UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 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's Name, 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
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Registrant Title of Each Class On which Registered
- - ---------- ------------------- ---------------------
MidAmerican Energy
Holdings Company Common Stock, no par value New York Stock Exchange
MidAmerican Energy 7.98% MidAmerican Energy Company New York Stock Exchange
Company Obligated Preferred Securities of Subsidiary Trust
Securities registered pursuant to Section 12(g) of the Act:
MidAmerican Energy Preferred Stock, $3.30 Series, no par value
Company Preferred Stock, $3.75 Series, no par value
Preferred Stock, $3.90 Series, no par value
Preferred Stock, $4.20 Series, no par value
Preferred Stock, $4.35 Series, no par value
Preferred Stock, $4.40 Series, no par value
Preferred Stock, $4.80 Series, no par value
Preferred Stock, $5.25 Series, no par value
Preferred Stock, $7.80 Series, no par value
- - -------------------------------------------------------------------------------
Registrant Title of each Class
<PAGE>
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of voting stock held by non-affiliates of MidAmerican
Energy Holdings Company was $1,954,875,719 as of February 27, 1998, when
94,595,982 shares of common stock, without par value, were outstanding.
The aggregate market value of voting stock held by non-affiliates of MidAmerican
Energy Company was zero as of February 27, 1998, when 70,980,203 shares of
common stock, without par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
A portion of Holding's Proxy Statement relating to its 1998 Annual Meeting of
Shareholders is incorporated by reference in Part III hereof.
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MIDAMERICAN ENERGY HOLDINGS COMPANY
AND
MIDAMERICAN ENERGY COMPANY
1997 Annual Report on Form 10-K
This combined Form 10-K is separately filed by MidAmerican Energy Holdings
Company and MidAmerican Energy Company. Information herein relating to each
individual registrant is filed by such registrant on its own behalf.
Accordingly, except for its subsidiaries, MidAmerican Energy Company makes no
representation as to information relating to any other subsidiary of MidAmerican
Energy Holdings Company.
TABLE OF CONTENTS
Part I
Page
Item 1 Business
General Development of Business.......................... 7
Financial Information About Industry Segments............ 8
Narrative Description of Business........................ 8
Business of MidAmerican Energy Holdings Company........ 8
Business of MidAmerican Energy Company................. 8
Electric Operations ................................ 10
Natural Gas Operations.............................. 12
Construction Program................................ 14
General Utility Regulation.......................... 14
Rate Regulation..................................... 14
Nuclear Regulation.................................. 16
Environmental Regulations........................... 17
Business of MidAmerican Capital Company................ 19
Business of Midwest Capital Group, Inc................. 20
Item 2 Properties.................................................. 20
Item 3 Legal Proceedings........................................... 22
Item 4 Submission of Matters to a Vote of Security Holders......... 23
Other Information
Executive Officers of the Registrant........................ 23
Business Transaction Policy Statement....................... 23
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Part II
Page
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters.............................. 25
Item 6 Selected Financial Data..................................... 25
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.. 26
Item 8 Financial Statements and Supplementary Data................. 29
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................... 29
Part III
Item 10 Directors and Executive Officers of the Registrant.......... 30
Item 11 Executive Compensation...................................... 32
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................... 32
Item 13 Certain Relationships and Related Transactions.............. 34
Part IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................... 34
Signatures........................................................... 120
Exhibits Index....................................................... 123
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DEFINITIONS
The following terms are used in this document with the following meanings:
TERM MEANING
ANR ANR Pipeline Company
Btu British Thermal Unit, the quantity of heat required to
raise the temperature of one pound of water one degree
Fahrenheit
CAAA Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Company MidAmerican Energy Holdings Company
Cooper Cooper Nuclear Station
DOE United States Department of Energy
EMFs Electric and magnetic fields
EAC Energy Adjustment Clause
EPA United States Environmental Protection Agency
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Holdings MidAmerican Energy Holdings Company
ICC Illinois Commerce Commission
InterCoast InterCoast Energy Company
InterCoast Capital InterCoast Capital Company
Iowa-Illinois Iowa-Illinois Gas and Electric Company
IPO Initial public offering
IUB Iowa Utilities Board
KCS KCS Energy Inc.
KW Kilowatt, a thousand watts
KWh Kilowatt-hour, one thousand watts used for one hour
LDC Local distribution company
MAPP Mid-Continent Area Power Pool
Mcf One thousand cubic feet
McLeodUSA McLeodUSA Incorporated
MD&A Management's Discussion and Analysis of Financial
condition and Results of Operations
MidAmerican MidAmerican Energy Company, a wholly owned subsidiary
of Holdings
MidAmerican Capital MidAmerican Capital Company, a wholly owned subsidiary
of Holdings
Midwest Capital Midwest Capital Group, Inc., a wholly owned subsidiary
of Holdings
Midwest Midwest Power Systems Inc.
Midwest Resources Midwest Resources Inc.
MGP Manufactured gas plant
MMcf One million cubic feet
MW Megawatts, one million watts
NGPL Natural Gas Pipeline Company of America
NNG Northern Natural Gas
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NPDES National Pollutant Discharge Elimination System
NPPD Nebraska Public Power District
NRC Nuclear Regulatory Commission
NWPA Nuclear Waste Policy Act of 1982
OASIS Open Access Same Time Information System
OCA Iowa Office of Consumer Advocate
OPEB Other postretirement employee benefits
Order 636 or Orders FERC Order 636 and related orders
PCBs Polychlorinated biphenyls
PGA Purchase gas adjustment clause
PRPs Potentially responsible parties
SDPUC South Dakota Public Utilities Commission
SFAS Statement of Financial Accounting Standards
Utility MidAmerican Energy Company
Quad Cities Station Quad Cites Nuclear Power Station
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PART I
ITEM 1. BUSINESS
- - ----------------
(A) GENERAL DEVELOPMENT OF BUSINESS
Holdings is an exempt public utility holding company headquartered in
Des Moines, Iowa, and incorporated in the state of Iowa. Holdings was formed in
1996 to hold the common stock of MidAmerican, and its principal subsidiaries.
Effective December 1, 1996, Holdings became the parent company of MidAmerican,
MidAmerican Capital and Midwest Capital pursuant to a share exchange between
MidAmerican and Holdings. Prior to the effective date of the exchange,
MidAmerican Capital and Midwest Capital were direct subsidiaries of MidAmerican.
MidAmerican is a public utility and accounts for the predominant part of the
Company's assets and earnings. MidAmerican Capital and Midwest Capital are the
first-tier, nonregulated subsidiaries of the Company.
MidAmerican, an Iowa corporation, was formed on July 1, 1995, as a result
of the merger of Iowa-Illinois, Midwest Resources and Midwest. MidAmerican
Capital (then InterCoast) was a wholly owned nonregulated subsidiary of
Iowa-Illinois. Midwest Resources was an exempt public utility holding company
with two wholly owned subsidiaries: Midwest and Midwest Capital.
During 1996, the Company changed the name of its nonregulated subsidiary,
InterCoast, to MidAmerican Capital. As part of the restructuring of that
subsidiary, the Company formed a new subsidiary under MidAmerican Capital, named
InterCoast Energy Company. The new InterCoast had as its subsidiaries the
Company's wholesale nonregulated energy companies, including oil and gas
exploration and development operations which were discontinued in 1996 and sold
in January 1997.
The Company continued its strategic realignment of nonregulated
investments in 1997. In the fourth quarter of 1997, the Company sold assets of
its railcar leasing and repair businesses.
The electric utility industry is in the midst of significant regulatory
change. Traditionally, prices charged by electric utility companies have been
regulated by federal and state commissions and have been based on cost of
service. In recent years, changes have occurred, and are expected to continue to
occur, that move the electric utility industry toward a more competitive,
market-based pricing environment. These changes will have a significant impact
on the way MidAmerican does business. Refer to the discussion of competition in
the "Operating Activities and Other Matters" section of MD&A in Part IV, Item 14
of this Form 10-K.
In anticipation of changes in the electric utility industry, MidAmerican
established in 1997 the framework for a new approach to managing its business.
Beginning January 1, 1998, MidAmerican began operating as four distinct business
units: generation, transmission, energy delivery and retail. Certain
administrative functions are handled by a corporate services group which
supports all of the business units. Although specific functions may be moved
between business units as future circumstances warrant, the main focus of each
business unit has been established. Presently, significant functions of the
generation business unit include the production and purchase of energy and the
sale of wholesale energy. The transmission business unit coordinates all
activities related to MidAmerican's transmission facilities, including
monitoring access to and assuring the reliability of the transmission system.
Energy delivery includes the distribution of electricity and natural gas to
end-users, and related activities. Retail includes marketing, customer service
and related functions for core and complementary products and services.
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The Company expects that, as the industry moves towards competition,
generation and retail functions will not be rate-regulated and will be the
business units through which most of MidAmerican's external revenues are
derived. Energy delivery and transmission functions, though not unaffected by
industry changes, are expected to remain rate-regulated by state and federal
commissions.
The move to a competitive environment creates the need for new employee
skills and knowledge and increased focus on certain aspects of the utility
business. MidAmerican anticipates increases in the number of employees in its
retail business unit in order to meet the increased emphasis on that area, while
some areas will have decreases in employees as efficiencies are achieved or
needs change.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Financial information on the Company's and MidAmerican's segments of
business is included under the respective Notes titled "Segment Information" in
Notes to Consolidated Financial Statements included in Part IV, Item 14 of this
Form 10-K.
(C) NARRATIVE DESCRIPTION OF BUSINESS
BUSINESS OF HOLDINGS
--------------------
Holdings' strategy is to become the leading regional provider of energy
and complementary services. Holdings' interests include 100% of the common stock
of MidAmerican, MidAmerican Capital and Midwest Capital. MidAmerican is
primarily engaged in the business of generating, transmitting, distributing and
selling electric energy and in distributing, selling and transporting natural
gas. MidAmerican Capital manages marketable securities and passive investment
activities, nonregulated wholesale and retail natural gas businesses, security
services and other energy-related, nonregulated activities. Midwest Capital
functions as a regional business development company in MidAmerican's service
territory. In an effort that began in 1996, Holdings is continuing to redeploy
investments that do not support its strategy.
For the year ended December 31, 1997, 86.5% of Holdings operating
revenues were from MidAmerican, 13.4% were from MidAmerican Capital and 0.1%
were from Midwest Capital.
BUSINESS OF MIDAMERICAN
-----------------------
MidAmerican distributes electric energy in Council Bluffs, Des Moines,
Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa, the Quad Cities (Davenport
and Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois) and a
number of adjacent communities and areas. MidAmerican distributes natural gas in
Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa;
the Quad Cities; Sioux Falls, South Dakota; and a number of adjacent communities
and areas. As of December 31, 1997, MidAmerican had 647,700 retail electric
customers and 618,000 retail natural gas customers.
MidAmerican's electric and gas operations are conducted under franchises,
certificates, permits and licenses obtained from state and local authorities.
The franchises, with various expiration dates, are typically for 25-year terms.
MidAmerican has a residential, agricultural, commercial and diversified
industrial customer group, in which no single industry or customer accounted for
more than 3.8% (food and kindred products industry) of its total 1997 electric
operating revenues or 3.7% (food and kindred products industry) of its total
1997 gas
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operating margin. Among the primary industries served by MidAmerican are those
which are concerned with the manufacturing, processing and fabrication of
primary metals, real estate, food products, farm and other non-electrical
machinery, and cement and gypsum products.
For the year ended December 31, 1997, MidAmerican derived approximately
68% of its gross operating revenues from its electric business and 32% from its
gas business. For 1996 and 1995, the corresponding percentages were 67% electric
and 33% gas, and 70% electric and 30% gas, respectively.
Historical electric sales by customer class as a percent of total
electric sales and retail electric sales data by state as a percent of total
retail electric sales are shown below:
Total Electric Sales
By Customer Class
1997 1996 1995
------ ------ -----
Residential 20.9% 21.1% 23.2%
Small General Service 16.5 16.2 19.1
Large General Service 27.4 27.6 26.1
Other 4.4 4.5 4.7
Sales for Resale 30.8 30.6 26.9
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Retail Electric Sales
By State
1997 1996 1995
----- ----- -----
Iowa 88.6% 88.7% 88.4%
Illinois 10.7 10.6 11.0
South Dakota 0.7 0.7 0.6
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Historical gas sales, excluding transportation throughput, by customer
class as a percent of total gas sales and by state as a percent of total retail
gas sales are shown below:
Total Gas Sales
By Customer Class
1997 1996 1995
----- ----- -----
Residential 60.8% 61.1% 57.3%
Small General Service 33.1 33.3 32.9
Large General Service 4.2 4.6 6.2
Sales for Resale and Other 1.9 1.0 3.6
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
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Retail Gas Sales
By State
1997 1996 1995
----- ----- ----
Iowa 79.1% 78.0% 77.1%
Illinois 10.4 11.0 11.6
South Dakota 9.8 10.3 10.6
Nebraska 0.7 0.7 0.7
----- ----- ----
Total 100.0% 100.0% 100.0%
===== ===== =====
There are seasonal variations in MidAmerican's electric and gas
businesses which are principally related to the use of energy for air
conditioning and heating. In 1997, 38% of MidAmerican's electric revenues were
reported in the months of June, July, August and September, reflecting the use
of electricity for cooling, and 54% of MidAmerican's gas revenues were reported
in the months of January, February, March and December, reflecting the use of
gas for heating.
At December 31, 1997, MidAmerican had 3,467 full-time employees of which
1,657 are covered by union contracts. MidAmerican has eight separate contracts
with locals of the International Brotherhood of Electrical Workers (IBEW), the
United Association of Plumbers and Pipefitters and the United Paper Workers
International Union. The contracts covering most union employees are as follows:
Employee Contract
Union Local Members Expiration Date
----- ----- -------- ---------------
IBEW 109 442 7/31/97
IBEW 499 1,103 3/01/2000
Regarding IBEW Local 109, contract negotiations are in progress and the
parties are currently operating under the terms of the expired contract. The
Local 499 employees numbered above are covered under three separate contracts
based on the location of the Local 499 of which they are a member.
ELECTRIC OPERATIONS
The annual hourly peak demand on MidAmerican's electric system occurs
principally as a result of air conditioning use during the cooling season.
MidAmerican's highest hourly peak demand in 1997 was 3,548 MW, which was 5 MW
less than MidAmerican's record hourly peak of 3,553 MW set in 1995.
MidAmerican's accredited 1997 summer net generating capability was 4,293
MW. Accredited net generating capability represents the amount of Company-owned
generation available to meet the requirements on MidAmerican's energy system,
net of the effect of participation purchases and sales. The net generating
capability at any time may be less due to regulatory restrictions, fuel
restrictions and generating units being temporarily out of service for
inspection, maintenance, refueling or modifications. Refer to Item 2,
Properties, for detail of accredited summer 1997 net generating capability.
MidAmerican is interconnected with certain Iowa and neighboring utilities
and is involved in an electric power pooling agreement known as MAPP. MAPP is a
voluntary association of electric utilities doing business in Iowa, Minnesota,
Nebraska and North Dakota and portions of Montana, South Dakota and
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Wisconsin and the Canadian provinces of Saskatchewan and Manitoba. Its
membership also includes power marketers, regulatory agencies and independent
power producers. MAPP facilitates operation of the transmission system, serves
as a power and energy market clearing house and is responsible for the safety
and reliability of the bulk electric system.
Fuel Supply for Electric Operations
- - -----------------------------------
MidAmerican's sources of fuel for electric generation were as follows for
the periods shown:
Year Ended December 31,
1997 1996 1995
---- ---- ----
Fuel Source:
Coal 76.3% 75.6% 77.6%
Nuclear 23.0 23.9 21.6
Gas 0.6 0.4 0.7
Oil 0.1 0.1 0.1
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The average costs of fuels consumed (including transportation and
handling costs) were as follows for the periods shown:
Year Ended December 31,
1997 1996 1995
---- ---- ----
(Cents per million BTUs consumed)
Fuel Source:
Nuclear 48.92 44.85 44.19
Coal 90.60 92.45 95.14
Gas 338.71 318.80 226.92
Oil 455.22 412.13 422.80
Weighted Average 88.49 88.74 90.21
The average cost of coal received (including transportation) per ton for
the years 1997, 1996 and 1995 was $14.77, $15.18 and $15.61, respectively.
Two rail shippers deliver coal from the mines to, or near, MidAmerican's
electric generating stations. For the Louisa and Riverside generating stations,
a third shipper transports the coal from a common connection point to each plant
site. In November 1997, MidAmerican completed the construction of a 6.25 mile
railway leading to its Council Bluffs Energy Center (CBEC). The new railway
brings competition in coal transportation to the CBEC and is an important factor
in reducing coal transportation costs for generating units at that station.
The Union Pacific Railroad (UP) provides service directly to
MidAmerican's George Neal Station (Neal Station). Nationwide operational
problems for the UP in 1997, and continuing in 1998, affected deliveries to the
Neal Station during the fourth quarter of 1997 and reduced coal inventory below
desirable levels at that site. The reduction in inventory did not prevent
MidAmerican from meeting the electric energy needs of its retail customers.
Following discussions between MidAmerican and the UP, increased deliveries have
been made to the four units at the Neal Station.
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MidAmerican has used spot market purchases of coal to manage inventory
levels and take advantage of coal market opportunities. MidAmerican is
continuing to satisfy its coal requirements with a combination of contract and
spot purchases. MidAmerican believes its sources of low-sulfur, western coal for
its coal-fired generating stations are and will continue to be satisfactory.
Renewal of expiring contracts and negotiations of new agreements will be pursued
as required. Additional information regarding MidAmerican's coal supply
contracts is included in Note (4)(g) of Notes to Consolidated Financial
Statements in Part IV, Item 14, of this Form 10-K. Natural gas and oil are used
for peak demand electric generation and for standby purposes. These sources are
presently in adequate supply and available to meet MidAmerican's needs.
MidAmerican is a 25% joint owner of Quad Cities Station. MidAmerican has
been advised by ComEd, the joint owner and operator of Quad Cities Station, that
the majority of its uranium concentrate and uranium conversion requirements for
Quad Cities Station for 1998 can be met under existing supplies or commitments.
ComEd foresees no problem in obtaining the remaining requirements now or
obtaining future requirements. ComEd further advises that all enrichment
requirements have been contracted through 1999. Commitments for fuel fabrication
have been obtained at least through 2000. ComEd does not anticipate that it will
have difficulty in contracting for uranium concentrates for conversion,
enrichment or fabrication of nuclear fuel needed to operate Quad Cities Station.
Refer to the Nuclear Regulation section later in this discussion of the business
of MidAmerican for comments on an outage at Quad Cities Station.
MidAmerican purchases one-half of the power and energy of Cooper through
a long-term power purchase contract with NPPD. Approximately 30% of the fuel in
the core at Cooper must be replaced every 18 months. The next refueling cycle is
currently scheduled to begin in October 1998. NPPD has informed MidAmerican that
it either has sufficient materials and services available to meet foreseeable
Cooper requirements or that such materials and services are readily available
from suppliers.
Under the NWPA, the DOE is responsible for the selection and development of
repositories for, and the permanent disposal of, spent nuclear fuel and
high-level radioactive wastes. ComEd and NPPD, as required by the NWPA, have
signed a contract with the DOE to provide for the disposal of spent nuclear fuel
and high-level radioactive waste beginning not later than January 1998. The DOE
did not begin receiving spent nuclear fuel on the scheduled date, and it is
expected that the schedule will be significantly delayed. The costs incurred by
the DOE for disposal activities are being financed by fees charged to owners and
generators of the waste. ComEd has informed MidAmerican that there is on-site
storage capability at the Quad Cities Station sufficient to permit such interim
storage at least through 2006. NPPD has informed MidAmerican that there is
on-site storage capability at the Cooper Station sufficient to permit such
interim storage at least through 2004, the remaining term of the long-term power
purchase contract. Meeting spent nuclear fuel storage requirements beyond such
time could require modifications to the spent fuel storage pools or new and
separate storage facilities. Industry activities are underway to utilize dry
casks for the interim storage of high-level radioactive waste. This may provide
an alternative for interim on-site storage of such waste.
