nebraska state court.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
(A) EXHIBITS
Exhibits Filed Herewith
- - -----------------------
Holdings
Exhibit 12.1 - Computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
MidAmerican
Exhibit 12.2 - Computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
Holdings and MidAmerican
Exhibit 27 - Financial Data Schedules (for electronic filing only).
(B) REPORTS ON FORM 8-K
On January 31, 1997, Holdings and MidAmerican filed a joint report on Form
8-K, dated January 31, 1997. The report included the following information:
Holdings computation of ratios of earnings to fixed charges and computation
of ratios of earnings to fixed charges plus preferred dividend
requirements.
MidAmerican computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
Financial information of Holdings and MidAmerican including selected
financial data for the years ended and as of December 31, 1996, 1995, 1994,
1993 and 1992; management's discussion and analysis of financial condition
and results of operations; consolidated statements of income, cash flows
and retained earnings for the years ended December 31, 1996, 1995 and 1994;
consolidated balance sheets and consolidated statements of capitalization
as of December 31, 1996 and 1995; notes to the consolidated financial
statements; report of the independent public accountant; report of
management; and supplemental financial and statistical data.
On March 11, 1997, Holdings filed a report on Form 8-K, dated March 6,
1997, regarding the announcement of a stock repurchase program which would allow
Holdings to repurchase up to $200 million of its common stock. The press release
issued in conjunction with the announcement was filed as an Exhibit to the
report.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
MIDAMERICAN ENERGY COMPANY
-----------------------------------
(Registrants)
Date May 13, 1997 /s/ P. G. Lindner
------------ ----------------------------
P. G. Lindner
Senior Vice President and
Chief Financial Officer
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EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1996
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $129,530 -- $129,530 $143,761 -- $143,761
Pre-tax (gain) loss of less than
50% owned persons ........................................ (1,066) -- (1,066) (698) -- (698)
-------- ----- -------- -------- ----- --------
128,464 -- 128,464 143,063 -- 143,063
Add (Deduct):
Total income taxes ....................................... 90,271 -- 90,271 98,422 -- 98,422
Interest on long-term debt ............................... 100,267 2,590 102,857 102,909 3,615 106,524
Other interest charges ................................... 9,234 -- 9,234 10,941 -- 10,941
Preferred stock dividends of subsidiary .................. 10,698 -- 10,698 10,401 -- 10,401
Preferred stock dividends of subsidiary trust ............ 2,283 -- 2,283 288 -- 288
Interest on leases ....................................... 326 -- 326 375 -- 375
-------- ----- -------- -------- ----- --------
213,079 2,590 215,669 223,336 3,615 226,951
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 341,543 2,590 344,133 366,399 3,615 370,014
-------- -------- -------- -------- -------- --------
Fixed Charges:
Interest on long-term debt ............................... 100,267 2,590 102,857 102,909 3,615 106,524
Other interest charges ................................... 9,234 -- 9,234 10,941 -- 10,941
Preferred stock dividends of subsidiary trust ............ 2,283 -- 2,283 288 -- 288
Interest on leases ....................................... 326 -- 326 375 -- 375
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 112,110 2,590 114,700 114,513 3,615 118,128
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.05 -- 3.00 3.20 -- 3.13
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 10,698 -- $ 10,698 $ 10,401 -- $ 10,401
Ratio of net income before income taxes to net income .... 1.6437 -- 1.6437 1.6384 -- 1.6384
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 17,585 -- 17,585 17,041 -- 17,041
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 129,695 2,590 132,285 131,554 3,615 135,169
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.63 -- 2.60 2.79 -- 2.74
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-1-
<PAGE>
EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $119,705 -- $119,705 $123,098 -- $123,098
Pre-tax (gain) loss of less than
50% owned persons ........................................ 9,079 -- 9,079 (270) -- (270)
-------- ----- -------- -------- ----- --------
128,784 -- 128,784 122,828 -- 122,828
Add (Deduct):
Total income taxes ....................................... 66,803 -- 66,803 60,457 -- 60,457
Interest on long-term debt ............................... 105,550 4,595 110,145 101,267 5,428 106,695
Other interest charges ................................... 9,449 -- 9,449 6,446 -- 6,446
Preferred stock dividends of subsidiary .................. 8,059 -- 8,059 10,551 -- 10,551
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
190,949 4,595 195,544 179,932 5,428 185,360
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 319,733 4,595 324,328 302,760 5,428 308,188
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 105,550 4,595 110,145 101,267 5,428 106,695
Other interest charges ................................... 9,449 -- 9,449 6,446 -- 6,446
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 116,087 4,595 120,682 108,924 5,428 114,352
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 2.75 -- 2.69 2.78 -- 2.70