NATURAL GAS OPERATIONS
MidAmerican is engaged in the procurement, transportation, storage and
distribution of natural gas for utility and end-use customers in the Midwest.
MidAmerican purchases natural gas from various suppliers, transports it from the
production area to the Company's service territory under contracts with
interstate pipelines, stores it in various storage facilities to manage
fluctuations in system demand and seasonal pricing and distributes it to the
customers through the Company's distribution system. MidAmerican also transports
through its distribution system natural gas purchased independently by certain
large users.
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Fuel Supply and Capacity
- - ------------------------
MidAmerican purchases the majority of its gas supplies from producers or
third party marketers. To insure system reliability, a geographically diverse
supply portfolio with varying terms and conditions is utilized for the gas
supplies.
MidAmerican has rights to firm and interruptible pipeline capacity to
transport gas to its service territory through the NNG, NGPL and ANR systems.
Firm capacity in excess of MidAmerican's system needs, resulting from
fluctuations in anticipated system demand, can be resold to other companies to
achieve optimum use of the available capacity. Past IUB rulings have allowed
MidAmerican to retain 30% of Iowa margins earned on the resold capacity and
return 70% to customers through the purchased gas adjustment.
Changes in MidAmerican's cost of gas from the amount included in gas
service rates is recovered from customers through a purchased gas adjustment
clause. In 1995, the IUB approved MidAmerican's Incentive Gas Supply Procurement
Program for a three-year test period. Under the program, MidAmerican is required
to file with the IUB every six months a comparison of its gas procurement costs
to an index-based reference price. If MidAmerican's cost of gas for the period
are outside of the established tolerance band around the reference price, then
MidAmerican shares a portion of the savings/cost with customers. Since the
implementation of the program, MidAmerican has successfully achieved savings for
its natural gas customers.
MidAmerican utilizes leased gas storage to meet peak day requirements and
to manage the daily changes in demand due to changes in weather. The storage gas
is typically replaced during the summer months. In addition, MidAmerican also
utilizes three liquefied natural gas plants and three propane-air peak shaving
plants to meet peak day demands.
On February 2, 1996, MidAmerican had its highest peak-day delivery of
1,143,026 MMBtus. This peak-day delivery included approximately 88% from
traditional sales service customers and 12% from customer-owned gas transported
through MidAmerican's system. MidAmerican's 1997/98 winter heating season
peak-day delivery of 910,769 MMBtus was reached on January 13, 1998. This
peak-day delivery included approximately 73% from traditional sales service
customers and 27% from customer-owned gas transported through MidAmerican's
system.
The supply sources utilized by MidAmerican to meet its 1997/98 peak-day
deliveries to its sales service customers were:
Thousands Percent
of of
MMBtus Total
Underground Storage 282.5 42.5
Firm Supply 382.9 57.5
----- -----
Total 665.4 100.0
===== =====
MidAmerican does not anticipate difficulties in meeting its future
demands through the use of its supply portfolio and pipeline interconnections
for the foreseeable future.
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CONSTRUCTION PROGRAM
The table below shows actual utility capital expenditures for 1997 and
budgeted utility expenditures for 1998.
1997 1998
Actual Budgeted
-------- --------
(Thousands of Dollars)
Electric Property
Production $ 16,229 $ 26,643
Transmission 25,062 31,391
Distribution 34,707 41,398
Gas 34,804 31,391
Administration and Other 40,507 56,916
-------- --------
Subtotal 151,309 187,739
Quad Cities Fuel 11,371 13,179
Cooper Additions 4,252 -
-------- --------
Total $166,932 $200,918
======== ========
The amounts shown above include allowance for funds used during
construction. Of the $26.6 million of budgeted electric production expenditures
for 1998, $8.1 million is for expenditures at the Quad Cities Station. In
addition to the expenditures shown above, the Company contributes to external
trusts for Quad Cities nuclear decommissioning. Refer to the Investing
Activities and Plans section of MD&A, under "Nuclear Decommissioning" for
further discussion.
REGULATION
General Utility Regulation
- - --------------------------
MidAmerican is a public utility within the meaning of the Federal Power
Act and a natural gas company within the meaning of the Natural Gas Act.
Therefore, it is subject to regulation by FERC in regard to numerous activities,
including the issuance of securities, accounting policies and practices, sales
for resale rates, the establishment and regulation of electric interconnections
and transmission services and replacement of certain gas utility property.
MidAmerican is regulated by the ICC as to retail rates, services,
accounts, issuance of securities, affiliate transactions, construction,
acquisition and sale of utility property, acquisition and sale of securities and
in other respects as provided by the laws of Illinois. MidAmerican is regulated
by the IUB as to retail rates, services, accounts, construction of utility
property and in other respects as provided by the laws of Iowa. MidAmerican is
also subject to regulation by the SDPUC as to electric and gas retail rates and
service as provided by the laws of South Dakota.
Rate Regulation
- - ---------------
Under Iowa law, temporary collection of higher rates can begin (subject
to refund) 90 days after filing with the IUB for that portion of such higher
rates approved by the IUB based on prior ratemaking principles and a rate of
return on common equity previously approved. If the IUB has not issued a final
order within ten months after the filing date, the temporary rates cease to be
subject to refund and any balance of the requested
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rate increase may then be collected subject to refund. Exceptions to the
ten-month limitation provide for extensions due to a utility's lack of due
diligence in the rate proceeding, judicial appeals and situations involving new
generating units being placed in service. Prior to July 11, 1997, MidAmerican's
Iowa electric tariffs contained a Uniform Electric Energy Adjustment Clause
under which MidAmerican's billings reflected changes in the cost of all fuels
used for electric generation, including nuclear fuel disposition costs and the
net effect of energy transactions (other than capacity) with other utilities.
Beginning July 11, 1997, MidAmerican no longer has an EAC in Iowa. Information
regarding MidAmerican's 1997 rate settlement for its Iowa electric rates is
included under the caption "Rate Matters" in the OPERATING ACTIVITIES AND OTHER
MATTERS section of MD&A in Part IV, Item 14 of this Form 10-K. Changes in the
cost of gas to MidAmerican are reflected in its Iowa gas rates through the Iowa
Uniform Purchased Gas Adjustment Clause.
South Dakota law authorizes the SDPUC to suspend new rates for up to six
months during the pendency of rate proceedings; however, the rates are permitted
to be implemented after six months subject to refund pending a final order in
the proceeding.
Under Illinois law, new rates may be put into effect by MidAmerican 45
days after filing with the ICC, or on such earlier date as the ICC may approve,
subject to the power of the ICC to suspend the proposed new rates for a period
not to exceed eleven months after filing, pending a hearing. Under Illinois
electric tariffs, MidAmerican's Fuel Cost Adjustment Clause reflects changes in
the cost of all fuels used for electric generation, including certain fuel
transportation costs, nuclear fuel disposition costs and the effects of energy
transactions (other than capacity and margins on interchange sales) with other
utilities. Changes in the cost of gas to MidAmerican are reflected in its
Illinois gas rates through the Illinois Uniform Purchased Gas Adjustment Clause.
In December 1997, Illinois enacted a new law to restructure Illinois'
electric utility industry. The law changes how and what electric services are
regulated by the ICC and transitions portions of the traditional electric
services to a competitive environment. In general, the new law limits the ICC's
regulatory authority over a utility's generation and also relaxes its regulatory
authority over many corporate transactions, such as the transfer of generation
assets to affiliates. Special authority and limitations of authority apply
during the transition to a competitive marketplace. Bundled electric rates are
generally frozen until 2005. Also, the law permits utilities to eliminate their
fuel adjustment clauses.
Refer to the information under the caption "Legislative and Regulatory
Evolution" in the OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A in Part
IV, Item 14 of this Form 10-K for additional discussion of matters affecting
utility regulation.
New rules in Iowa became effective in June 1997, enhancing energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency programs, and allowing more timely recovery of energy efficiency
expenditures. Previously, electric and gas utilities in Iowa were required to
spend approximately 2.0% and 1.5%, respectively, of their annual Iowa
jurisdictional revenues on energy efficiency activities. On September 29, 1997,
MidAmerican received approval from the IUB, effective immediately, to begin
recovery of deferred energy efficiency costs which were not previously approved
for recovery. Under the prior rules, recovery of some of these costs would have
been delayed several more years. The costs will be collected over a four-year
period, along with a return. MidAmerican also received approval to recover
current energy efficiency costs. The filing is subject to periodic prudence
reviews by the IUB. Refer to the discussion under the caption "Energy
Efficiency" in the OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A in
Part IV, Item 14 of this Form 10-K.
-15-
<PAGE>
Nuclear Regulation
- - ------------------
MidAmerican is subject to the jurisdiction of the NRC with respect to
its license and 25% ownership interest in Quad Cities Station Units 1 and 2.
ComEd is the operator of the Quad Cities Station and is under contract with
MidAmerican to secure and keep in effect all necessary NRC licenses and
authorizations.
Under the terms of a long-term power purchase agreement with NPPD,
MidAmerican has contracted to purchase through September 21, 2004, one-half of
the power and energy from Cooper which is located near Brownville, Nebraska.
MidAmerican pays for one-half of the fixed and operating costs of Cooper
(excluding depreciation but including debt service) and MidAmerican's share of
fuel costs (including disposal costs) based upon energy delivered. MidAmerican
is not subject to the jurisdiction of the NRC with respect to Cooper and the
long-term power purchase contract with NPPD. NPPD, as the sole owner, licensee
and operator of Cooper, is thereby the only entity subject to the jurisdiction
of the NRC with respect to Cooper. Under the terms of the long-term power
purchase contract, NPPD is required to assure that Cooper is in compliance with
all of the NRC regulations.
The NRC regulations control the granting of permits and licenses for the
construction and operation of nuclear generating stations and subject such
stations to continuing review and regulation. The NRC review and regulatory
process covers, among other things, operations, maintenance, and environmental
and radiological aspects of such stations. The NRC may modify, suspend or revoke
licenses and impose civil penalties for failure to comply with the Atomic Energy
Act, the regulations under such Act or the terms of such licenses.
Federal regulations provide that any nuclear operating facility may be
required to cease operation if the NRC determines there are deficiencies in
state, local or utility emergency preparedness plans relating to such facility,
and the deficiencies are not corrected. ComEd and NPPD have advised MidAmerican
that emergency preparedness plans for the Quad Cities Station and Cooper,
respectively, have been approved by the NRC. ComEd and NPPD have also advised
MidAmerican that state and local plans relating to the Quad Cities Station and
Cooper, respectively, have been approved by the Federal Emergency Management
Agency.
In September 1997 ComEd, shut down Unit 2 and entered early a scheduled
outage to address safety system concerns. In December 1997, Unit 1 was also
taken off-line for the same reason. ComEd has indicated that the units may be
unavailable until the first half of May 1998. During this time, it may be
necessary for MidAmerican to forego off-system sales opportunities, operate more
expensive units, and/or purchase more off-system energy. In January 1998, ComEd
received a Confirmatory Action Letter (CAL) from the NRC. The CAL details
actions that must be taken to correct the problems described above. Also in
January, ComEd was informed by the NRC that the performance of Quad Cities
Station is trending adversely. The Company cannot at this time predict the cost
of these actions nor the impact on results of operations of the plant's outage.
In June 1988, the NRC adopted regulations with respect to the
decommissioning of nuclear power plants. In 1996, the NRC enacted revisions to
provide clarification of these regulations. Among other things, the regulations
and amendments address the planning and funding for the eventual decommissioning
of nuclear power plants. In response to these regulations, MidAmerican submitted
a report to the NRC in July 1990 indicating that it will provide "reasonable
assurance" that funds will be available to pay the costs of decommissioning its
share of the Quad Cities Station. NPPD has advised MidAmerican that a report
addressing decommissioning funding for Cooper has been submitted and approved by
the NRC.
-16-
<PAGE>
MidAmerican has established external trusts for the investment of funds
collected for nuclear decommissioning associated with Quad Cities Station. NPPD
maintains an internal account and an external trust for decommissioning funds
associated with Cooper. MidAmerican makes contributions to NPPD related to
decommissioning and reflects those contributions in MidAmerican's power purchase
costs. Electric tariffs in effect for 1997 include provisions for annual
decommissioning costs at Quad Cities Station and Cooper. MidAmerican's cost
related to decommissioning funding in 1997 was $21.1 million. In Illinois,
nuclear decommissioning costs are included in customer billings through a
mechanism that permits annual adjustments. In Iowa, such costs are reflected in
base rates.
Environmental Regulations
- - -------------------------
MidAmerican is subject to numerous legislative and regulatory
environmental protection requirements involving air and water pollution, waste
management, hazardous chemical use, noise abatement, land use aesthetics and
atomic radiation.
State and federal environmental laws and regulations currently have, and
future modifications may have, the effect of (I) increasing the lead time for
the construction of new facilities, (ii) significantly increasing the total cost
of new facilities, (iii) requiring modification of certain of MidAmerican's
existing facilities, (iv) increasing the risk of delay on construction projects,
(v) increasing MidAmerican's cost of waste disposal and (vi) possibly reducing
the reliability of service provided by MidAmerican and the amount of energy
available from MidAmerican's facilities. Any of such items could have a
substantial impact on amounts required to be expended by MidAmerican in the
future.
Air Quality
The CAAA were signed into law in November 1990. MidAmerican has five
jointly owned and six wholly owned coal-fired generating units, which represent
approximately 65% of MidAmerican's electric generating capability. Essentially
all utility generating units are subject to the provisions of the CAAA which
address continuous emissions monitoring, permit requirements and fees and
emissions of certain substances. Under current regulations, MidAmerican does not
anticipate its construction costs for the installation of emissions monitoring
system upgrades through 2000 to be material.
Refer to the discussion under the caption "Environmental Matters" in the
OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A in Part IV, Item 14, of
this Form 10-K for additional information regarding air quality regulation.
Water Quality
Under the Federal Water Pollution Control Act Amendments of 1972, as
amended, MidAmerican is required to obtain NPDES permits to discharge effluents
(including thermal discharges) from its properties into various waterways. All
NPDES permits are subject to renewal after specified time periods not to exceed
five years. MidAmerican has obtained all necessary NPDES permits for its
generating stations, and when such permits are expected to expire, MidAmerican
will file applications for renewal.
-17-
<PAGE>
Hazardous Materials and Waste Management
The EPA and state environmental agencies have determined that
contaminated wastes remaining at certain decommissioned 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 26 properties which were, at one time, sites
of MGP facilities in which it may be a potentially responsible party.
MidAmerican's present estimate of probable remediation costs of these sites is
$21 million. The ICC has approved the use of a tariff rider which permits
recovery of the actual costs of litigation, investigation and remediation
relating to former MGP sites. MidAmerican's present rates in Iowa provide for a
fixed annual recovery of MGP costs.
Additional information relating to the Company's MGP facilities is
included under Note(4)(b) in Notes to Consolidated Financial Statements in Part
IV, Item 14 of this Form 10-K.
Pursuant to the Toxic Substances Control Act, a federal law administered
by the EPA, MidAmerican developed a comprehensive program for the use, handling,
control and disposal of all PCBs contained in electrical equipment. The future
use of equipment containing PCBs will be minimized. Capacitors, transformers and
other miscellaneous equipment are being purchased with a non-PCB dielectric
fluid. MidAmerican's exposure to PCB liability has been reduced through the
orderly replacement of a number of such electrical devices with similar non-PCB
electrical devices.
Other
A number of studies have examined the possibility of adverse health
effects from EMFs without conclusive results. EMFs are produced by all devices
carrying or using electricity, including transmission and distribution lines and
home appliances. MidAmerican cannot predict the effect on construction costs of
electric utility facilities or operating costs if EMF regulations were to be
adopted. Although MidAmerican is not the subject of any suit involving EMFs,
litigation has been filed in a number of jurisdictions against a variety of
defendants alleging that EMFs had an adverse effect on health. If such
litigation were successful, the impact on MidAmerican and on the electric
utility industry in general could be significant.
In December 1997, negotiators from more than 150 nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions. Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global temperatures to rise. The primary target of these emissions is carbon
dioxide (CO2) which is formed by, among other things, the combustion of fossil
fuels. The agreement currently calls for the United States to reduce its
emissions of CO2 and other greenhouse gases to 7 percent below 1990 levels in
the 2008- 2012 time frame. In order for the agreement to become binding upon the
United States, ratification by the U.S. Senate is necessary. The cost to
MidAmerican of reducing its CO2 emissions levels by 7 percent below 1990 levels
would depend on available technology at the time, but could be material.
-18-
<PAGE>
BUSINESS OF MIDAMERICAN CAPITAL COMPANY
---------------------------------------
MidAmerican Capital is a wholly owned nonregulated subsidiary of
Holdings. The nonregulated activities emphasize energy and complementary
service-related businesses, credit quality and liquidity. MidAmerican Capital
manages these activities through its nonregulated investment and operating
companies. Assets of MidAmerican Capital totaled $671 million as of December 31,
1997.
INVESTMENTS
MidAmerican Capital's investments totaled $600 million and $434 million
at December 31, 1997 and 1996, respectively. A majority of the investment
dollars relate to investment grade marketable securities and equipment leases,
most of which are held by InterCoast Capital and MHC Investment Company. As
discussed below, MidAmerican Capital and its subsidiaries also have investments
in energy projects, technology development interests and venture capital funds.
MidAmerican Capital's marketable securities portfolio, totaling $477
million and $219 million at December 31, 1997 and 1996, respectively, consists
substantially of a managed preferred stock portfolio and an investment in the
common stock of McLeodUSA. The preferred stocks have been issued by companies
having investment grade senior debt ratings by Moody's or Standard & Poor's.
McLeodUSA is a regional telecommunications provider. As of December 31, 1997,
the investment in McLeodUSA stock was recorded at a market value of $258
million. At the end of 1996, the investment in McLeodUSA was recorded at cost
and was not included in marketable securities due to restrictions on the sale of
the stock. In addition, MidAmerican Capital has investments in independently
managed mutual funds and KCS warrants received in the disposition of oil and gas
operations early in 1997.
MidAmerican Capital holds equity participations in equipment leases
primarily for passenger and freight transport aircraft. Such investments totaled
$74 million and $90 million at December 31, 1997 and 1996, respectively.
In addition, MidAmerican Capital and several of its subsidiaries have
indirect investments in a variety of nonregulated energy production technologies
including solar, hydroelectric, and natural gas and coal-fueled generation,
equity investments in two developing companies which provide products and
services for the electric and gas utility industries, an equity investment in a
company constructing a digital radio network, and limited interests in special
purpose funds that invest in venture capital.
OPERATING COMPANIES
Assets of MidAmerican Capital's operating companies totaled $16 million
and $23 million, respectively at December 31, 1997 and 1996.
AmGas Inc. was organized in anticipation of new opportunities under Order
636. AmGas Inc. markets natural gas and energy management services to commercial
and industrial clients in the Midwest. During 1997 AmGas Inc. sold 30 million
MMBtu's of natural gas.
InterCoast Trade and Resources, Inc. (ITR) was established in 1995 to
provide wholesale natural gas trading and marketing services. ITR's sales of
natural gas totaled 52 million MMBtu's in 1997.
-19-
<PAGE>
MidAmerican Capital acquired a majority, controlling interest in
Diversified Electronics, Ltd. in 1996. Diversified Electronics operates as AAA
Security Systems, Inc. (AAA Security), one of the largest residential and
commercial security systems companies in the Midwest. During 1997, AAA Security
acquired assets of two other midwestern security companies. With those
acquisitions, AAA Security has more than 12,000 security customers in the
Midwest.
MidAmerican Capital sold most of the assets of its rail services
operations in the fourth quarter of 1997. The remaining rail services operations
are managed through MidAmerican Rail Inc. which provides railcar leasing
services to MidAmerican.
BUSINESS OF MIDWEST CAPITAL GROUP, INC.
---------------------------------------
Midwest Capital is a wholly owned nonregulated subsidiary of Holdings
with total assets of $65 million as of December 31, 1997. Midwest Capital's
primary activity is the management of utility service area investments to
support economic development. Midwest Capital's principal interest is a
2,000-acre master planned residential and business community in southeastern
South Dakota. The major construction phase of the planned community is complete,
and the marketing phase to sell developed residential and commercial lots is in
progress.
ITEM 2. PROPERTIES
- - -------------------
MidAmerican's utility properties consist of physical assets necessary
and appropriate to rendering electric and gas service in its service
territories. Electric property consists primarily of generation, transmission
and distribution facilities. Gas property consists primarily of distribution
plant, including feeder lines to communities served from natural gas pipelines
owned by others. It is the opinion of management that the principal depreciable
properties owned by the Company's subsidiaries are in good operating condition
and well maintained.
-20-
<PAGE>
The net accredited generating capacity, along with the participation
purchases and sales, net, and firm purchases and sales, net, are shown for
summer 1997 accreditation.
Company's
Share of
Accredited
Percent Generating
Plant Ownership Fuel Capability (MW)
--------------------------------- --------- ---- ---------------
Steam Electric Generating Plants:
Council Bluffs Energy Center
Unit No. 1 100.0 Coal 43
Unit No. 2 100.0 Coal 88
Unit No. 3 79.1 Coal 534
George Neal Station
Unit No. 1 100.0 Coal 135
Unit No. 2 100.0 Coal 300
Unit No. 3 72.0 Coal 371
Unit No. 4 40.6 Coal 253
Louisa Unit 88.0 Coal 616
Ottumwa Unit 52.0 Coal 372
Riverside Station
Unit No. 3 100.0 Coal 5
Unit No. 5 100.0 Coal 130
-----
2,847
-----
Combustion Turbines:
Coralville - 1 unit 100.0 Gas/Oil 64
Electrifarm - 3 units 100.0 Gas/Oil 186
Moline - 4 units 100.0 Gas/Oil 64
Parr - 2 units 100.0 Gas/Oil 31
Pleasant Hill Energy Center - 3 units 100.0 Oil 148
River Hills Energy Center - 8 units 100.0 Gas/Oil 116
Sycamore Energy Center - 2 units 100.0 Gas/Oil 149
-----
758
-----
Nuclear:
Cooper (1) (1) Nuclear 387
Quad-Cities Station
Unit No. 1 25.0 Nuclear 192
Unit No. 2 25.0 Nuclear 191
-----
770
-----
Hydro:
Moline - 4 units 100.0 Water 3
-----
Net Accredited Generating Capacity 4,378
Participation Purchases and Sales, Net (85)
-----
Total Net Accredited Generating Capability 4,293
Firm Purchases and Sales, Net (47)
-----
Adjusted Net Accredited Generating Capability 4,246
=====
(1) Cooper is owned by NPPD and the amount shown is MidAmerican's
entitlement (50%) of Cooper's accredited capacity under a power
purchase agreement extending to the year 2004.
-21-
<PAGE>
The electric transmission system of MidAmerican at December 31, 1997,
included 871 miles of 345-kV lines, 1,294 miles of 161-kV lines, 1,808 miles of
69-kV lines and 253 miles of 34.5-kV lines.
The gas distribution facilities of MidAmerican at December 31, 1997,
included 19,161 miles of gas mains and services.
Substantially all the former Iowa-Illinois utility property and
franchises, and substantially all of the former Midwest electric utility
property located in Iowa, or approximately 82% of gross utility plant, is
pledged to secure mortgage bonds.
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
The Company and its subsidiaries have no material legal proceedings
except for the following:
Environmental Matters
- - ---------------------
Information on the Company's environmental matters is included in Item 1
- - - Business and under the Note "Environmental Matters" in Notes to Consolidated
Financial Statements in Part IV, Item 14 of this Form 10-K.
Cooper Litigation
- - -----------------
On July 23, 1997, NPPD filed a Complaint, in the United States District
Court for the District of Nebraska, naming MidAmerican as the defendant and
seeking declaratory judgment as to three issues under the parties' long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
seeks a declaratory judgment in the following respects: (1) that MidAmerican is
obligated to pay 50% of all costs and expenses associated with decommissioning
Cooper, and that in the event NPPD continues to operate Cooper after expiration
of the power purchase agreement (September 2004), MidAmerican is not entitled to
reimbursement of any decommissioning funds it has paid to date or will pay in
the future; (2) that the current method of allocating transition costs as a part
of the decommissioning cost is proper under the power purchase agreement; and
(3) that the current method of investing decommissioning funds is proper under
the power purchase agreement. On September 12, 1997, MidAmerican filed a "Motion
to Dismiss or Transfer Venue" (the Motion). NPPD filed a brief in opposition to
the Motion on October 16, 1997. After having unsuccessfully moved to dismiss or
transfer venue, MidAmerican, on January 20, 1998, filed an Answer and Contingent
Counterclaims for declaratory relief. Those contingent counterclaims seek the
declaratory judgments establishing the contrary to the declaratory judgments
sought by NPPD and also seek related declaratory relief. MidAmerican is
vigorously defending the Company's interests in this declaratory judgment
action.
North Star Steel Company
- - ------------------------
On December 8, 1997, North Star Steel Company (NSS), a retail
MidAmerican electric customer, filed a Complaint in the United States District
Court for the Southern District of Iowa naming Holdings and MidAmerican as
defendents. The Complaint alleges that MidAmerican's refusal to allow NSS to
obtain retail electric service from an unspecified alternative energy company
amounts to a violation of federal antitrust laws. NSS is seeking to recover an
unspecified level of damages, and to require MidAmerican to provide retail
wheeling service so that NSS can obtain electricity from an unnamed supplier.
MidAmerican is vigorously defending its conduct.
-22-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- - ----------------------------------------------------------
None.
OTHER INFORMATION
- - -----------------
EXECUTIVE OFFICERS OF HOLDINGS
The names, ages and positions of the executive officers of Holdings are
listed below.
Name Age Positions Held
---- --- --------------
Stanley J. Bright 57 Chairman, President and CEO
Wayne O. Smith 54 Executive Vice President
Ronald W. Stepien 51 Executive Vice President
John J. Cappello 51 Senior Vice President
David J. Levy 43 Senior Vice President
John A. Rasmussen, Jr. 52 Senior Vice President and
General Counsel
Alan L. Wells 38 Senior Vice President and
Chief Financial Officer
Beverly A. Wharton 44 Senior Vice President
Officers are elected annually by the Board of Directors. There are no
family relationships among these officers, nor any arrangements or understanding
between any officer and any other person pursuant to which the officer was
selected. Each of the officers has served in the above stated capacity since
December 1, 1996, and has been employed by Holdings and/or its subsidiaries or
predecessor companies for five or more years as an executive officer with the
exception of Mssrs. Smith, Cappello and Wells. Refer to Part III, Item 10 (b),
"Directors and Officers of the Registrant - Business Experience," of this
document for a discussion of the business experience of each of these officers.
BUSINESS TRANSACTION POLICY STATEMENT
In response to the competitive forces and regulatory changes being faced
by the Company, the Company has from time to time considered, and expects to
continue to consider, various strategies designed to enhance its competitive
position and to increase its ability to adapt to and anticipate changes in its
utility business. These strategies may include business combinations with other
companies, internal restructuring involving the complete or partial separation
of its wholesale and retail businesses, and additions to, or dispositions of,
portions of its franchised service territories. The Company may from time to
time be engaged in preliminary discussions, either internally or with third
parties, regarding one or more of these potential strategies. No assurances can
be given as to whether any potential transaction of the type described above may
-23-
<PAGE>
actually occur, or as to the ultimate effect thereof on the financial condition
or competitive position of the Company.
The Company's management is mindful of the importance of informing
investors about Company operations. Management must also pay heed to the legally
sensitive nature of certain matters, and that is particularly true about any
business transaction involving an acquisition, disposition or combination of
businesses which the Company may be considering.
Therefore, the Company's management has adopted a policy to announce
consideration of any such transaction only after it would enter into a
definitive agreement or an agreement in principle describing the material terms
of such a transaction.
Until that point, the Company would respond with "no comment" to any
inquiry concerning any such transaction, whether or not the Company is
considering, discussing or negotiating for any acquisitions, dispositions or
combinations of businesses. The Company's management believes this policy is
consistent both with investors' need for information and with the Company's
concern for appropriate disclosure regarding legally sensitive matters.
-24-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- - ---------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Holdings' common stock has been listed on the New York Stock Exchange
under the symbol "MEC" since December 1, 1996; and prior to such time,
MidAmerican's common stock was listed under the symbol "MEC". The following
table sets forth, for the periods indicated, the dividends declared per share of
common stock and the high and low market prices of the common stock of Holdings
since December 1, 1996, and of MidAmerican prior to that time, as reported in
The Wall Street Journal for the New York Stock Exchange Composite Tape.
Price Range
Dividends Declared High Low
------------------ ------- --------
1997
4th Quarter $0.30 $22 5/8 $17
3rd Quarter 0.30 17 5/8 16 5/16
2nd Quarter 0.30 17 7/16 16 3/8
1st Quarter 0.30 17 7/8 15 1/2
1996
4th Quarter $0.30 $16 1/4 $14 3/4
3rd Quarter 0.30 17 3/4 15 3/8
2nd Quarter 0.30 17 7/8 16 1/4
1st Quarter 0.30 18 7/8 16 1/4
On February 20, 1998, there were approximately 59,000 shareholders of
record of Holdings' common stock.
MidAmerican's outstanding common stock has been held entirely by Holdings
since December 1, 1996, and is not publicly traded. On December 1, 1996,
MidAmerican distributed the capital stock of MidAmerican Capital and Midwest
Capital to Holdings. Cash dividends declared on common stock of MidAmerican are
shown in the table below (in thousands).
1997 1996
-------- -------
4th Quarter $29,000 $30,176
3rd Quarter 20,000 30,154
2nd Quarter 40,000 30,218
1st Quarter 31,500 30,222
ITEM 6. SELECTED FINANCIAL DATA
- - --------------------------------
Reference is made to Part IV of this report.
-25-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Reference is made to Part IV of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The Decommissioning
Trust Fund and Investments are purchased to provide funds for the future
decommissioning of the Quad Cities Station and to provide liquidity to the
Company's nonregulated subsidiaries. Derivative financial instruments are
purchased for hedging purposes. Put options are purchased as hedges to offset
changes in market value of fixed rate preferred stock investments. All financial
instruments shown in the tables in this section are settled and denominated in
U.S. dollars. As of December 31, 1997, the Company's interest sensitive
financial instruments included the following (amounts in thousands of dollars;
amounts represent face value unless indicated otherwise):
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total Value
----- ----- ----- ---- ---- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
MIDAMERICAN
Decommissioning Trust Fund:
Fixed rate U.S. government securities - - 1,555 1,100 245 15,140 18,040 19,548
Average interest rate - - 6.25% 6.63% 6.38% 7.14%
Fixed rate corporate securities - 700 1,640 - 950 2,950 6,240 6,427
Average interest rate - 6.13% 6.39% - 6.37% 7.70%
Fixed rate municipal bonds 2,570 1,370 2,675 1,545 550 23,380 32,090 33,721
Average interest rate 6.07% 4.90% 5.01% 7.03% 4.98% 5.86%
Variable rate municipal bonds - - - - - 6,345 6,345 3,612
Average interest rate - - - - - 4.87%
MIDAMERICAN CAPITAL
Investments:
Fixed rate perpetual preferred stocks - - - - - 93,988 93,988 99,144
Average dividend rate - - - - - 6.74%
Adjustable rate perpetual preferred stocks - - - - - 42,103 42,103 45,527
Average dividend rate - - - - - 5.63%
Fixed rate sinking fund preferred stocks 892 910 4,443 1,223 1,223 19,778 28,469 29,815
Average dividend rate 7.35% 7.09% 7.03% 7.36% 7.36% 6.80%
Fixed rate debt securities - - - - - 7,150 7,150 7,371
Average interest rate - - - - - 7.85%
Interest Rate Hedging Instruments:
Put options (contract amount) 3,200 - - - - - 3,200 1,890
Average strike price 120.73 - - - - -
</TABLE>
-26-
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total Value
------ ------ ------- ------- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND EQUITY
MIDAMERICAN
Preferred Securities Subject to
Mandatory Redemption:
Fixed rate preferred securities 10,000 - - 6,660 6,660 26,680 50,000 53,650
Average dividend rate 5.25% - - 7.80% 7.80% 7.80%
Preferred Securities of Subsidiary Trust:
Fixed rate preferred securities - - - - - 100,000 100,000 104,250
Average dividend rate - - - - - 7.98%
Long-term Debt:
Fixed rate debt 124,963 60,897 110,861 101,600 1,854 527,285 927,460 955,772
Average interest rate 6.05% 8.49% 7.59% 6.53% 7.71% 7.47%
Variable rate debt - - - - - 120,395 120,395 120,395
Average interest rate (at 12/31/97) - - - - - 3.94%
MIDAMERICAN CAPITAL
Long-term Debt:
Fixed rate debt 20,098 45,000 23,333 23,333 23,334 - 135,098 139,776
Average interest rate 7.35% 7.76% 8.52% 8.52% 8.52% -
</TABLE>
The table below provides information about the Company's assets that are
sensitive to commodity price changes. The Company's coal and fuel oil
inventories are held at various generating stations for the production of
electricity. Natural gas inventories are held at various storage sites to meet
winter peak demands on the Company's's distribution system. As of December 31,
1997, the Company's assets that are sensitive to commodity price change included
the following (in thousands):
Carrying Fair
Amount Value
-------- -----
ASSETS
MIDAMERICAN
Coal inventory $14,225 $12,963
Fuel oil inventory 2,344 2,551
Natural gas inventory 35,430 50,283
Propane gas inventory 874 465
Refer to Note (4)(g) in Notes to Consolidated Financial Statements
included in Part IV, Item 14, of this Form 10-K for additional information
regarding the Company's long-term coal and natural gas supply contracts.
-27-
<PAGE>
The table below provides information about derivatives held by the
Company that are sensitive to commodity price changes. The natural gas futures
and swap contracts are not held for trading or speculative purposes. The
contracts are used to reduce the volatility of charges to MidAmerican's
regulated customers through purchase adjustment clauses and to align the pricing
terms of natural gas supply contracts with the terms of sales contracts with the
Company's nonregulated customers. All of the gas futures held by the Company
mature in less than twelve months. As of December 31, 1997, the Company's
commodity derivatives included the following:
COMMODITY HEDGING INSTRUMENTS:
- - ------------------------------
1998 Expected Maturity
----------------------
MIDAMERICAN
Futures contracts (Short):
Contract volumes (MMBtu) 1,500,000
Weighted average price (per MMBtu) $2.314
Contract amount (in thousands) $3,470
Weighted average fair value (12/31/97)
price (per MMBtu) $2.309
Fair value at 12/31/97 (in thousands) $3,464
Futures contracts (Long):
Contract volumes (MMBtu) 3,500,000
Weighted average price (per MMBtu) $2.390
Contract amount (in thousands) $8,364
Weighted average fair value (12/31/97)
price (per MMBtu) $2.278
Fair value at 12/31/97 (in thousands) $7,971
<TABLE>
<CAPTION>
1998 Expected Maturity 1999 Expected Maturity
---------------------- ----------------------
<S> <C> <C>
MIDAMERICAN
Swap contracts (Variable to fixed):
Contract volumes (MMBtu) 5,425,707 393,100
Average fixed pay price (per MMBtu) $2.376 $2.311
Average variable receive price (per MMBtu) $2.211 $2.361
Swap contracts (Fixed to variable):
Contract volumes (MMBtu) 1,150,000 -
Average fixed receive price (per MMBtu) $2.136 -
Average variable pay price (per MMBtu) $2.144 -
</TABLE>
-28-
<PAGE>
1998 Expected Maturity
----------------------
MIDAMERICAN CAPITAL
Futures contracts (Short):
Contract volumes (MMBtu) 170,000
Weighted average price (per MMBtu) $2.208
Contract amount (in thousands) $375
Weighted average fair value (12/31/97)
price (per MMBtu) $2.269
Fair value at 12/31/97 (in thousands) $386
Futures contracts (Long):
Contract volumes (MMBtu) 170,000
Weighted average price (per MMBtu) $2.283
Contract amount (in thousands) $388
Weighted average fair value (12/31/97)
price (per MMBtu) $2.269
Fair value at 12/31/97 (in thousands) $386
1998 Expected Maturity
----------------------
MIDAMERICAN CAPITAL
Swap contracts (Variable to fixed):
Contract volumes (MMBtu) 1,381,245
Average fixed pay price (per MMBtu) $2.852
Average variable receive price (per MMBtu) $3.816
Swap contracts (Fixed to variable)
Contract volumes (MMBtu) 1,347,400
Average fixed receive price (per MMBtu) $3.949
Average variable pay price (per MMBtu) $2.911
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------- -------------------------------------------
Reference is made to Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- - --------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
The Company selected Coopers & Lybrand L.L.P. as its new independent
public accountants on April 23, 1997. For further details, refer to the combined
Form 8-K filed by Holdings and MidAmerican on April 25, 1997.
-29-
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
HOLDINGS
The information required by Item 10 relating to directors who are nominees
for election as directors at Holdings' 1998 Annual Meeting of Shareholders is
set forth in Holdings' Proxy Statement filed with the SEC pursuant to Regulation
14A under the Securities Exchange Act of 1934. Therefore, such information is
incorporated herein by reference to the material appearing under the caption
"ELECTION OF DIRECTORS" on pages 2 through 6 of the Proxy Statement. On the
referenced pages of that proxy statement, the words "the Company" or
"MidAmerican" and "MidAmerican Common Stock" refer to Holdings, and its common
stock, respectively. Information required by Item 10 relating to Executive
Officers of Holdings is set forth under a separate caption in Part I hereof.
MIDAMERICAN
Information concerning the current directors and executive officers of
MidAmerican is as follows:
(A) IDENTIFICATION
Served in Served as
Present Present Director
Name Age Position Position Since Since
- - ---- --- -------- -------------- --------
Stanley J. Bright 57 Chairman, President and CEO 1996 1987
Wayne O. Smith 54 Executive Vice President 1997 1997
Ronald W. Stepien 51 Executive Vice President 1996 1996
John J. Cappello 51 Senior Vice President 1997
David J. Levy 43 Senior Vice President 1996 1996
John A. Rasmussen, Jr. 52 Senior Vice President
and General Counsel 1996 1996
Alan L. Wells 38 Senior Vice President
and Chief Financial Officer 1997
Beverly A. Wharton 44 Senior Vice President 1996 1996
Officers are elected annually by the Board of Directors. There are no
family relationships among these officers, nor any arrangements or understanding
between any officer and any other person pursuant to which the officer was
selected.
-30-
<PAGE>
(B) BUSINESS EXPERIENCE
STANLEY J. BRIGHT
Chairman of Holdings since June 1, 1997, and President and Chief Executive
Officer since December 1, 1996. Chairman of MidAmerican since December 1, 1996,
Chief Executive Officer since July 1, 1996, President since 1995 and President
of the Office of the Chief Executive Officer from 1995 to July 1, 1996.
Chairman, President and Chief Executive Officer of Iowa-Illinois from 1991 to
1995. Director of Norwest Bank Iowa, N.A. and Utilx Corporation.
WAYNE O. SMITH
Executive Vice President of MidAmerican since September 1, 1997. Executive
Vice President and President and Chief Operating Officer - Specialty Chemicals
at B. F. Goodrich Company from 1994 to 1997. Group Vice President - Gases
Americas at The BOC Group, Ltd. from 1990 to 1993.
RONALD W. STEPIEN
Executive Vice President of Holdings since December 1, 1996. Executive Vice
President of MidAmerican since November 1, 1996 and Group Vice President from
1995 to November 1, 1996. Vice President of Iowa-Illinois from 1990 to 1995.
JOHN J. CAPPELLO
Senior Vice President of MidAmerican since August 1, 1997. Vice President
of MidAmerican between August 1, 1996, and August 1, 1997. Prior to joining
MidAmerican, he held various executive and officer positions at AT&T between
1968 and 1995.
DAVID J. LEVY
Senior Vice President of MidAmerican since November 1, 1996 and Vice
President from 1995 to November 1, 1996. Vice President of Iowa-Illinois from
1993 to 1995.
JOHN A. RASMUSSEN, JR.