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,059 -- $ 8,059 $ 10,551 -- $ 10,551
Ratio of net income before income taxes to net income .... 1.5229 -- 1.5229 1.4524 -- 1.4524
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 12,273 -- 12,273 15,324 -- 15,324
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 128,360 4,595 132,955 124,248 5,428 129,676
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.49 -- 2.44 2.44 -- 2.38
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-2-
<PAGE>
EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $134,325 -- $134,325 $ 75,045 -- $ 75,045
Pre-tax (gain) loss of less than
50% owned persons ........................................ (597) -- (597) (1,297) -- (1,297)
-------- ----- -------- -------- ----- --------
133,728 -- 133,728 73,748 -- 73,748
Add (Deduct):
Total income taxes ....................................... 67,485 -- 67,485 24,566 -- 24,566
Interest on long-term debt ............................... 107,044 5,678 112,722 114,732 7,391 122,123
Other interest charges ................................... 5,066 -- 5,066 5,899 -- 5,899
Preferred stock dividends of subsidiary .................. 8,367 -- 8,367 8,735 -- 8,735
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
189,838 5,678 195,516 156,318 7,391 163,709
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 323,566 5,678 329,244 230,066 7,391 237,457
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 107,044 5,678 112,722 114,732 7,391 122,123
Other interest charges ................................... 5,066 -- 5,066 5,899 -- 5,899
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 113,986 5,678 119,664 123,017 7,391 130,408
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 2.84 -- 2.75 1.87 -- 1.82
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,367 -- $ 8,367 $ 8,735 -- $ 8,735
Ratio of net income before income taxes to net income .... 1.4729 -- 1.4729 1.2932 -- 1.2932
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 12,324 -- 12,324 11,296 -- 11,296
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 126,310 5,678 131,988 134,313 7,391 141,704
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.56 -- 2.49 1.71 -- 1.68
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-3-
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1996
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $152,937 -- $152,937 $165,132 -- $165,132
Add (Deduct):
Total income taxes ....................................... 105,227 -- 105,227 112,927 -- 112,927
Interest on long-term debt ............................... 79,494 2,590 82,084 79,434 3,615 83,049
Other interest charges ................................... 8,848 -- 8,848 10,842 -- 10,842
Preferred stock dividends of subsidiary trust ............ 2,283 -- 2,283 288 -- 288
Interest on leases ....................................... 326 -- 326 375 -- 375
-------- ----- -------- -------- ----- --------
196,178 2,590 198,768 203,866 3,615 207,481
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 349,115 2,590 351,705 368,998 3,615 372,613
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 79,494 2,590 82,084 79,434 3,615 83,049
Other interest charges ................................... 8,848 -- 8,848 10,842 -- 10,842
Preferred stock dividends of subsidiary trust ............ 2,283 -- 2,283 288 -- 288
Interest on leases ....................................... 326 -- 326 375 -- 375
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 90,951 2,590 93,541 90,939 3,615 94,554
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.84 -- 3.76 4.06 -- 3.94
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 10,698 -- $ 10,698 $ 10,401 -- $ 10,401
Ratio of net income before income taxes to net income .... 1.6880 -- 1.6880 1.6839 -- 1.6839
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 18,058 -- 18,058 17,514 -- 17,514
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 109,009 2,590 111,599 108,453 3,615 112,068
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 3.20 -- 3.15 3.40 -- 3.32
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-1-
<PAGE>
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $132,489 -- $132,489 $121,145 -- $121,145
Add (Deduct):
Total income taxes ....................................... 84,098 -- 84,098 66,759 -- 66,759
Interest on long-term debt ............................... 80,133 4,595 84,728 73,922 5,428 79,350
Other interest charges ................................... 9,396 -- 9,396 6,639 -- 6,639
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
174,715 4,595 179,310 148,531 5,428 153,959
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 307,204 4,595 311,799 269,676 5,428 275,104
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 80,133 4,595 84,728 73,922 5,428 79,350
Other interest charges ................................... 9,396 -- 9,396 6,639 -- 6,639
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 90,617 4,595 95,212 81,772 5,428 87,200
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.39 -- 3.27 3.30 -- 3.15
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,059 -- $ 8,059 $ 10,551 -- $ 10,551
Ratio of net income before income taxes to net income .... 1.6348 -- 1.6348 1.5511 -- 1.5511
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 13,175 -- 13,175 16,366 -- 16,366
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 103,792 4,595 108,387 98,138 5,428 103,566
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.96 -- 2.88 2.75 -- 2.66
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-2-
<PAGE>
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