Senior Vice President and General Counsel of Holdings since December 1,
1996. Senior Vice President and General Counsel of MidAmerican since November 1,
1996 and Group Vice President and General Counsel from July 1, 1995 to November
1, 1996. Vice President and General Counsel of Midwest from 1991 to 1995.
ALAN L. WELLS
Senior Vice President and Chief Financial Officer of Holdings and
MidAmerican since November 1, 1997, Vice President of MidAmerican from November
1, 1996, to November 1, 1997, and various executive and management positions
with MidAmerican from 1993 to November 1, 1996.
-31-
<PAGE>
BEVERLY A. WHARTON
Senior Vice President of MidAmerican since November 1, 1996 and President,
Gas Division from 1995 to November 1, 1996. Group Vice President of Midwest from
1992 to 1995. Director of Security National Bank.
ITEM 11. EXECUTIVE COMPENSATION
- - --------------------------------
HOLDINGS AND MIDAMERICAN
The information required by Item 11 is incorporated herein by reference to
the material appearing under the caption "EXECUTIVE COMPENSATION" on pages 10
through 20 of Holdings' Proxy Statement filed with the SEC. On the referenced
pages of that proxy statement, the words "the Company" or "MidAmerican" and
"MidAmerican Common Stock" refer to Holdings, and its common stock,
respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- - -------------------------------------------------------------
MANAGEMENT
----------
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
HOLDINGS
To the Company's knowledge, no single entity has beneficial ownership of 5
percent or more of the outstanding common stock of Holdings.
MIDAMERICAN
Holdings owns 100 percent of the outstanding common stock of MidAmerican.
(B) SECURITY OWNERSHIP OF MANAGEMENT
HOLDINGS
Security ownership of management as outlined on pages 8 and 9 of the
Company's Proxy Statement filed with the SEC under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by
reference. On the referenced pages of that proxy statement, the words "the
Company" or "MidAmerican" and "MidAmerican Common Stock" refer to Holdings, and
its common stock, respectively.
MIDAMERICAN
The following table shows the beneficial ownership, reported to
MidAmerican as of February 20, 1998, of Holdings Common Stock of each director,
the chief executive officer and the four other most highly compensated executive
officers and, as a group, directors and executive officers. No member of the
group owned any of the preferred stock of MidAmerican. To MidAmerican's
knowledge, no single entity owns of record or beneficially more than five
percent of any class of the outstanding voting securities of Holdings.
-32-
<PAGE>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class
- - ------------------------ ------------------------ ---------
Stanley J. Bright................... 100,480 (2) *
David J. Levy....................... 9,707 (3) *
John A. Rasmussen, Jr............... 17,055 (4) *
Wayne O. Smith...................... 6,498 *
Ronald W. Stepien................... 19,854 (5) *
Beverly A. Wharton.................. 38,596 (6) *
Phillip G. Lindner.................. 11,155 (7) *
Directors and executive officers as
a group (9) persons............... 214,274 (8) *
- - -----------------------------
* Less than one percent of the shares of Holdings Common Stock outstanding.
(1) Beneficial ownership of each of the shares of Holdings Common Stock
listed in the foregoing table is comprised of sole voting power and sole
investment power, unless otherwise noted.
(2) Includes 50,000 shares which Mr. Bright has the right to acquire within
60 days upon the exercise of stock options, 6,879 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997, and
1,697 shares beneficially owned by Mr. Bright and his spouse.
(3) Includes 47 shares held in a Section 401(k) defined contribution plan as
of December 31, 1997, and 147 shares beneficially owned by Mr. Levy and
his spouse.
(4) Includes 3,267 shares held in a Section 401(k) defined contribution plan
as of December 31, 1997, and 2,700 shares beneficially owned by Mr.
Rasmussen and his spouse.
(5) Includes 5,000 shares which Mr. Stepien has the right to acquire within
60 days upon the exercise of stock options and 1,679 shares held in a
Section 401(k) defined contribution plan as of December 31, 1997.
(6) Includes 15,000 shares which Mrs. Wharton has the right to acquire
within 60 days upon the exercise of stock options, 1,420 shares held in
a Section 401(k) defined contribution plan as of December 31, 1997,
5,316 shares beneficially owned by Mrs. Wharton and her spouse and 986
shares beneficially owned in a custodial account for a minor child.
(7) Includes 138 shares beneficially owned by Mr. Lindner and his spouse.
Mr. Lindner retired from the Company in January 1998.
(8) Includes 115,000 shares which the executive officers have the right to
acquire within 60 days upon the exercise of stock options, shares held
in defined contribution plans as of December 31, 1997, and shares
beneficially owned jointly with and individually by family members of
directors and executive officers.
-33-
<PAGE>
(C) CHANGES IN CONTROL
There are no arrangements known to the registrants, the operation of
which may at a subsequent date result in a change in control of Holdings or
MidAmerican.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - --------------------------------------------------------
Effective with his retirement on May 31, 1997, as Chairman of the
Company, Mr. Christiansen's employment agreement provides that his service in an
advisory capacity to the Company would commence on June 1, 1997 and continue
through June 1, 2000. Mr. Christiansen receives annual compensation of $50,000
for this service.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- - --------------------------------------------------------------------------
(A)1. FINANCIAL STATEMENTS (INCLUDED HEREIN)
Page No.
--------
Selected Consolidated Financial Data....................... 36
Management's Discussion and Analysis of Financial
Condition And Results of Operations...................... 37
Index to Financial Statements:
------------------------------
MidAmerican Energy Holdings Company
Consolidated Statements of Income
For the Year Ended December 31, 1997, 1996 and 1995...... 58
Consolidated Balance Sheets
As of December 31, 1997 and 1996 ........................ 59
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1997, 1996 and 1995...... 60
Consolidated Statements of Capitalization
As of December 31, 1997 and 1996 ........................ 61
Consolidated Statements of Retained Earnings
For the Year Ended December 31, 1997, 1996 and 1995...... 62
Notes to Consolidated Financial Statements................. 63
Report of Management....................................... 90
Report of Independent Accountants.......................... 91
MidAmerican Energy Company
Consolidated Statements of Income
For the Year Ended December 31, 1997, 1996 and 1995...... 92
Consolidated Balance Sheets
As of December 31, 1997 and 1996 ........................ 93
-34-
<PAGE>
Page No.
--------
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1997, 1996 and 1995...... 94
Consolidated Statements of Capitalization
As of December 31, 1997 and 1996 ........................ 95
Consolidated Statements of Retained Earnings
For the Year Ended December 31, 1997, 1996 and 1995...... 96
Notes to Consolidated Financial Statements................. 97
Report of Management....................................... 111
Report of Independent Accountants.......................... 112
Index to Supplemental Information
---------------------------------
Five-Year Financial Statistics............................. 113
Five-Year Consolidated Statements of Income................ 114
Five-Year Consolidated Balance Sheets...................... 115
Five-Year Utility Statistics............................... 116
(A)2. FINANCIAL STATEMENT SCHEDULES (INCLUDED HEREIN)
The following schedules should be read in conjunction with the
aforementioned financial statements.
Page No.
--------
MidAmerican Energy Holdings Company Consolidated
Valuation and Qualifying Accounts (Schedule II) ........ 118
MidAmerican Energy Company Consolidated Valuation
and Qualifying Accounts (Schedule II) .................. 119
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
(A)3. EXHIBITS
See Exhibit Index on page 123.
(B) REPORTS ON FORM 8-K
On December 8, 1997, Holdings and MidAmerican filed a combined report on
Form 8-K, dated December 5, 1997. The report included an announcement by
MidAmerican that coal delivery at some of its electric generating facilities
continued to be impacted by the Union Pacific Railroad's nationwide slowdown of
trains. The press release issued in conjunction with the announcement was filed
as an Exhibit to the report.
-35-
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
MidAmerican Energy Holdings Company
- - -----------------------------------
INCOME STATEMENT DATA: (g)
Revenues........................................... $1,922,281 $1,872,612 $1,649,341 $1,631,225 $1,627,956
Operating income (a)............................... 270,506 343,638 292,354 264,492 267,938
Income from continuing operations (b).............. 139,332 143,761 119,705 123,098 134,325
Average common shares outstanding.................. 98,058 100,752 100,401 98,531 97,762
Earnings per average common share
from continuing operations..................... $ 1.42 $ 1.43 $ 1.19 $ 1.25 $ 1.38
Cash dividends declared per share.................. $ 1.20 $ 1.20 $ 1.18 $ 1.17 $ 1.17
BALANCE SHEET DATA:
Total assets....................................... $4,278,091 $4,521,848 $4,470,097 $4,388,894 $4,352,073
Long-term debt (c)................................. 1,178,769 1,474,701 1,468,617 1,471,127 1,407,374
Power purchase obligation (c)...................... 97,504 111,222 125,729 137,809 151,485
Short-term borrowings.............................. 138,054 161,990 184,800 124,500 173,035
Preferred stock:
Not subject to mandatory redemption............ 31,763 31,769 89,945 89,955 109,871
Subject to mandatory redemption (d)............ 150,000 150,000 50,000 50,000 50,000
Common stock equity (f)............................ 1,301,286 1,239,946 1,225,715 1,204,112 1,180,510
Book value per common share (f).................... $ 13.65 $ 12.31 $ 12.17 $ 12.08 $ 12.07
MidAmerican Energy Company
- - --------------------------
INCOME STATEMENT DATA: (g)
Revenues.......................................... $1,662,606 $1,635,761 $1,554,235 $1,513,675 $1,541,959
Operating income (a).............................. 206,527 249,207 219,238 198,491 203,780
Net income from continuing operations (b)......... 125,941 165,132 132,489 121,145 133,888
Earnings on common from continuing operations..... 119,453 154,731 124,430 110,594 125,521
BALANCE SHEET DATA:
Total assets...................................... $3,542,307 $3,774,653 $3,976,201 $3,879,847 $3,832,569
Long-term debt (c)................................ 1,044,663 1,136,515 1,110,525 1,109,617 1,051,144
Power purchase obligation (c)..................... 97,504 111,222 125,729 137,809 151,485
Short-term borrowings............................. 122,500 161,700 184,800 124,500 160,800
Preferred stock:
Not subject to mandatory redemption........... 31,763 31,769 89,945 89,955 109,871
Subject to mandatory redemption (d)........... 150,000 150,000 50,000 50,000 50,000
Common stock equity (e)........................... 985,744 986,825 1,225,715 1,204,112 1,180,510
</TABLE>
(a) MidAmerican Energy Holdings Company (Holdings) 1995 operating income
includes $33.4 million of costs related to a restructuring and work force
reduction plan implemented and completed in 1995, and MidAmerican Energy
Company (MidAmerican) operating income includes $31.9 million of such
costs.
(b) In 1997, Holdings recorded after-tax gains totalling $11.2 million for
sales of assets of certain railcar businesses and a portion of a common
stock investment that has appreciated significantly. Holdings recorded
after-tax losses of approximately $9.4 million and $10.2 million for the
write-down of certain nonregulated assets during 1996 and 1995,
respectively. In 1993, MidAmerican recorded an $11.5 million after-tax gain
on an exchange of natural gas service territories.
(c) Includes amounts due within one year.
(d) Post-1995 years include MidAmerican-obligated mandatorily redeemable
preferred securities of subsidiary trust holding solely MidAmerican junior
subordinated debentures.
(e) 1996 reflects distribution of the capital stock of MidAmerican Capital
Company and Midwest Capital Group, Inc. to Holdings.
(f) Holdings' common equity increased in 1997 due to recording at market value
an investment in McLeodUSA, Inc. common stock. Refer to Note (14) for
further discussion.
(g) Refer to Operating Activities and Other Matters in MD&A for discussion of
industry restructuring, and rate matters.
-36-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
------------
COMPANY STRUCTURE
MidAmerican Energy Holdings Company (Holdings or the Company) is an exempt
public utility holding company headquartered in Des Moines, Iowa. Effective
December 1, 1996, Holdings became the parent company of MidAmerican Energy
Company (MidAmerican), MidAmerican Capital Company (MidAmerican Capital) and
Midwest Capital Group, Inc. (Midwest Capital). Prior to December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.
MidAmerican was formed on July 1, 1995, as a result of the merger of
Iowa-Illinois Gas and Electric Company, Midwest Resources Inc. (Resources) and
Midwest Power Systems Inc., the utility subsidiary of Resources.
MidAmerican is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital and Midwest
Capital are Holdings' nonregulated subsidiaries. Midwest Capital functions as a
regional business development company in MidAmerican's utility service
territory. MidAmerican Capital manages marketable securities and passive
investment activities, nonregulated wholesale and retail natural gas businesses,
security services and other energy-related, nonregulated activities.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The MidAmerican merger was accounted for as a pooling-of-interests, and
consolidated financial statements are presented as if the merger occurred as of
the beginning of the earliest period presented. 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. Portions of the following discussion provide information related
to material changes in the financial condition and results of operations of
Holdings and MidAmerican for the periods presented based on the combined
historical information of the predecessor companies. It is not necessarily
indicative of what would have occurred had the predecessor companies actually
merged at the beginning of the earliest period.
Management's Discussion and Analysis (MD&A) addresses the financial
statements of Holdings and MidAmerican 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.
-37-
<PAGE>
FORWARD-LOOKING STATEMENTS
From time to time, the Company or one of its subsidiaries individually may
make forward-looking statements within the meaning of the federal securities
laws that involve judgments, assumptions and other uncertainties beyond the
control of the Company or any of its subsidiaries individually. These
forward-looking statements may include, among others, statements concerning
revenue and cost trends, cost recovery, cost reduction strategies and
anticipated outcomes, pricing strategies, changes in the utility industry,
planned capital expenditures, financing needs and availability, statements of
the Company's expectations, beliefs, future plans and strategies, anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such statements are not a guarantee of future performance of the Company
and that such forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in, or
implied by, such statements. Some, but not all, of the risks and uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory, interest rates,
inflation and federal and state regulatory actions.
RESULTS OF OPERATIONS
---------------------
Holdings:
- - ---------
The following tables provide a summary of the earnings contributions of the
Company's operations for each of the periods presented:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net Income (in millions)
Continuing operations
Electric utility $100.9 $122.7 $111.9
Gas utility 18.6 32.0 12.6
------ ------ ------
Total 119.5 154.7 124.5
Nonregulated operations 19.8 (11.0) (4.8)
Discontinued operations (4.2) (12.7) 3.1
------ ------ ------
Consolidated earnings $135.1 $131.0 $122.8
====== ====== ======
Earnings Per Common Share
Continuing operations
Electric utility $ 1.03 $ 1.22 $ 1.11
Gas utility 0.19 0.32 0.13
------ ------ ------
Total 1.22 1.54 1.24
Nonregulated operations 0.20 (0.11) (0.05)
Discontinued operations (0.04) (0.13) 0.03
------ ------ ------
Consolidated earnings $ 1.38 $ 1.30 $ 1.22
====== ====== ======
</TABLE>
-38-
<PAGE>
MidAmerican:
- - ------------
The following table provides a summary of the earnings contributions of
MidAmerican's operations for each of the periods presented:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(in millions)
<S> <C> <C> <C>
Earnings on Common Stock
Continuing operations
Electric utility $100.9 $122.7 $111.9
Gas utility 18.6 32.0 12.6
------ ------ ------
Total 119.5 154.7 124.5
Discontinued operations * - (10.1) (1.7)
------ ------ ------
Consolidated earnings $119.5 $144.6 $122.8
====== ====== ======
</TABLE>
*1996 and 1995 include the income (loss) of MidAmerican Capital and
Midwest Capital prior to their transfer to Holdings on December 1, 1996.
EARNINGS DISCUSSION
Earnings per share for 1997 and 1996 each increased 8 cents compared to
their prior year. Some of the significant factors resulting in the increases are
listed below, on a Holdings per-share basis. The discussion that follows
addresses these factors as well as other items affecting the Company's results
of operations.
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
------------ ------------
<S> <C> <C>
MidAmerican
Net reduction in electric and gas
gross margin due to -
Variation in the effect of weather $ (0.03) $ (0.09)
Customer growth 0.08 0.09
Electric retail rate changes (0.07) (0.01)
Improvements due to other factors 0.10 0.05
Nuclear O&M expenses (0.07) 0.02
1995 merger and restructuring costs - 0.24
Other O&M expenses (0.40) 0.09
1996 merger proposal costs 0.05 (0.05)
Gas procurement program awards
and 1996 storage gas sale - 0.03
Nonregulated subsidiaries
Write-downs of certain assets
(primarily alternative energy projects) 0.07 0.01
Realized gain on sale of McLeodUSA
Incorporated common stock 0.05 -
Gains on sales of certain assets 0.06 (0.05)
Interest on long-term debt 0.07 0.02
Other continuing operations 0.07 (0.04)
Discontinued operations 0.09 (0.16)
</TABLE>
-39-
<PAGE>
The Company continued its strategic realignment of utility and nonregulated
operations which began in 1996. Earnings of nonregulated subsidiaries have been
significantly affected by such realignment. During 1997, the Company divested a
number of its interests in nonregulated assets which did not align with the
corporate vision of becoming the leading regional provider of energy and
complementary services. Earnings for 1997 include 6 cents per share from the
sale of assets of its railcar leasing and repair businesses. Losses from
discontinued operations reduced earnings in 1996 and 1997, though to a lesser
degree in 1997. Cash proceeds from the sale of discontinued operations allowed
the Company to pay off long-term debt, significantly reducing its interest
expense compared to 1996.
In addition, 1997 earnings include 5 cents per share from the sale of a
portion of the Company's interest in McLeodUSA Incorporated (McLeodUSA).
Although utility earnings for 1997 were lower than in the prior year, a
reduction was anticipated because of the electric pricing settlements achieved
in 1996 and 1997 in Iowa and Illinois. Additionally, utility operating expenses
increased as the Company continued strategic realignment which included
strengthening its marketing and customer service capabilities and adding to its
information technology resources.
In the past three years, the Company's evaluation of its nonregulated
investments has resulted in write-downs of certain assets, primarily investments
in alternative energy projects. The write-downs, which reflect declines in the
value of those nonregulated investments, reduced earnings by approximately $2.0
million, or 2 cents per share, $9.4 million, or 9 cents per share, and $10.2
million, or 10 cents per share, in 1997, 1996 and 1995, respectively.
Discontinued Operations -
Holdings:
- - ---------
During 1996, the Company discontinued some of its nonregulated operations.
The income or loss from those operations and the losses on disposal are
reflected as discontinued operations in each of the periods presented in the
Consolidated Statements of Income. Net assets of the discontinued operations are
separately presented in the Consolidated Balance Sheets as Investment in
Discontinued Operations.
In the fourth quarter of 1996, the Company and KCS Energy, Inc. (KCS) of
Edison, New Jersey, signed a definitive agreement to sell a portion of the
Company's nonregulated operations to KCS for $210 million in cash and warrants
to purchase KCS common stock. The sale, which included the Company's oil and gas
exploration and development operations, was completed in January 1997. The
Company recorded an after-tax loss of $7.1 million for the transaction in 1996
and an additional $0.9 million in 1997.
In October 1997, the Company also divested a subsidiary that developed and
operated a computerized information system which facilitated real-time exchange
of power in the electric industry. The Company recorded a $4.0 million
anticipated after-tax loss on disposal of those operations in September 1996 and
an additional $3.2 million after-tax loss on disposal in September 1997.
-40-
<PAGE>
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 includes the net earnings/loss of MidAmerican Capital and Midwest
Capital for periods prior to their December 1, 1996, transfer to Holdings.
UTILITY GROSS MARGIN
<TABLE>
<CAPTION>
Electric Gross Margin:
----------------------
1997 1996 1995
------ ------ ------
(in millions)
<S> <C> <C> <C>
Operating revenues $1,126 $1,099 $1,095
Cost of fuel, energy and capacity 236 234 230
------ ------ ------
Electric gross margin $ 890 $ 865 $ 865
====== ====== ======
</TABLE>
A variety of factors contributed to the increase in MidAmerican's electric
gross margin for 1997 compared to 1996. An increase in electric retail sales
volumes, additional recovery of energy efficiency costs and an increase in
transmission revenues all contributed to the improvement in gross margin. Rate
reductions partially offset the increases.
Retail sales of electricity increased 2.6% compared to 1996 sales due
primarily to a moderate but steady growth in the number of customers. The
increase in sales resulting from customer growth contributed $11 million to the
increase in electric gross margin. Also, compared to 1996, sales and gross
margin improved due to the impact of temperatures in the Company's service
territory. Although temperatures were milder than normal in both years,
comparatively, margin for 1997 increased $2 million over 1996 margin due to the
effect of weather. When compared to normal, the impact of temperatures resulted
in a $13 million reduction in electric gross margin in 1997 compared to a $15
million reduction in the 1996 margin.
Prior to July 11, 1997, MidAmerican was allowed to recover its energy costs
from most of its electric utility customers through energy adjustment clauses
(EACs) included in revenues. Effective July 11, 1997, the EAC was eliminated for
Iowa customers as part of a new Iowa pricing plan. Previously, variations in
revenues collected through the EACs did not affect gross margin or net income
due to corresponding increases in energy costs. With the elimination of the Iowa
EAC, fluctuations in energy costs now have an impact on gross margin and net
income. Energy costs per unit since July 11, 1997, were below the amount
recovered in rates under the new Iowa pricing plan and resulted in an increase
to gross margin.
In October 1996, the Illinois Commerce Commission (ICC) ordered MidAmerican
to reduce electric retail rates for its Illinois customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A negotiated termination
of the rate reduction proceeding left in place the initial $13.1 million annual
reduction and included a second price reduction of $2.4 million annually
effective on June 1, 1997. In Iowa, MidAmerican reduced its electric retail
rates by $8.7 million effective November 1, 1996. The reduction lowered rates to
levels proposed by MidAmerican in its pricing plan filed in June 1996. With
implementation
-41-
<PAGE>
of the approved settlement in July 1997, rates for Iowa residential customers
were reduced an additional $10.0 million annually. The Iowa rate reductions are
partially offset by a new tracking mechanism (Cooper Tracker) for capital
improvement costs at the Cooper Nuclear Station (Cooper). Net of the effect of
the Cooper Tracker, rate reductions reduced electric gross margin by $17.3
million compared to 1996. Refer to "Rate Matters" in Liquidity and Capital
Resources later in this discussion for further information regarding the Iowa
proceeding.
Beginning September 29, 1997, MidAmerican began collection of its remaining
deferred energy efficiency costs and current, ongoing energy efficiency costs.
Including an allowed return on deferred costs, the annual increase in electric
revenues is $36.1 million. The effect on earnings of this increase in revenues
and gross margin is partially offset by a corresponding increase in other
operating expenses of $31.1 million for deferred and current energy efficiency
costs. Refer to "Energy Efficiency" in Liquidity and Capital Resources later in
this discussion for further information.
Revenues and margin increased $6.2 million due to an increase in
transmission revenues. In addition, a 3.9% increase in non-retail sales resulted
in a $3.3 million increase in revenues.
Electric gross margin for 1996 was unchanged compared to 1995. Electric
retail sales for 1996 increased nearly 2% compared to 1995 due to modest
customer growth and an improvement in sales not dependent upon weather. Cooler
weather conditions in the 1996 third quarter compared to the 1995 third quarter
caused a significant decrease in weather-related sales. Colder weather during
the 1996 heating seasons compared to the 1995 heating seasons helped to mitigate
the impact of the mild cooling season in 1996. Sales to the more
weather-sensitive customers have a higher margin per unit than sales to other
customers. As a result, the decrease in sales to those customers had a greater
impact on margin than increases in sales to other customers.
The net impact of increases and decreases in retail rates resulted in an
overall decrease of $2.1 million in revenues and gross margin for 1996 compared
to 1995. Rate decreases implemented in Iowa and Illinois in November 1996 were
partially offset by an increase resulting from a filing made by one of
MidAmerican's predecessor companies. Electric revenues in the first half of 1995
reflect a $13.6 million annual increase for interim rates in connection with
that Iowa electric rate filing. Revenues for 1996 reflect the full-year effect
of the final $20.3 million annual rate increase in the proceeding, which was
effective in August 1995. Approximately $8 million of this increase relates to
increased expenses for other postretirement employee benefit (OPEB) costs.
In August 1995, MidAmerican began collection of $5.7 million over a
four-year period related to an energy efficiency cost recovery filing. At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously been deferred and included on the Company's balance sheet.
The amortization is included in other operating expenses.
<TABLE>
<CAPTION>
Gas Gross Margin:
-----------------
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Operating revenues $536 $537 $460
Cost of gas sold 346 345 279
---- ---- ----
Gas gross margin $190 $192 $181
==== ==== ====
</TABLE>
Variations in gas gross margin are the result of changes in revenues due to
price and sales volume variances. MidAmerican has been allowed to recover in
revenues the cost of gas sold from most of its gas
-42-
<PAGE>
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 1997 decreased $2 million compared to 1996 due to
warmer temperatures during the 1997 heating seasons. Temperatures in 1997 were
close to normal while temperatures in 1996 were colder than normal, contributing
$8 million to the 1996 gas gross margin. The decrease in sales and gross margin
due to weather was partially offset by the effect of a modest increase in
natural gas retail customers. In total, retail sales of natural gas in 1997
decreased 7.1% compared to 1996 sales.
As discussed in the electric margin discussion, beginning September 29,
1997, MidAmerican began recovery of its energy efficiency costs not previously
approved for recovery. Including an allowed return on deferred costs, the annual
increase in gas revenues is $12.8 million. The effect on earnings of this
increase in revenues and gross margin is partially offset by a corresponding
increase in other operating expenses of approximately $11.1 million for deferred
and current energy efficiency costs.
The average cost of gas per unit increased in 1997 compared to 1996 and is
reflected in revenues and cost of gas sold.
Gas gross margin increased in 1996 compared to 1995. The increase was due
both to price and sales volumes increases. Retail sales of natural gas increased
3.1% in 1996 compared to 1995 due in part to colder weather conditions in the
first quarter of 1996 than during the first quarter of 1995.
Another cause of the increases in gas revenues and gross margin was an
increase in gas retail service rates. Retail revenues in the first half of 1995
reflect interim rates from an $8.2 million increase in annual gas revenues in
connection with an Iowa gas rate filing by one of MidAmerican's predecessor
companies. MidAmerican began collecting the interim rates in October 1994. Gas
revenues for 1996 reflect the full-year effect of the final rate increase of
$10.6 million annually which was effective in August 1995. Approximately $2.5
million of the $10.6 million increase relates to increased expense for OPEB
costs.
In August 1995, MidAmerican began collection of $12.9 million over a
four-year period related to an energy efficiency cost recovery filing. At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously been deferred and included on the Company's balance sheet.
The amortization is included in other operating expenses.
Revenues and cost of gas sold each increased significantly in 1996 compared
to 1995 due to an increase in the average cost of gas per unit in 1996.
UTILITY OPERATING EXPENSES
Utility other operating expenses increased for 1997 compared to 1996 due in
part to an increase of $14.0 million in nuclear operating costs. Operating
expenses related to Cooper increased in part due to the ratemaking treatment for
Cooper capital improvements. As a result of 1996 and 1997 rate settlements,
Cooper capital improvements are now expensed when incurred, instead of being
capitalized. As mentioned previously in the Electric Gross Margin section,
MidAmerican is now recovering on a current basis the Iowa portion of these costs
from its Iowa electric customers. Recovery in Illinois is included in base
rates. This change accounted for $4.5 million of the nuclear operating expense
increase.
-43-
<PAGE>
As mentioned in the gross margin discussions, 1997 reflects an increase in
expense related to the increased recovery of certain energy efficiency costs
beginning September 29, 1997. The increase in energy efficiency costs, including
amortization of historical costs and charging expense for current costs,
accounted for $13.1 million of the increase in other operating expenses.
Continued restructuring of the Company in preparation for a competitive
industry has required additional expenses. MidAmerican has increased its
emphasis in marketing-related efforts, as well as customer service operations,
resulting in increases in consulting costs, advertising and other related
expenses. In addition, 1997 reflects increases in uncollectible accounts
expense, employee incentive compensation and certain employee benefits expenses.
Other operating expenses for 1997 reflect an increase in transmission wheeling
expense due in part to changes required by FERC Order Nos. 888 and 889.
For 1996, utility other operating expenses decreased compared to 1995 due
primarily to $31.9 million of costs in 1995 for the Company's restructuring plan
implemented as part of the merging of its predecessors. In addition, 1996
reflects cost savings resulting from the merger. Nuclear operations costs
decreased $4.5 million in 1996 compared to 1995. Partially offsetting these
decreases was a $4.2 million increase from the amortization of deferred energy
efficiency costs. There were also increases in consulting services expenses and
some general administrative costs for 1996 compared to 1995.
Maintenance expenses increased for 1997 compared to 1996. The main cause of
the increase was an adjustment in 1996 to align power plant inventory accounting
of predecessor companies which reduced 1996 expense by $6.2 million. In
addition, the Company incurred $2.0 million in maintenance expenses for
restoration following a snow storm in October 1997. Maintenance expenses at the
Quad Cities Station decreased $2.5 million in 1997 compared to 1996. Refer to
the discussion of Quad Cities Nuclear Station in the Liquidity and Capital
Resources section of MD&A for information regarding the status of the plant.
Maintenance expenses increased for 1996 compared to 1995. The timing of
power plant maintenance accounted for much of the variation between the periods.
The increase in power plant maintenance for 1996 was partially offset by the
inventory adjustment mentioned above. Maintenance expense for the Quad Cities
Station increased $1.8 million for 1996 compared to 1995.
Property taxes increased $8.8 million in 1997 compared to 1996 due
primarily to an increase in the assessed value for Iowa property tax
purposes.
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- - ---------
Revenues of MidAmerican Capital and Midwest Capital increased a total of
$22.8 million in 1997 compared to 1996. Revenues from the natural gas marketing
subsidiaries increased $22.6 million due to an increase in the average price per
unit, reflective of an increase in the cost of gas sold. Sales of natural gas
decreased 3 million MMBtu's (4%) compared to 1996 sales.
Cost of sales includes expenses directly related to sales of natural gas.
The increase in cost of sales for 1997 reflects a 15% increase in the average
cost of gas per unit. Compared to 1996, total gross margin (total price less
cost of gas) on nonregulated natural gas sales increased $1.0 million.
-44-
<PAGE>
Revenues of MidAmerican Capital and Midwest Capital increased a total of
$141.7 million for 1996 compared to 1995. The increase was due primarily to a
$136.1 million increase in revenues from natural gas marketing subsidiaries,
some of which did not exist in 1995. Sales volumes for the natural gas marketing
firms increased 51 million MMBtu's (153%) for 1996 compared to 1995. In
addition, the average price of natural gas increased in 1996.
Cost of sales for 1996 reflects the increases in gas sales volumes and cost
per unit compared to 1995. Average margins on sales of natural gas decreased in
1996 compared to 1995 due in part to increased competition in the nonregulated
natural gas industry. As a result, total 1996 gross margin on nonregulated
natural gas sales decreased $2.5 million compared to 1995.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- - ------------
Other, Net -
In September 1997, MidAmerican received a $15 million cash payment from
Nebraska Public Power District (NPPD) as settlement for a lawsuit filed by
MidAmerican against NPPD. Approximately $12 million was refunded to
MidAmerican's customers. The remaining amount was retained by MidAmerican for
recovery of litigation costs in the lawsuit. Other, Net for 1997 reflects $2.2
million of pre-tax income for recovery of litigation costs incurred in prior
years.
Other, Net for 1996 includes approximately $8.7 million of expenses for
costs incurred by MidAmerican for its merger proposal to IES Industries Inc. in
1996.
MidAmerican was awarded $4.9 million of pre-tax income in 1997 for its
performance under its incentive gas procurement program during the May 1996 to
April 1997 period. In the fourth quarter of 1996, MidAmerican recorded an award
of $2.7 million of pre-tax income as a result of successful performance under
its incentive gas procurement program during the 1995-1996 heating season.
In 1996, MidAmerican recorded an initial pre-tax gain of $3.2 million on
its sale of the certain storage gas supplies. MidAmerican recorded an additional
$0.8 million gain in the second quarter of 1997 after receiving favorable
treatment on the transaction from the Iowa Utilities Board (IUB).
In addition, Other, Net includes the recognition of deferred income from
energy efficiency programs totaling $5.0 million and $3.3 million for 1997 and
1996, respectively.
Other, Net for 1997 reflects a net loss on reacquired long-term debt of
$0.9 million compared to a $1.1 million net gain in 1996.
Other, Net for 1995 includes $4.6 million of merger transaction costs
related to the Company's 1995 merger and $3.1 million for recognition of
deferred income from energy efficiency programs.
-45-
<PAGE>
Interest Charges -
A decrease in the average amount of commercial paper outstanding compared
to 1996 resulted in a decrease in other interest expense for 1997. The decrease
was partially offset by interest expense related to IRS settlements in 1997.
Holdings:
- - ---------
Dividend Income -
Dividend income decreased for 1997 periods due MidAmerican Capital's
reduced holdings of preferred stock portfolios as discussed below.
Realized Gains and Losses on Securities, Net -
Net realized gains on securities for 1997 includes an $8.0 million pre-tax
gain on the sale of shares of McLeodUSA common stock. Excluding that gain, net
realized gains decreased in 1997 compared to 1996 primarily from realized gains
on the sales of certain common equity fund holdings which MidAmerican Capital
began liquidating in 1996. Net realized gains on securities increased for 1996
compared to 1995 due to an increase in gains on the disposition of equity fund
holdings and managed preferred stock portfolios.
Other, Net -
During 1997, the Company sold all of the assets of its railcar repair
services subsidiary and most of the assets of its railcar leasing subsidiary and
recorded pre-tax gains totaling $10.0 million. Write-downs of nonregulated
investments, as discussed in the Earnings Discussion section at the beginning of
Results of Operations, decreased Other, Net by $3.4 million, $15.6 million and
$18.0 million for 1997, 1996 and 1995, respectively. Income from equity
investments decreased in 1997 due to the liquidation activity discussed above.
Other, Net for 1996 reflects an increase in income from equity investments and
special purpose funds compared to 1995. In 1995, the Company had pre-tax gains
totaling $8.5 million on the sales of a partnership interest in a gas marketing
organization and a telecommunication subsidiary.
Interest Charges -
MidAmerican Capital's interest on long-term debt decreased $10.1 million
compared to 1996 expense due to the reduction of its long-term debt in early
1997.
INCOME TAXES
Holdings:
- - ---------
During the second quarter of 1997, the Company contributed part of an
appreciated common stock investment to its tax exempt foundation and realized
$2.9 million of tax benefit.
-46-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has available a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, construction expenditures, dividends, debt retirement
and other capital requirements.
As of December 31, 1997, common equity represented 51.7% of the Company's
total capitalization compared to 44.0% and 44.3% as of December 31, 1996 and
1995, respectively. Several factors other than earnings, dividends and scheduled
maturities of debt affected the change. Recording an investment in McLeodUSA at
market value and repurchases and retirement of debt prior to its scheduled
maturity were major contributors to the move to a higher percentage of equity.
The Company's common stock repurchase program reduced common equity during 1997.
Each of these items is included in the discussion that follows.
MidAmerican's common equity as of December 31,1997, represented 47.2% of
its capitalization compared to 43.8% as of December 31, 1996. A reduction of
long-term debt was the primary cause of the change.
As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $392 million for 1997 compared to
$321 million and $337 million in 1996 and 1995, respectively. MidAmerican's net
cash provided from operating activities was $380 million for 1997 and $327
million and $333 million for 1996 and 1995, respectively.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- - ------------
Utility Construction Expenditures -
MidAmerican's primary need for capital is utility construction
expenditures. For 1997, utility construction expenditures totaled $167 million,
including allowance for funds used during construction (AFUDC), Quad Cities
Station nuclear fuel purchases and Cooper capital improvements. In addition,
MidAmerican's nonregulated railway subsidiary had $6 million of construction
expenditures in 1997. All such expenditures were met with cash generated from
utility operations, net of dividends.
Beginning with July 1997 expenditures, Cooper capital improvements are no
longer included in utility construction expenditures but are expensed when
incurred in Other Operating Expenses. As part of the 1997 settlement of
MidAmerican's pricing proposal, MidAmerican is recovering on a current basis the
Iowa portion of Cooper capital improvements from its Iowa electric customers
through a tracking mechanism.
Forecasted utility construction expenditures for 1998 are $201 million
including AFUDC. Capital expenditure needs are reviewed regularly by
MidAmerican's management and may change significantly as a result of such
reviews. MidAmerican presently expects that all utility construction
expenditures for the next five years will be met with cash generated from
utility operations, net of dividends. The actual level of cash generated from
utility operations is affected by, among other things, economic conditions in
the utility service territory, weather and federal and state regulatory actions.
-47-
<PAGE>
Nuclear Decommissioning -
Operators of a nuclear facility are required to set aside funds to provide
for costs of future decommissioning of their nuclear facility. In general,
decommissioning of a nuclear facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator. Based on information presently available, MidAmerican expects to
contribute approximately $51 million during the period 1998 through 2002 to an
external trust established for the investment of funds for decommissioning the
Quad Cities Station. Historically, the funds were invested in investment grade
municipal and U.S. Treasury bonds; however, in 1997 MidAmerican directed the
trust to begin investing a portion of the funds in domestic corporate debt and
common equity securities. Approximately 40% of the trust's funds are now
invested in domestic corporate debt and common equity securities.
In addition, MidAmerican makes payments to NPPD related to decommissioning
Cooper. These payments are reflected in Other Operating Expenses in the
Consolidated Statements of Income. NPPD estimates call for MidAmerican to pay
approximately $57 million to NPPD for Cooper decommissioning during the period
1998 through 2002. NPPD invests the funds predominantly in U.S. Treasury Bonds.
MidAmerican's obligation for Cooper decommissioning may be affected by the
actual plant shutdown date and the status of the power purchase contract at that
time. In July 1997, NPPD filed a lawsuit in United States District Court for the
District of Nebraska naming MidAmerican as the defendant and seeking a
declaration of MidAmerican's rights and obligations in connection with Cooper
nuclear decommissioning funding.
MidAmerican currently recovers Quad Cities Station decommissioning costs
charged to Illinois customers through a rate rider on customer billings. Cooper
and Quad Cities Station decommissioning costs charged to Iowa customers are
included in base rates, and recovery of increases in those amounts must be
sought through the normal ratemaking process.
Holdings:
- - ---------
Nonregulated Capital Expenditures -
Capital expenditures of MidAmerican Capital and Midwest Capital totaled $8
million in 1997. Capital expenditures of these subsidiaries depend primarily
upon the availability of suitable investment opportunities which meet the
Company's objectives. The Company continues to evaluate nonregulated investments
and may redeploy certain assets in the next year. External financing may also be
used to provide for nonregulated capital expenditures.
Investments -
MidAmerican Capital invests in a variety of marketable securities which it
holds for indefinite periods of time. In the Consolidated Statements of Cash
Flows, the lines Purchase of Securities and Proceeds from Sale of Securities
consist primarily of the gross amounts of these activities, including realized
gains and losses on investments in marketable securities.
Included in investments on the Consolidated Balance Sheets is the Company's
investment in common stock of McLeodUSA. McLeodUSA common stock has been
publicly traded since June 14, 1996. Investor agreements related to McLeodUSA's
initial public offering and subsequent merger with Consolidated Communications
Inc. prohibit the Company from selling or otherwise disposing of any of the
common stock of McLeodUSA prior to September 24, 1998, without the approval of
McLeodUSA's board of directors. As
-48-
<PAGE>
a result of the agreements, the Company's investment was considered restricted
stock and, as such, was recorded at cost in all periods prior to September 1997.
Beginning in September 1997, the investment is no longer considered restricted
for accounting purposes and is recorded at fair value. At December 31, 1997, the
cost and fair value of the McLeodUSA investment were $45.2 million and $257.9
million, respectively. The unrealized gain is recorded, net of income taxes, as
a valuation allowance in common shareholders' equity. At December 31, 1997, the
unrealized gain and deferred income taxes for this investment were $212.7
million and $74.4 million, respectively.