----------------------------------- ---------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $133,888 -- $133,888 $ 86,713 -- $ 86,713
Add (Deduct):
Total income taxes ....................................... 75,917 -- 75,917 39,144 -- 39,144
Interest on long-term debt ............................... 80,642 5,678 86,320 87,233 7,391 94,624
Other interest charges ................................... 5,068 -- 5,068 4,373 -- 4,373
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
163,503 5,678 169,181 133,136 7,391 140,527
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 297,391 5,678 303,069 219,849 7,391 227,240
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 80,642 5,678 86,320 87,233 7,391 94,624
Other interest charges ................................... 5,068 -- 5,068 4,373 -- 4,373
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 87,586 5,678 93,264 93,992 7,391 101,383
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.40 -- 3.25 2.34 -- 2.24
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,367 -- $ 8,367 $ 8,735 -- $ 8,735
Ratio of net income before income taxes to net income .... 1.5670 -- 1.5670 1.4514 -- 1.4514
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 13,111 -- 13,111 12,678 -- 12,678
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 100,697 5,678 106,375 106,670 7,391 114,061
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.95 -- 2.85 2.06 -- 1.99
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-3-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Holdings Company as of March
31, 1997, and the related consolidated statements of income and cash flows for
the three months ended March 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001009526
<NAME> MIDAMERICAN ENERGY HOLDINGS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,611,168
<OTHER-PROPERTY-AND-INVEST> 620,179
<TOTAL-CURRENT-ASSETS> 403,054
<TOTAL-DEFERRED-CHARGES> 395,862
<OTHER-ASSETS> 190,326
<TOTAL-ASSETS> 4,220,589
<COMMON> 792,257
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 433,762
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,225,953
150,000
31,766
<LONG-TERM-DEBT-NET> 1,117,234
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,209
<LONG-TERM-DEBT-CURRENT-PORT> 154,784
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,500,643
<TOT-CAPITALIZATION-AND-LIAB> 4,220,589
<GROSS-OPERATING-REVENUE> 584,395
<INCOME-TAX-EXPENSE> 0
<OTHER-OPERATING-EXPENSES> 507,162
<TOTAL-OPERATING-EXPENSES> 507,162
<OPERATING-INCOME-LOSS> 77,233
<OTHER-INCOME-NET> 9,370<F1>
<INCOME-BEFORE-INTEREST-EXPEN> 86,603
<TOTAL-INTEREST-EXPENSE> 28,852
<NET-INCOME> 33,940
0
<EARNINGS-AVAILABLE-FOR-COMM> 33,940
<COMMON-STOCK-DIVIDENDS> 30,179
<TOTAL-INTEREST-ON-BONDS> 19,886
<CASH-FLOW-OPERATIONS> 193,361
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1> Tag 41 includes a ($234,000) income from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Company as of March 31, 1997,
and the related consolidated statements of income and cash flows for the three
months ended March 31, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000928576
<NAME> MIDAMERICAN ENERGY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,612,583
<OTHER-PROPERTY-AND-INVEST> 94,513
<TOTAL-CURRENT-ASSETS> 282,465
<TOTAL-DEFERRED-CHARGES> 380,528
<OTHER-ASSETS> 190,326
<TOTAL-ASSETS> 3,560,415
<COMMON> 563,685
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 424,195
<TOTAL-COMMON-STOCKHOLDERS-EQ> 987,880
150,000
31,766
<LONG-TERM-DEBT-NET> 982,623
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 40,025
<LONG-TERM-DEBT-CURRENT-PORT> 125,068
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,243,053
<TOT-CAPITALIZATION-AND-LIAB> 3,560,415
<GROSS-OPERATING-REVENUE> 465,881
<INCOME-TAX-EXPENSE> 23,504
<OTHER-OPERATING-EXPENSES> 385,970
<TOTAL-OPERATING-EXPENSES> 409,474
<OPERATING-INCOME-LOSS> 56,407
<OTHER-INCOME-NET> 1,318
<INCOME-BEFORE-INTEREST-EXPEN> 57,725
<TOTAL-INTEREST-EXPENSE> 22,501
<NET-INCOME> 35,224
2,774
<EARNINGS-AVAILABLE-FOR-COMM> 32,450
<COMMON-STOCK-DIVIDENDS> 31,500
<TOTAL-INTEREST-ON-BONDS> 19,886
<CASH-FLOW-OPERATIONS> 157,885
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Company as of March 31, 1996,
and the related consolidated statements of income and cash flows for the three
months ended March 31, 1996, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000928576
<NAME> MidAmerican Energy Company
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,636,140
<OTHER-PROPERTY-AND-INVEST> 395,412
<TOTAL-CURRENT-ASSETS> 254,371
<TOTAL-DEFERRED-CHARGES> 404,908
<OTHER-ASSETS> 210,651
<TOTAL-ASSETS> 3,901,482
<COMMON> 797,675
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 451,414
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,244,250
50,000
81,461
<LONG-TERM-DEBT-NET> 1,109,563
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 99,800
<LONG-TERM-DEBT-CURRENT-PORT> 917
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,315,491
<TOT-CAPITALIZATION-AND-LIAB> 3,901,482
<GROSS-OPERATING-REVENUE> 458,260
<INCOME-TAX-EXPENSE> 32,330
<OTHER-OPERATING-EXPENSES> 356,569
<TOTAL-OPERATING-EXPENSES> 388,899
<OPERATING-INCOME-LOSS> 69,361
<OTHER-INCOME-NET> 5,876<F1>
<INCOME-BEFORE-INTEREST-EXPEN> 75,237
<TOTAL-INTEREST-EXPENSE> 21,713
<NET-INCOME> 53,524
2,477
<EARNINGS-AVAILABLE-FOR-COMM> 51,047
<COMMON-STOCK-DIVIDENDS> 30,221
<TOTAL-INTEREST-ON-BONDS> 19,826
<CASH-FLOW-OPERATIONS> 151,531
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Tag 41 includes a $6,105,000 income from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