MidAmerican Capital received approximately $302 million in cash during 1997
from sales of investments primarily as part of its efforts to align them with
the Company's strategy. A significant portion of the proceeds from these sales
was used for retirement of MidAmerican Capital long-term debt and for dividends
to Holdings for use in the repurchase of the Company's common stock.
FINANCING ACTIVITIES, PLANS AND AVAILABILITY
MidAmerican:
- - ------------
MidAmerican currently has authority from the Federal Energy Regulatory
Commission (FERC) to issue short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of December 31, 1997, MidAmerican had a
$250 million revolving credit facility agreement and a $10 million line of
credit to provide short-term financing for utility operations. MidAmerican's
commercial paper borrowings, which totaled $123 million at December 31, 1997,
are supported by the revolving credit facility and the line of credit.
MidAmerican also has a revolving credit facility which is dedicated to provide
liquidity for its obligations under outstanding pollution control revenue bonds
that are periodically remarketed.
In 1997, MidAmerican entered into a revolving agreement, which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special purpose entity established to purchase accounts receivable from
MidAmerican. Funding Corp. in turn sold receivable interests to outside
investors. In consideration for the sale, MidAmerican received $70 million in
cash and the remaining balance in the form of a subordinated note from Funding
Corp. The agreement is structured as a true sale under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors and, as
such, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.
During 1997, MidAmerican repurchased $42.4 million of first mortgage bonds
with annual interest rates from 6.95% to 7.70%, excluding bonds which matured in
1997.
As of December 31, 1997, MidAmerican had $401 million of long-term debt
maturities and sinking fund requirements for 1998 through 2002.
MidAmerican currently has regulatory authority to issue an additional $300
million of preferred securities and long-term debt, including issues under its
medium-term note program. It is management's intent to refinance certain
MidAmerican debt securities with additional issuances of unsecured debt and
preferred securities of a subsidiary trust as market conditions allow.
-49-
<PAGE>
Credit Ratings -
MidAmerican's access to external capital and its cost of capital are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of January 31, 1998, are shown in the table below. The ratings reflect only
the views of such rating agencies, and each rating should be evaluated
independently of any other rating. Generally, rating agencies base their ratings
on information furnished to them by the issuing company and on investigation,
studies and assumptions by the rating agencies. There is no assurance that any
particular rating will continue for any given period of time or that it will not
be changed or withdrawn entirely if in the judgment of the rating agency
circumstances so warrant. Such ratings are not a recommendation to buy, sell or
hold securities.
<TABLE>
<CAPTION>
Moody's
Investors Standard
Service & Poor's
--------- --------
<S> <C> <C>
Mortgage Bonds A2 AA-
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
</TABLE>
The following is a summary of the meanings of the ratings shown above and
the relative rank of MidAmerican's rating within each agency's classification
system.
Moody's top four bond ratings (Aaa, Aa, A and Baa) are generally considered
"investment grade." Obligations which are rated "A" possess many favorable
investment attributes and are considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment sometime in
the future. A numerical modifier ranks the security within the category with a
"1" indicating the high end, a "2" indicating the mid-range and a "3" indicating
the low end of the category. Standard & Poor's top four bond ratings (AAA, AA, A
and BBB) are considered "investment grade". Debt rated "AA" has a very strong
capacity to meet its financial commitment and differs from the highest rated
obligations only in small degree. Standard & Poor's may use a plus (+) or minus
(-) sign after ratings to designate the relative position of a credit within the
rating category.
Ratings of preferred stocks are an indication of a company's ability to pay
the preferred dividend and any sinking fund obligations on a timely basis.
Moody's top four preferred stock ratings (aaa, aa, a and baa) are generally
considered "investment grade". Moody's "a" rating is considered to be an upper
medium grade preferred stock. Earnings and asset protection are expected to be
maintained at adequate levels in the foreseeable future. Standard & Poor's top
four preferred stock ratings (AAA, AA, A and BBB) are considered "investment
grade". Standard & Poor's "A" rating indicates adequate earnings and asset
protection.
Moody's top three commercial paper ratings (P-1, P-2 and P-3) are generally
considered "investment grade". Issuers rated "P-1" have a superior ability for
repayment of senior short-term debt obligations and repayment ability is often
evidenced by a conservative structure, broad margins in earnings coverage of
fixed financial charges and well established access to a range of financial
markets and assured sources of alternate liquidity. Standard & Poor's commercial
paper ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity less than 365 days. The top three Standard &
Poor's commercial paper ratings (A-1, A-2 and A-3) are considered "investment
grade". Issues rated "A-1" indicate that the
-50-
<PAGE>
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety are denoted with a plus
(+) sign designation.
Preferred Dividends -
Preferred dividends include net gains or losses on the reacquisition of
MidAmerican preferred shares. Net losses on reacquisitions totaled $1.4 million
and $1.6 million for 1997 and 1996, respectively. Excluding these losses,
preferred dividends increased for 1997 compared to 1996 due to the increase in
preferred stock outstanding.
Holdings:
- - ---------
As of December 31, 1997, Holdings had lines of credit totaling $120 million
available to provide for short-term financing needs.
In addition, Holdings has the necessary authority to issue shares of its
common stock through its Shareholder Options Plan (a dividend reinvestment and
stock purchase plan). Since July 1, 1995, the Company has used open market
purchases of its common stock rather than original issue shares to meet share
obligations under its Employee Stock Purchase Plan and the Shareholder Options
Plan. Holdings currently plans to continue using open market purchases to meet
share obligations under these plans.
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of December 31, 1997, the
Company had repurchased approximately 5.0 million shares for $89.2 million. The
Company believes repurchasing Holding's common stock is the best investment of
Company funds at this time. Repurchasing the common stock will reduce total
common dividend requirements and aid in improving the Company's dividend payout
ratio. In addition, a subsidiary of the Company holds approximately 437,000
shares of Holdings common stock which are also excluded from shares outstanding.
On January 28, 1998, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable March 1, 1998. The dividend
represents an annual rate of $1.20 per share.
Nonregulated Subsidiaries -
As of December 31, 1997, MidAmerican Capital had unsecured revolving credit
facilities in the amount of $114 million with a zero balance outstanding under
these facilities. In January 1997, MidAmerican Capital paid off the $90 million
outstanding under the revolving credit facilities with proceeds from the sale
transaction with KCS. Another $100 million revolving credit facility related to
discontinued operations was terminated in January 1997, and the $84 million
outstanding repaid. In addition, MidAmerican Capital terminated two $32 million
floating-rate-to-fixed-interest-rate swaps related to amounts outstanding under
one of the revolving credit facilities. MidAmerican Capital has $135 million of
long-term debt maturities and sinking fund requirements for 1998 through 2002.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at December 31, 1997.
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<PAGE>
OPERATING ACTIVITIES AND OTHER MATTERS
Throughout the country, the utility industry continues to move towards a
competitive environment. Although the extent of deregulation varies between
states, increased competition is becoming a reality in virtually every region of
the country. Numerous states have passed restructuring legislation, some of
which initiated a phase-in of customer choice in 1998. Legislators and
regulators in many other states are addressing the issue.
As part of many restructuring legislation packages, electric utilities are
required to unbundle traditional services previously provided as a "packaged
product" under their rate tariffs. Unbundling allows customers to choose their
energy supplier and the level of energy delivery and retail services they
desire. Gas utilities are also experiencing separation of the merchant and
delivery functions for all classes of customers.
The generation segment of the electric industry will be significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity. As retail competition evolves, margins will be pressured by
competition from other utilities, power marketers, and self-generation.
MidAmerican has been active in promoting and monitoring legislative and
regulatory changes that affect the jurisdictions in which it operates. In order
to successfully compete in the new environment, the Company believes it must
become the leading regional provider of energy and complementary services. The
Company is evaluating all aspects of its business to determine what adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative impacts on Holdings' earnings in the form of write-downs for
the sale, revaluation or discontinuance of nonregulated operations and
investments. (Refer to the Results of Operations section of MD&A for comments on
the earnings impact of such actions.) The following discussion further addresses
changes affecting the industry and actions the Company is taking to implement
its strategy.
Competition -
MidAmerican is subject to regulation by several utility regulatory agencies
which significantly influences the operating environment and the recoverability
of costs from utility customers. That regulatory environment has, in general,
given MidAmerican an exclusive right to serve customers within its service
territory and, in turn, the obligation to provide electric service to those
customers.
Although the anticipated changes in the electric utility industry may
create opportunities, they will also create additional challenges and risks for
utilities. Competition will put pressure on margins for traditional electric
services. In order to lessen the impact of reduced margins, MidAmerican will
continue to focus on controlling the cost of such services. In addition,
MidAmerican is positioning itself to offer complementary products and services
as expected opportunities become available in a competitive utility retail
market. Additional products and services may provide avenues to replace margins
lost on traditional electric services.
MidAmerican has been authorized in an order from the IUB approving the
electric pricing settlement to enter into long-term electric contracts with
industrial and commercial customers. MidAmerican is negotiating long-term
contracts with various industrial and commercial customers. The Company believes
these contracts will help stabilize margins in the future.
-52-
<PAGE>
Legislative and Regulatory Evolution -
On December 16, 1997, the Governor of Illinois signed into law a bill to
restructure Illinois' electric utility industry and transition it to a
competitive market beginning October 1, 1999. The law is very complex, and
MidAmerican continues to evaluate the impact of the law on its operations.
The law requires a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its obligation, the law specifically permitted
MidAmerican to receive credit for the $15.5 million, or approximately 13%, rate
reductions implemented in Illinois in 1996 and 1997. MidAmerican is also
exempted from the requirement to join an independent system operator (ISO) or to
form an in-state ISO.
In addition, the law provides for Illinois earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning in April 2000. The ROE level at which MidAmerican will be required to
share earnings is a multi-step calculation of average 30-year Treasury Bill
rates plus 5.50% for 1998 and 1999 and 6.50% for 2000 through 2004. If the
resulting average Treasury Bill rate approximated rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%.
Beginning October 1, 1999, larger non-residential customers and 33% of the
remaining non-residential customers will be allowed to select their provider of
electric supply services. All other non-residential customers will have supplier
choice starting December 31, 2000. Residential customers all receive the
opportunity to select their electric supplier on May 1, 2002.
The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities address
stranded costs, will end December 31, 2006, subject to possible extension.
In Iowa, no legislation has yet been introduced to allow generation or
retail service competition. Because energy costs are low in Iowa, industry
restructuring has not been an issue aggressively pursued in the state to date.
However, a group of industrial customers formed in the fall of 1997 has
indicated that it may introduce retail competition legislation during the 1998
Iowa legislative session. MidAmerican's Iowa legislative priority for 1998 is
property tax reform, a condition it considers precedent to industry
restructuring.
In April 1996, the FERC issued Order Nos. 888 and 889 which require public
utilities and other transmission providers and users to provide other companies
the same transmission access, service and pricing that they provide themselves.
In compliance with Order 888, which was effective July 9, 1996, MidAmerican has
filed a pro forma open access transmission tariff and is currently operating
under it. In May 1997, MidAmerican filed revisions to the tariff in accordance
with Order No. 888-A which was issued in March 1997. In accordance with Order
889, which was effective January 3, 1997, MidAmerican has separated its electric
wholesale marketing and transmission operation functions. Order 889 establishes
standards of conduct for this functional separation and further requires
transmission providers such as MidAmerican to either create or participate in an
Open Access Same Time Information System (OASIS). MidAmerican is a long-time
member of the Mid-Continent Area Power Pool (MAPP) and has elected to
participate in the MAPP OASIS.
In October 1997, the IUB adopted rules to encourage gas transportation
service for small volume customers starting in 1999. MidAmerican has until
November 15, 1998, to file its own plan to unbundle service for its small volume
customers. MidAmerican presently believes that these rules will not have a
material impact on its results of operations.
-53-
<PAGE>
Accounting Effects of Industry Restructuring -
A possible consequence of competition in the utility industry is that
Statement of Financial Accounting Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth accounting principles for operations that are regulated and
meet certain criteria. For operations that meet the criteria, SFAS 71 allows,
among other things, the deferral of costs that would otherwise be expensed when
incurred. A majority of MidAmerican's electric and gas utility operations
currently meet the criteria required by SFAS 71, but its applicability is
periodically reexamined. On December 16, 1997, MidAmerican's generation
operations serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring legislation in Illinois. Thus, MidAmerican was
required to write off those amounts of regulatory assets and liabilities from
its balance sheet related to its Illinois generation operations. These
write-offs were not material. If other portions of its utility operations no
longer meet the criteria of SFAS 71, MidAmerican would be required to write off
the related regulatory assets and liabilities from its balance sheet and thus, a
material adjustment to earnings in that period could result. As of December 31,
1997, MidAmerican had $339 million of regulatory assets in its Consolidated
Balance Sheet. Refer to Note 1(c) for a list of the regulatory assets as of
December 31, 1997.
Energy Efficiency -
MidAmerican's regulatory assets as of December 31, 1997, included $111.5
million of deferred energy efficiency costs. On September 29, 1997, MidAmerican
received approval from the IUB, effective immediately, to begin recovery of
deferred energy efficiency costs not previously approved. Accordingly, $95.1
million of such costs will be collected over a four-year period, along with a
return of $26.6 million on those costs. MidAmerican also received approval to
recover current energy efficiency costs, which are expected to be $18.5 million
for the period May 1997 through April 1998. The projected $18.5 million of
current costs, $5.3 million of which were deferred from May through September
1997, will be collected in the twelve-month period ending in September 1998. The
filing is subject to periodic prudence reviews by the IUB. Deferred and current
energy efficiency costs will be reflected in operating expenses over the related
periods of recovery.
Rate Matters -
As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the IUB issued an order in a consolidated rate proceeding
involving MidAmerican's pricing proposal and a filing by the Iowa Office of
Consumer Advocate (OCA). The order approved a March 1997 settlement agreement
between MidAmerican, the OCA and other parties to the proceeding. The agreement
includes a number of characteristics of MidAmerican's pricing proposal. Prices
for residential customers were reduced $8.5 million annually and $10.0 million
annually, effective November 1, 1996, and July 11, 1997, respectively, and will
be reduced an additional $5.0 million annually on June 1, 1998, for a total
annual decrease of $23.5 million. Rates for commercial and industrial customers
will be reduced a total of $10 million annually by June 1, 1998, through pilot
projects, negotiated rates with individual customers and, if needed, a base rate
reduction effective June 1, 1998. The agreement includes a tracking mechanism to
currently recover the cost of capital improvements required by the Cooper
Nuclear Station Power Purchase Contract. The tracking mechanism will offset
approximately $9 million of these reductions.
-54-
<PAGE>
In addition, the agreement accepted MidAmerican's proposal to eliminate the
energy adjustment clause (EAC) which was the mechanism through which fuel costs
were collected from Iowa customers prior to July 11, 1997. The EAC flowed the
cost of fuel to customers on a current basis, and thus, fuel costs had little
impact on net income. Beginning July 11, 1997, base rates for Iowa customers
include a factor for recovery of a representative level of fuel costs. Earnings
are now affected by variances in actual fuel costs from the factor included in
rates. The fuel cost factor will be reviewed in February 1999 and adjusted
prospectively if actual 1998 fuel costs vary 15% above or below the factor
included in base rates.
Under the agreement, if MidAmerican's annual return on common equity
exceeds 12%, then an equal sharing between customers and shareholders of
earnings above the 12% level begins; if it exceeds 14%, then two-thirds of
MidAmerican's share of those earnings will be used for accelerated recovery of
certain regulatory assets. The agreement permits MidAmerican to file for
increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the FERC, is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually until the conclusion of the program. Any loss of
revenues associated with the pilot program will be considered part of the $10
million annual reduction for commercial and industrial customers but may not be
recovered from other customer classes. MidAmerican filed its proposed program
with the IUB and the FERC in September 1997. MidAmerican anticipates that the
necessary approvals will be received before the end of the second quarter of
1998.
In December 1997, an Iowa industrial customer located within MidAmerican's
IUB-approved exclusive electric service territory, filed a lawsuit against
Holdings and MidAmerican in the United States District Court for the District of
Iowa alleging various violations of federal antitrust laws. The lawsuit stems
from a claim that because the customer is not free to choose its retail energy,
MidAmerican is engaging in illegal monopolistic behavior. In addition to
damages, the customer is seeking the right to choose its electric retail
supplier. MidAmerican maintains that its provision of retail electric service is
in accordance with Iowa laws and regulations governing electric service
territories, and all other applicable legal requirements. A ruling in favor of
the plaintiff could have the effect of accelerating retail competition in
MidAmerican's Iowa service territory.
Environmental Matters -
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
The Company is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether the Company has any responsibility for remedial action. The
Company's present estimate of probable remediation costs for these sites is $21
million. This estimate has been recorded as a liability and a regulatory asset
for future recovery through the regulatory process. Refer to Note 4(b) of Notes
for further discussion of the Company's environmental activities related to
manufactured gas plant sites and cost recovery.
-55-
<PAGE>
Although the timing of potential incurred costs and recovery of such cost
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on the Company's financial position or results of operations.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking (NOPR) which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
Coal Deliveries -
A coal transportation provider of MidAmerican has been experiencing
nationwide operational problems. Consequently, coal deliveries to MidAmerican's
Neal station in the fourth quarter of 1997 were delayed resulting in reduced
coal inventory at that site. The Neal Station represents approximately 37% of
MidAmerican's coal-fired generating capacity. Following discussions between
MidAmerican and the transportation provider, increased deliveries have been made
to the four Neal units. In order to preserve coal inventories, MidAmerican
reduced its sales of energy to other utilities, which reduced electric margins
in the fourth quarter.
Quad Cities Nuclear Station Outage -
In September 1997, Commonwealth Edison Company (ComEd), operator and 75%
owner of Quad Cities Station Units 1 and 2, shut down Unit 2 and entered early a
scheduled outage to address safety system concerns. In December 1997, Unit 1 was
also taken off-line for the same reason. ComEd has indicated that the units may
be unavailable until the first half of May 1998. During this time, it may be
necessary for MidAmerican to forego off-system sales opportunities, operate more
expensive units, and/or purchase more off-system energy. In January 1998, ComEd
received a Confirmatory Action Letter (CAL) from the Nuclear Regulatory
Commission (NRC). The CAL details actions that must be taken to correct the
problems described above. Also in January, ComEd was informed by the NRC that
the performance of Quad Cities Station is trending adversely. The Company cannot
at this time predict the cost of these actions nor the impact on results of
operations of the plant's outage.
-56-
<PAGE>
YEAR 2000
The Company has undertaken an extensive project to ensure the ability of
its information technology systems, including hardware, software and
applications programs, to perform correctly on January 1, 2000. The Company, in
addition to its internal resources, has engaged independent contractors to
assist with the conversion project. The project timetable specifies completion
of all conversion work and testing sufficiently in advance of January 1, 2000,
to identify any residual concerns. The Company estimates the remaining cost to
remediate year 2000 flaws in its principal business systems to be approximately
$5 million. Potential concerns regarding other systems used throughout the
Company's operations continues to be evaluated. Although management believes
that the project will be completed within the required time frame, unforeseen
and other factors, including failure of the contractors to perform, could cause
delays in the project, the results of which could be material to the Company.
ACCOUNTING ISSUES
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure Draft, "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets," which addresses the accounting for closure and
removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for such decommissioning are
changed, the annual provision for decommissioning could increase relative to the
current level, and the total estimated cost for decommissioning could be
recorded as a liability with recognition of an increase in the cost of related
nuclear power plant. Due to the continuing evolution of the exposure draft, the
Company is uncertain as to the impact on its results of operations and financial
position.
The Financial Accounting Standards Board has issued SFAS No. 130 addressing
the issue of comprehensive income. SFAS 130 requires that all items required to
be recognized as changes in equity during a period, except those resulting from
investments by owners and distributions to owners, (i.e., comprehensive income),
be reported in a financial statement that is displayed with the same prominence
as the other financial statements. The display can be a separate statement or an
addition to an existing statement. The material components of the Company's
comprehensive income will include net income and the after-tax effect of changes
in the fair value of investments classified as available for resale. SFAS 130 is
effective for fiscal years beginning after December 15, 1997.
-57-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric utility ............................................... $ 1,126,300 $ 1,099,008 $ 1,094,647
Gas utility .................................................... 536,306 536,753 459,588
Nonregulated ................................................... 259,675 236,851 95,106
----------- ----------- -----------
1,922,281 1,872,612 1,649,341
----------- ----------- -----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ............................ 235,760 234,317 230,261
Cost of gas sold ............................................. 346,016 345,014 279,025
Other operating expenses ..................................... 429,794 350,174 399,648
Maintenance .................................................. 98,090 88,621 85,363
Depreciation and amortization ................................ 170,540 164,592 158,950
Property and other taxes ..................................... 101,317 92,630 96,350
----------- ----------- -----------
1,381,517 1,275,348 1,249,597
----------- ----------- -----------
Nonregulated:
Cost of sales ................................................ 240,182 218,256 70,209
Other ........................................................ 30,076 35,370 37,181
----------- ----------- -----------
270,258 253,626 107,390
----------- ----------- -----------
Total operating expenses ..................................... 1,651,775 1,528,974 1,356,987
----------- ----------- -----------
OPERATING INCOME ............................................... 270,506 343,638 292,354
----------- ----------- -----------
NON-OPERATING INCOME
Interest income ................................................ 5,318 4,012 4,485
Dividend income ................................................ 13,792 16,985 16,954
Realized gains and losses on securities, net ................... 7,798 1,895 688
Other, net ..................................................... 22,111 (4,020) (10,467)
----------- ----------- -----------
49,019 18,872 11,660
----------- ----------- -----------
FIXED CHARGES
Interest on long-term debt ..................................... 89,898 102,909 105,550
Other interest expense ......................................... 10,034 10,941 9,449
Preferred dividends of subsidiaries ............................ 14,468 10,689 8,059
Allowance for borrowed funds ................................... (2,597) (4,212) (5,552)
----------- ----------- -----------
111,803 120,327 117,506
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .......... 207,722 242,183 186,508
INCOME TAXES ................................................... 68,390 98,422 66,803
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS .............................. 139,332 143,761 119,705
----------- ----------- -----------
DISCONTINUED OPERATIONS
Income (Loss) from operations (net of income taxes) ............ (118) 2,117 3,059
Loss on disposal (net of income taxes) ......................... (4,110) (14,832) -
----------- ----------- -----------
(4,228) (12,715) 3,059
----------- ----------- -----------
NET INCOME ..................................................... $ 135,104 $ 131,046 $ 122,764
=========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING .............................. 98,058 100,752 100,401
EARNINGS PER COMMON SHARE
Continuing operations .......................................... $ 1.42 $ 1.43 $ 1.19
Discontinued operations ........................................ (0.04) (0.13) 0.03
----------- ----------- -----------
Earnings per average common share .............................. $ 1.38 $ 1.30 $ 1.22
=========== =========== ===========
DIVIDENDS DECLARED PER SHARE ................................... $ 1.20 $ 1.20 $ 1.18
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
-58-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
ASSETS
UTILITY PLANT
Electric ......................................................... $4,084,920 $4,010,847
Gas .............................................................. 756,874 723,491
---------- ----------
4,841,794 4,734,338
Less accumulated depreciation and amortization ................... 2,275,099 2,153,058
---------- ----------
2,566,695 2,581,280
Construction work in progress .................................... 55,418 49,305
---------- ----------
2,622,113 2,630,585
---------- ----------
POWER PURCHASE CONTRACT .......................................... 173,107 190,897
---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS ............................ - 166,320
---------- ----------
CURRENT ASSETS
Cash and cash equivalents ........................................ 10,468 97,749
Receivables, less reserves of $347 and $2,093, respectively ...... 207,471 312,015
Inventories ...................................................... 86,091 90,864
Other ............................................................ 18,452 11,031
---------- ----------
322,482 511,659
---------- ----------
INVESTMENTS ...................................................... 799,524 622,972
---------- ----------
OTHER ASSETS ..................................................... 360,865 399,415
---------- ----------
TOTAL ASSETS ..................................................... $4,278,091 $4,521,848
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ...................................... $1,301,286 $1,239,946
MidAmerican preferred securities, not subject to
mandatory redemption .......................................... 31,763 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities .............................. 50,000 50,000
MidAmerican-obligated preferred securities of subsidiary trust
holding solely MidAmerican junior subordinated debentures ... 100,000 100,000
Long-term debt (excluding current portion) ....................... 1,034,211 1,395,103
---------- ----------
2,517,260 2,816,818
---------- ----------
CURRENT LIABILITIES
Notes payable .................................................... 138,054 161,990
Current portion of long-term debt ................................ 144,558 79,598
Current portion of power purchase contract ....................... 14,361 13,718
Accounts payable ................................................. 145,855 169,806
Taxes accrued .................................................... 92,629 82,254
Interest accrued ................................................. 22,355 28,513
Other ............................................................ 38,766 22,830
---------- ----------
596,578 558,709
---------- ----------
OTHER LIABILITIES
Power purchase contract .......................................... 83,143 97,504
Deferred income taxes ............................................ 761,795 722,300
Investment tax credit ............................................ 83,127 88,842
Other ............................................................ 236,188 237,675
---------- ----------
1,164,253 1,146,321
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ............................. $4,278,091 $4,521,848
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
-59-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................... $ 135,104 $ 131,046 $ 122,764
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization............................... 197,454 190,511 181,636
Net decrease in deferred income taxes and
investment tax credit, net................................ (71,191) (7,894) (961)
Amortization of other assets................................ 33,761 20,541 19,630
Cash proceeds form accounts receivable sale................. 70,000 - -
Capitalized cost of real estate sold........................ 1,859 3,568 1,744
Loss (income) from discontinued operations.................. 4,228 12,715 (3,059)
Gain on sale of securities, assets and other investments.... (9,996) (10,132) (1,050)
Other-than-temporary decline in value of investments........ 3,795 15,566 17,971
Impact of changes in working capital, net of effects
from discontinued operations.............................. 28,098 (53,752) (21,024)
Other....................................................... (867) 19,218 19,369
--------- --------- ---------
Net cash provided......................................... 392,245 321,387 337,020
--------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures.............................. (166,932) (154,198) (190,771)
Quad Cities Nuclear Power Station decommissioning trust fund... (9,819) (8,607) (8,636)
Deferred energy efficiency expenditures........................ (12,258) (20,390) (35,841)
Nonregulated capital expenditures.............................. (14,066) (55,788) (12,881)
Purchase of securities......................................... (159,770) (198,947) (164,521)
Proceeds from sale of securities............................... 180,890 243,290 94,493
Proceeds from sale of assets and other investments............. 57,433 33,285 34,263
Investment in discontinued operations.......................... 181,321 (5,984) (9,752)
Other investing activities, net................................ (1,360) 8,308 6,946
--------- --------- ---------
Net cash provided (used).................................... 55,439 (159,031) (286,700)
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid.......................................... (117,605) (120,770) (118,828)
Issuance of long-term debt, net of issuance cost............... - 99,500 12,750
Retirement of long-term debt, including reacquisition cost..... (122,300) (136,616) (110,351)
Reacquisition of preferred shares.............................. (6) (58,176) (10)
Reacquisition of common shares................................. (96,618) - -
Issuance of preferred shares, net of issuance cost............. - 96,850 -
Increase (decrease) in MidAmerican Capital Company
unsecured revolving credit facility......................... (174,500) 44,500 95,000
Issuance of common shares...................................... - - 15,083
Net increase (decrease) in notes payable....................... (23,936) (22,810) 60,300
--------- --------- ---------
Net cash used............................................... (534,965) (97,522) (46,056)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (87,281) 64,834 4,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 97,749 32,915 28,651
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................... $ 10,468 $ 97,749 $ 32,915
========= ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized...................... $ 96,805 $ 107,179 $ 116,843
========= ========= =========
Income taxes paid.............................................. $ 130,521 $ 85,894 $ 69,319
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-60-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
------------------------------------
1997 1996
----------- ----------
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' EQUITY
Common shares, no par; 350,000,000 shares authorized;
95,300,882 and 100,751,713 shares outstanding, respectively.......... $ 753,873 $ 801,431
Retained earnings...................................................... 409,296 440,971
Valuation allowance, net of income taxes............................... 138,117 (2,456)
---------- ----------
1,301,286 51.7% 1,239,946 44.0%
---------- ------ ---------- ------
MIDAMERICAN PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
$3.30 Series, 49,481 and 49,523 shares, respectively............... 4,948 4,952
$3.75 Series, 38,310 and 38,320 shares, respectively............... 3,831 3,832
$3.90 Series, 32,630 shares ....................................... 3,263 3,263
$4.20 Series, 47,369 shares........................................ 4,737 4,737
$4.35 Series, 49,945 and 49,950 shares, respectively............... 4,994 4,995
$4.40 Series, 50,000 shares........................................ 5,000 5,000
$4.80 Series, 49,898 shares........................................ 4,990 4,990
---------- ----------
31,763 1.2% 31,769 1.1%
---------- ------ ---------- ------
Cumulative shares outstanding; subject to mandatory redemption:
$5.25 Series, 100,000 shares....................................... 10,000 10,000
$7.80 Series, 400,000 shares....................................... 40,000 40,000
---------- ----------
50,000 2.0% 50,000 1.8%
---------- ------ ---------- ------
MIDAMERICAN-OBLIGATED PREFERRED SECURITIES
MidAmerican-obligated mandatorily redeemable cumulative
preferred securities of subsidiary trust holding solely
MidAmerican junior subordinated debentures:
7.98% Series, 4,000,000 shares.................................... 100,000 4.0% 100,000 3.6%
---------- ------ ---------- ------
LONG-TERM DEBT
MidAmerican mortgage bonds:
5.05% Series, due 1998............................................ - 49,100
6.25% Series, due 1998............................................ - 75,000
7.875% Series, due 1999........................................... 60,000 60,000
6% Series, due 2000............................................... 35,000 35,000
6.75% Series, due 2000............................................ 75,000 75,000
7.125% Series, due 2003........................................... 100,000 100,000
7.70% Series, due 2004............................................ 55,630 60,000
7% Series, due 2005............................................... 90,500 100,000
7.375% Series, due 2008........................................... 75,000 75,000
8% Series, due 2022............................................... 50,000 50,000
7.45% Series, due 2023............................................ 6,940 26,500
8.125% Series, due 2023........................................... 100,000 100,000
6.95% Series, due 2025............................................ 12,500 21,500
MidAmerican pollution control revenue obligations:
5.15% to 5.75% Series, due periodically through 2003.............. 8,064 8,424
5.95% Series, due 2023 (secured by general mortgage bonds)........ 29,030 29,030
</TABLE>
The accompanying notes are an integral part of these statements.
-61-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
----------------------------------
1997 1996
---------- -----------
<S> <C> <C> <C> <C>
LONG-TERM DEBT (CONTINUED)
Variable rate series -
Due 2016 and 2017 (3.7% and 3.5%, respectively)................ $ 37,600 $ 37,600
Due 2023 (secured by general mortgage
bonds, 3.7% and 3.5%, respectively)....................... 28,295 28,295
Due 2023 (3.7% and 3.5%, respectively)......................... 6,850 6,850
Due 2024 (3.7% and 3.6%, respectively)......................... 34,900 34,900
Due 2025 (3.7% and 3.5%, respectively)......................... 12,750 12,750
MidAmerican notes:
8.75% Series, due 2002............................................ 240 240
6.5% Series, due 2001............................................. 100,000 100,000
6.4% Series, due 2003 through 2007................................ 2,000 2,000
Obligation under capital lease.................................... 2,104 2,218
Unamortized debt premium and discount, net........................ (3,192) (4,009)
---------- ----------
Total utility.................................................. 919,211 1,085,398
---------- ----------
Nonregulated Subsidiaries Notes:
7.34% Series, due 1998............................................ - 20,000
7.76% Series, due 1999............................................ 45,000 45,000
8.52% Series, due 2000 through 2002............................... 70,000 70,000
8% Series, due annually through 2004.............................. - 205
Borrowings under unsecured revolving credit facility (6.2%)....... - 64,000
Borrowings under unsecured revolving credit facility (6.1%)....... - 26,000
Borrowings under unsecured revolving credit facility (6.1%)....... - 84,500
---------- ----------
Total nonregulated subsidiaries................................ 115,000 309,705
---------- ----------
1,034,211 41.1% 1,395,103 49.5%
---------- ------ ---------- ------
TOTAL CAPITALIZATION.................................................. $2,517,260 100.0% $2,816,818 100.0%
========== ====== ========== ======
</TABLE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BEGINNING OF YEAR.................................................... $ 440,971 $ 430,589 $ 426,683
--------- --------- ---------
NET INCOME........................................................... 135,104 131,046 122,764
--------- --------- ---------
DEDUCT (ADD):
Loss on repurchase of common shares.................................. 49,174 - -
Dividends declared on common shares of $1.20, $1.20 and
$1.18 per share, respectively...................................... 117,605 120,770 118,828
Other................................................................ - (106) 30
--------- --------- ----------
166,779 120,664 118,858
--------- --------- ---------
END OF YEAR.......................................................... $ 409,296 $ 440,971 $ 430,589
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MERGER AND FORMATION OF THE COMPANY:
MidAmerican Energy Holdings Company (Company or Holdings) is a holding
company for MidAmerican Energy Company (MidAmerican), MidAmerican Capital
Company (MidAmerican Capital) and Midwest Capital Group, Inc. (Midwest Capital).
Prior to December 1, 1996, MidAmerican held the capital stock of MidAmerican
Capital and Midwest Capital. Effective December 1, 1996, each share of
MidAmerican common stock was exchanged for one share of Holdings common stock.
As part of the transaction, MidAmerican distributed the capital stock of
MidAmerican Capital and Midwest Capital to Holdings.
MidAmerican was formed on July 1, 1995, as a result of the merger of
Iowa-Illinois Gas and Electric Company (Iowa-Illinois), Midwest Resources Inc.
(Midwest Resources) and its utility subsidiary, Midwest Power Systems Inc.
(Midwest Power). Each outstanding share of preferred and preference stock of the
predecessor companies was converted into one share of a similarly designated
series of MidAmerican preferred stock, no par value. Each outstanding share of
common stock of Midwest Resources and Iowa-Illinois was converted into one share
and 1.47 shares, respectively, of MidAmerican common stock, no par value. The
merger was accounted for as a pooling-of-interest and the financial statements
included herein are presented as if the merger and the formation of the holding
company had occurred as of the earliest period shown.
(B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:
The accompanying Consolidated Financial Statements include the Company and
its wholly owned subsidiaries, MidAmerican, MidAmerican Capital and Midwest
Capital. All significant intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
(C) REGULATION:
MidAmerican's utility operations are subject to the regulation of the Iowa
Utilities Board (IUB), the Illinois Commerce Commission (ICC), the South Dakota
Public Utilities Commission, and the Federal Energy Regulatory Commission
(FERC). MidAmerican's accounting policies and the accompanying Consolidated
Financial Statements conform to generally accepted accounting principles
applicable to rate-regulated enterprises and reflect the effects of the
ratemaking process.
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations currently meet the criteria of SFAS 71, but its applicability is
periodically reexamined. On December 16, 1997, MidAmerican's generation
operations serving Illinois
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<PAGE>
were no longer subject to the provisions of SFAS 71 due to passage of
restructuring legislation in Illinois. Thus, MidAmerican was required to write
off regulatory assets and liabilities from its balance sheet related to its
Illinois generation operations. The net amount of such write-off's were
immaterial. If other utility operations no longer meet the criteria of SFAS 71,
MidAmerican would be required to write off the related regulatory assets and
liabilities from its balance sheet and thus, a material adjustment to earnings
in that period could result. The following regulatory assets, primarily included
in Other Assets in the Consolidated Balance Sheets, represent probable future
revenue to MidAmerican because these costs are expected to be recovered in
charges to utility customers (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred income taxes................ $143,851 $140,649
Energy efficiency costs.............. 111,471 112,244
Debt refinancing costs............... 34,923 40,230
FERC Order 636 transition costs....... 9,279 25,033
Environmental costs................... 20,417 22,577
Retirement benefit costs.............. 595 11,025
Enrichment facilities decommissioning. 8,781 11,089
Unamortized costs of retired plant ... 5,771 8,953
Other................................. 4,201 2,655
-------- --------
Total............................... $339,289 $374,455
======== ========
</TABLE>
(D) REVENUE RECOGNITION:
Revenues are recorded as services are rendered to customers. MidAmerican
records unbilled revenues, and related energy costs, representing the estimated
amount customers will be billed for services rendered between the meter-reading
dates in a particular month and the end of such month. Accrued unbilled revenues
were $80.2 million and $70.1 million at December 31, 1997 and 1996,
respectively, and are included in Receivables on the Consolidated Balance
Sheets.
MidAmerican's Illinois and South Dakota jurisdictional sales, or
approximately 11% of total retail electric sales, and the majority of its total
retail gas sales are subject to adjustment clauses. These clauses allow
MidAmerican to adjust the amounts charged for electric and gas service as the
costs of gas, fuel for generation or purchased power change. The costs recovered
in revenues through use of the adjustment clauses are charged to expense in the
same period.
(E) DEPRECIATION AND AMORTIZATION:
MidAmerican's provisions for depreciation and amortization for its utility
operations are based on straight-line composite rates. The average depreciation
and amortization rates for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Electric.................... 3.8% 3.8% 3.9%
Gas......................... 3.4% 3.7% 3.7%
</TABLE>
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<PAGE>
Utility plant is stated at original cost which includes overhead costs,
administrative costs and an allowance for funds used during construction.
The cost of repairs and minor replacements is charged to maintenance
expense. Property additions and major property replacements are charged to plant
accounts. The cost of depreciable units of utility plant retired or disposed of
in the normal course of business is eliminated from the utility plant accounts
and such cost, plus net removal cost, is charged to accumulated depreciation.
An allowance for the estimated annual decommissioning costs of the Quad
Cities Nuclear Power Station (Quad Cities) equal to the level of funding is
included in depreciation expense. See Note 4(e) for additional information
regarding decommissioning costs.
(F) INVESTMENTS:
Investments, managed primarily through the Company's nonregulated
subsidiaries, include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Investments:
Marketable securities.................. $467,207 $219,890
Equipment leases....................... 73,928 89,791
Nuclear decommissioning trust fund..... 93,251 76,304
Energy projects........................ 21,180 24,467
Special-purpose funds.................. 10,057 44,863
Real estate............................ 42,424 45,457
Corporate owned life insurance......... 33,471 27,395
Coal transportation.................... 14,516 18,623
Communications......................... 10,000 56,333
Security .............................. 8,551 5,367
Other.................................. 24,939 14,482
-------- --------
Total................................. $799,524 $622,972
======== ========
</TABLE>
Marketable securities generally consist of preferred stocks, common stocks
and mutual funds held by MidAmerican Capital. Investments in marketable
securities classified as available-for-sale are reported at fair value with net
unrealized gains and losses reported as a net of tax amount in Common
Shareholders' Equity until realized. Investments in marketable securities that
are classified as held-to-maturity are reported at amortized cost. An
other-than-temporary decline in the value of a marketable security is recognized
through a write-down of the investment to earnings.
Investments held by the nuclear decommissioning trust fund for the Quad
Cities units are classified as available-for-sale and are reported at fair value
with net unrealized gains and losses reported as adjustments to the accumulated
provision for nuclear decommissioning.
(G) CONSOLIDATED STATEMENTS OF CASH FLOWS:
The Company considers all cash and highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
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<PAGE>
Net cash provided (used) from changes in working capital, net of effects
from discontinued operations was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Receivables....................... $ 34,544 $(84,802) $(31,314)
Inventories....................... 4,773 (5,629) 7,013
Other current assets ............. (7,421) 6,732 (4,140)
Accounts payable.................. (23,950) 47,751 15,903
Taxes accrued..................... 10,375 356 (9,755)
Interest accrued.................. (6,158) (2,122) (24)
Other current liabilities......... 15,935 (16,038) 1,293
-------- --------- --------
Total........................... $ 28,098 $ (53,752) $(21,024)
======== ========= ========
</TABLE>
(H) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:
Under a long-term power purchase contract with Nebraska Public Power
District (NPPD), expiring in 2004, MidAmerican purchases one-half of the output
of the 778-megawatt Cooper Nuclear Station (Cooper). The Consolidated Balance
Sheets include a liability for MidAmerican's fixed obligation to pay 50% of
NPPD's Nuclear Facility Revenue Bonds and other fixed liabilities. A like amount
representing MidAmerican's right to purchase power is shown as an asset.
Capital improvement costs prior to July 11, 1997, including carrying costs,
were deferred, and are being amortized and recovered in rates over either a
five-year period or the term of the NPPD contract. Beginning July 11, 1997,
capital improvement costs are recovered currently from customers and are
expensed as incurred.
The fuel cost portion of the power purchase contract is included in Cost of
Fuel, Energy and Capacity on the Consolidated Statements of Income. All other
costs MidAmerican incurs in relation to its long-term power purchase contract
with NPPD are included in Other Operating Expenses on the Consolidated
Statements of Income.
See Notes 4(d), 4(e) and 4(f) for additional information regarding the
power purchase contract.
(I) ACCOUNTING FOR DERIVATIVES:
1) Preferred Stock Hedge Instruments:
The Company is exposed to market value risk from changes in interest rates
for certain fixed rate sinking fund preferred and perpetual preferred stocks
(fixed rate preferred stocks) included in Investments on the Consolidated
Balance Sheets. The Company reviews the interest rate sensitivity of these
securities and purchases put options on U.S. Treasury securities (put options)
to reduce interest rate risk on preferred stocks. The Company does not purchase
or sell put options for speculative purposes. The Company's intent is to
substantially offset any change in market value of the fixed rate preferred
stocks due to a change in interest rates with a change in market value of the
put options.
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<PAGE>
The preferred stocks are publicly traded securities and, as such, changes
in their fair value are reported, net of income taxes, as a valuation allowance
in shareholders' equity. Unrealized gains and losses on the associated put
options are included in the determination of the fair value of the preferred
stocks. The fair value of the put options, including unrealized gains and
losses, included in the determination of the fair value of the preferred
securities as of December 31, 1997 and 1996 was $1.9 million and $5.1 million,
respectively. Realized gains and losses on the put options are included in
Realized Gains and Losses on Securities, Net in the Consolidated Statements
Income in the period the underlying hedged fixed rate preferred stocks are sold.
At December 31, 1997, the Company held put options with a notional value of $3.2
million.
2) Gas Futures Contracts and Swaps:
The Company uses gas futures contracts and swap contracts to reduce its
exposure to changes in the price of natural gas purchased to meet the needs of
its customers and to manage margins on natural gas storage opportunities.
Investments in natural gas futures contracts, which total $1.6 million and $0.8
million as of December 31, 1997 and 1996, are included in Receivables on the
Consolidated Balance Sheets. Gains and losses on gas futures contracts that
qualify for hedge accounting are deferred and reflected as adjustments to the
carrying value of the hedged item or included in Other Assets on the
Consolidated Balance Sheets until the underlying physical transaction is
recorded if the instrument is used to hedge an anticipated future transaction.
The net gain or loss on gas futures contracts is included in the determination
of income in the same period as the expense for the physical delivery of the
natural gas. Realized gains and losses on gas futures contracts and the net
amounts exchanged or accrued under the natural gas swap contracts are included
in Cost of Gas Sold, Other Net or Nonregulated-Costs of Sales consistent with
the expense for the physical commodity. Deferred net gains (losses) related to
the Company's gas futures contracts are $(0.4) million and $0.8 million as of
December 31, 1997 and 1996, respectively.
The Company periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved, the contracts
are recorded at fair value and the gains or losses are included in the
determination of income. At December 31, 1997 the Company held the following
hedging instruments:
<TABLE>
<CAPTION>
Weighted average
Notional volume Market Value
(MMBtu) (Per MMBtu)
--------------- ----------------
<S> <C> <C>
Natural Gas Futures (Long) 3,670,000 $2.277
Natural Gas Futures (Short) 1,670,000 $2.305
Natural Gas Swaps (Fixed to Variable) 2,497,400
Weighted average variable price $2.558
Weighted average fixed price $3.114
Natural Gas Swaps (Variable to Fixed) 6,806,952
Weighted average variable price $2.536
Weighted average fixed price $2.473
</TABLE>
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<PAGE>
(2) LONG-TERM DEBT:
The Company's sinking fund requirements and maturities of long-term debt
for 1998 through 2002 are $145 million, $106 million, $134 million, $125 million
and $25 million, respectively.
The interest rate on the Company's Adjustable Rate Series Mortgage Bonds is
reset every two years at 160 basis points over the average yield to maturity of
10-year Treasury securities. The rate was reset in 1997.
The Company's Variable Rate Pollution Control Revenue Obligations bear
interest at rates that are periodically established through remarketing of the
bonds in the short-term tax-exempt market. The Company, at its option, may
change the mode of interest calculation for these bonds by selecting from among
several alternative floating or fixed rate modes. The interest rates shown in
the Consolidated Statements of Capitalization are the weighted average interest
rates as of December 31, 1997 and 1996. The Company maintains dedicated
revolving credit facility agreements or renewable lines of credit to provide
liquidity for holders of these issues.
Substantially all the former Iowa-Illinois utility property and franchises,
and substantially all of the former Midwest Power electric utility property in
Iowa, or approximately 82% of gross utility plant, is pledged to secure mortgage
bonds.
MidAmerican Capital has $64 million and $50 million unsecured revolving
credit facility agreements which mature in 1998. Borrowings under these
agreements may be on a fixed rate, floating rate or competitive bid rate basis.
All subsidiary long-term borrowings outstanding at December 31, 1997, are
without recourse to Holdings.
(3) JOINTLY OWNED UTILITY PLANT:
Under joint plant ownership agreements with other utilities, MidAmerican
had undivided interests at December 31, 1997, in jointly owned generating plants
as shown in the table below.
The dollar amounts below represent MidAmerican's share in each jointly
owned unit. Each participant has provided financing for its share of each unit.
Operating Expenses on the Consolidated Statements of Income include
MidAmerican's share of the expenses of these units (dollars in millions).
<TABLE>
<CAPTION>
Nuclear Coal fired
----------- ------------------------------------------
Council
Quad Cities Neal Bluffs Neal Ottumwa Louisa
Units Unit Unit Unit Unit Unit
No. 1 & 2 No. 3 No. 3 No.4 No. 1 No. 1
----------- ----- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
In service date 1972 1975 1978 1979 1981 1983
Utility plant in service $ 240 $ 128 $ 298 $ 159 $ 210 $ 531
Accumulated depreciation $ 87 $ 78 $ 164 $ 87 $ 103 $ 235
Unit capacity-MW 1,529 515 675 624 716 700
Percent ownership 25.0% 72.0% 79.1% 40.6% 52.0% 88.0%
</TABLE>
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<PAGE>
(4) COMMITMENTS AND CONTINGENCIES:
(A) CAPITAL EXPENDITURES:
Utility construction expenditures for 1998 are estimated to be $201
million, including $13 million for Quad Cities nuclear fuel. Nonregulated
capital expenditures depend upon the availability of investment opportunities
and other factors. During 1998, such expenditures are estimated to be
approximately $10 million.
(B) MANUFACTURED GAS PLANT FACILITIES:
The United States Environmental Protection Agency (EPA) and the state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
MidAmerican is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action. MidAmerican
is currently conducting field investigations at seventeen of the sites and has
completed investigations at one of the sites. In addition, MidAmerican has
completed removals at three of the sites. MidAmerican is continuing to evaluate
several of the sites to determine the future liability, if any, for conducting
site investigations or other site activity.
MidAmerican's present estimate of probable remediation costs for the sites
discussed above as of December 31, 1997 is $21 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery. The ICC has
approved the use of a tariff rider which permits recovery of the actual costs of
litigation, investigation and remediation relating to former MGP sites.
MidAmerican's present rates in Iowa provide for a fixed annual recovery of MGP
costs. MidAmerican intends to pursue recovery of the remediation costs from
other PRPs and its insurance carriers.
The estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether MidAmerican has potential legal liability
for the site and whether information exists to indicate that contaminated wastes
remain at the site. If so, the costs of performing a preliminary investigation
and the costs of removing known contaminated soil are accrued. As the
investigation is performed and if it is determined remedial action is required,
the best estimate of remediation costs is accrued. If necessary, the estimate is
revised when a consent order is issued. The estimated recorded liabilities for
these properties include incremental direct costs of the remediation effort,
costs for future monitoring at sites and costs of compensation to employees for
time expected to be spent directly on the remediation effort. The estimated
recorded liabilities for these properties are based upon preliminary data. Thus,
actual costs could vary significantly from the estimates. The estimate could
change materially based on facts and circumstances derived from site
investigations, changes in required remedial action and changes in technology
relating to remedial alternatives. In addition, insurance recoveries for some or
all of the costs may be possible, but the liabilities recorded have not been
reduced by any estimate of such recoveries.
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<PAGE>
Although the timing of potential incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on MidAmerican's financial position or results of operations.
(C) CLEAN AIR ACT:
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
(D) LONG-TERM POWER PURCHASE CONTRACT:
Payments to NPPD cover one-half of the fixed and operating costs of Cooper
(excluding depreciation but including debt service) and MidAmerican's share of
nuclear fuel cost (including nuclear fuel disposal) based on energy delivered.
The debt service portion is approximately $1.5 million per month for 1998 and is
not contingent upon the plant being in service. In addition, MidAmerican pays
one-half of NPPD's decommissioning funding related to Cooper.
The debt amortization and Department of Energy (DOE) enrichment plant
decontamination and decommissioning component of MidAmerican's payments to NPPD
were $13.8 million, $14.5 million and $12.0 million and the net interest
component was $3.8 million, $3.6 million and $4.6 million each for the years
1997, 1996 and 1995, respectively.
MidAmerican's payments for the debt principal portion of the power purchase
contract obligation and the DOE enrichment plant decontamination and
decommissioning payments are $14.4 million, $15.0 million, $15.8 million, $16.6
million, $17.4 million and $18.3 million for 1998 through 2003, respectively.
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<PAGE>
(E) DECOMMISSIONING COSTS:
Based on site-specific decommissioning studies that include
decontamination, dismantling, site restoration and dry fuel storage cost,
MidAmerican's share of expected decommissioning costs for Cooper and Quad
Cities, in 1997 dollars, is $247 million and $230 million, respectively. In
Illinois, nuclear decommissioning costs are included in customer billings
through a mechanism that permits annual adjustments. Such costs are reflected as
base rates in Iowa tariffs.
For purposes of developing a decommissioning funding plan for Cooper, NPPD
assumes that decommissioning costs will escalate at an annual rate of 4.0%.
Although Cooper's operating license expires in 2014, the funding plan assumes
decommissioning will start in 2004, the anticipated plant shutdown date.
As of December 31, 1997, MidAmerican's share of funds set aside by NPPD in
internal and external accounts for decommissioning was $78.2 million. In
addition, the funding plan also assumes various funds and reserves currently
held to satisfy NPPD bond resolution requirements will be available for plant
decommissioning costs after the bonds are retired in early 2004. The funding
schedule assumes a long-term return on funds in the trust of 6.75% annually.
Certain funds will be required to be invested on a short-term basis when
decommissioning begins and are assumed to earn at a rate of 4.0% annually. NPPD
is recognizing decommissioning costs over the life of the power sales contract.
MidAmerican makes payments to NPPD related to decommissioning Cooper. These
payments are included in MidAmerican's power purchase costs. The Cooper
decommissioning component of MidAmerican's payments to NPPD was $11.3 million,
$9.9 million and $8.9 million for the years 1997, 1996, and 1995, respectively,
and is included in Other Operating Expenses in the Consolidated Statements of
Income. Earnings from the internal and external trust funds, which are
recognized by NPPD as the owner of the plant, are tax exempt and serve to reduce
future funding requirements.
External trusts have been established for the investment of funds for
decommissioning the Quad Cities units. The total accrued balance as of December
31, 1997, was $93.3 million and is included in Other Liabilities and a like
amount is reflected in Investments and represents the value of the assets held
in the trusts.
MidAmerican's provision for depreciation included costs for Quad Cities
nuclear decommissioning of $9.8 million, $8.6 million and $8.6 million for 1997,
1996 and 1995, respectively. The provision charged to expense is equal to the
funding that is being collected in rates. The decommissioning funding component
of MidAmerican's Illinois tariffs assumes decommissioning costs, related to the
Quad Cities unit, will escalate at an annual rate of 5.3% and the assumed annual
return on funds in the trust is 6.5%. The Quad Cities decommissioning funding
component of MidAmerican's Iowa tariffs assumes decommissioning costs will
escalate at an annual rate of 6.3% and the assumed annual return on funds in the
trust is 6.5%. Earnings on the assets in the trust fund were $5.0 million, $3.5
million and $2.5 million for 1997, 1996 and 1995, respectively.
(F) NUCLEAR INSURANCE:
MidAmerican maintains financial protection against catastrophic loss
associated with its interest in Quad Cites and Cooper through a combination of
insurance purchased by NPPD (the owner and operator of Cooper) and Commonwealth
Edison (the joint owner and operator of Quad Cities), insurance purchased
directly by MidAmerican, and the mandatory industry-wide loss funding mechanism
afforded under the Price-Anderson Amendments Act of 1988. The coverage falls
into three categories: nuclear liability, property coverage and nuclear worker
liability.
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<PAGE>
NPPD and Commonwealth Edison each purchase nuclear liability insurance in
the maximum available amount of $200 million. In accordance with the
Price-Anderson Amendments Act of 1988, excess liability protection above that
amount is provided by a mandatory industry-wide program under which the owners
of nuclear generating facilities could be assessed for liability incurred due to
a serious nuclear incident at any commercial nuclear reactor in the United
States. Currently, MidAmerican's maximum potential share of such an assessment
is $79.3 million per incident, payable in installments not to exceed $10 million
annually.
The property coverage provides for property damage, stabilization and
decontamination of the facility, disposal of the decontaminated material and
premature decommissioning. For Quad Cities, Commonwealth Edison purchases
primary and excess property insurance protection for the combined interest in
Quad Cities totalling $2.1 billion. For Cooper, NPPD purchases primary property
insurance in the amount of $500 million. Additionally, MidAmerican and NPPD
separately purchase coverage for their respective obligation of $1.125 billion
each in excess of the $500 million primary layer purchased by NPPD. This
structure provides that both MidAmerican and NPPD are covered for their
respective 50% obligation in the event of a loss totalling $2.75 billion.
MidAmerican also directly purchases extra expense/business interruption coverage
to cover the cost of replacement power and/or other continuing costs in the
event of a covered accidental outage at Cooper or Quad Cities. The coverages
purchased directly by MidAmerican, and the primary and excess property coverages
purchased by Commonwealth Edison, contain provisions for retrospective premium
assessments should two or more full policy-limit losses occur in one policy
year. Currently, the maximum retrospective amounts that could be assessed
against MidAmerican from industry mutual insurance companies for its obligations
associated with Cooper and Quad Cities combined total $11.6 million.
The master nuclear worker liability coverage is an industry-wide policy
with an aggregate limit of $200 million for the nuclear industry as a whole,
which is in effect to cover tort claims of workers as a result of radiation
exposure on or after January 1, 1988. MidAmerican's share, based on its interest
in Cooper and Quad Cities, of a maximum potential share of a retrospective
assessment under this program is $3.0 million.
(G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:
MidAmerican has entered into supply and related transportation contracts
for its fossil fueled generating stations. The contracts, with expiration dates
ranging from 1998 to 2003, require minimum payments of $132.2 million, $88.8
million, $57.8 million, $26.3 million and $3.1 million and $3.1 million for the
years 1998 through 2003, respectively. The Company expects to supplement these
coal contracts with spot market purchases to fulfill its future fossil fuel
needs.
The Company has entered into various natural gas supply and transportation
contracts for its utility operations. The minimum commitments under these
contracts are $88 million, $63 million, $37 million, $32 million and $16 million
for the years 1998 through 2002, respectively, and $76 million for the total of
the years thereafter. During 1993 FERC Order 636 became effective, requiring
interstate pipelines to restructure their services. The pipeline will recover
the transition costs related to Order 636 from the local distribution companies.
The Company has recorded a liability and regulatory asset for the transition
costs which are being recovered by the Company through the purchased gas
adjustment clause. The unrecovered balance recorded by the Company as of
December 31, 1997, was $9.3 million.
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<PAGE>
(5) COMMON SHAREHOLDERS' EQUITY:
Common shares outstanding changed during the years ended December 31 as
shown in the table below (in thousands):
<TABLE>
1997 1996 1995
--------------------- -------------------- --------------------
Amount Shares Amount Shares Amount Shares
--------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year ............... $ 801,431 100,752 $ 801,227 100,752 $ 786,420 99,687
Changes due to:
Repurchase of common shares ............ (47,444) (5,451) - - - -
Issuance of common shares .............. - - - - 15,083 1,065
Stock options .......................... 210 - 623 - - -
Capital stock expense .................. (289) - (419) - (276) -
Other .................................. (35) - - - - -
--------- -------- --------- ------- --------- -------
Balance, end of year ................... $ 753,873 95,301 $ 801,431 100,752 $ 801,227 100,752
========= ======== ========= ======= ========= =======
</TABLE>
(6) RETIREMENT PLANS:
The Company has noncontributory defined benefit pension plans covering
substantially all employees. Benefits under the plans are based on participants'
compensation, years of service and age at retirement.
Funding is based upon the actuarially determined costs of the plans and the
requirements of the Internal Revenue Code and the Employee Retirement Income
Security Act. MidAmerican has been allowed to recover funding contributions in
rates.
Net periodic pension cost includes the following components for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost-benefit earned during the period . $ 10,092 $ 12,323 $ 9,817
Interest cost on projected benefit obligation . 29,623 31,109 27,934
Decrease in pension costs from actual
return on assets ............................. (79,580) (58,460) (63,593)
Net amortization and deferral ................. 39,446 26,223 32,126
One-time charge ............................... - - 15,683
Regulatory deferral of incurred cost .......... 5,423 568 (10,470)
-------- -------- --------
Net periodic pension cost ..................... $ 5,004 $ 11,763 $ 11,497
======== ======== ========
</TABLE>
During 1995, the Company incurred a one-time charge of $15.7 million
related to the early retirement portion of its restructuring plan. Of such cost,
$3.0 million was charged to expense and the remaining amount was deferred for
future recovery through the regulatory process.
The plan assets are stated at fair market value and are primarily comprised
of insurance contracts, United States government debt and corporate equity
securities. The plans in which accumulated benefits exceed assets consist
entirely of nonqualified defined benefit plans. Although the plans have no
assets, the Company purchases corporate owned life insurance to provide funding
for the future cash requirements. The cash value of such insurance was $21.5
million and $17.3 million at December 31, 1997 and 1996,
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<PAGE>
respectively. The following table presents the funding status of the plans and
amounts recognized in the Consolidated Balance Sheets as of December 31 (dollars
in thousands):
<TABLE>
<CAPTION>
Plans in Which:
----------------------------------------------
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
---------------------- --------------------
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .................. $(325,770) $(298,237) $(40,080) $(36,574)
Nonvested benefit obligation ............... (3,623) (3,454) (242) (1,925)
--------- --------- -------- --------
Accumulated benefit obligation ............. (329,393) (301,691) (40,322) (38,499)
Provision for future pay increases ......... (52,027) (79,790) (8,301) (8,733)
--------- --------- -------- --------
Projected benefit obligation ............... (381,420) (381,481) (48,623) (47,232)
Plan assets at fair value ..................... 483,668 427,828 - -
--------- --------- -------- --------
Projected benefit obligation (greater) less
than plan assets ........................... 102,248 46,347 (48,623) (47,232)
Unrecognized prior service cost ............... 592 18,636 21,147 21,544
Unrecognized net loss (gain) .................. (93,770) (63,173) (1,281) --
Unrecognized net transition asset ............. (16,339) (18,929) -- --
Other ...................................... -- -- (11,565) (12,811)
--------- --------- -------- --------
Pension liability recognized in the
Consolidated Balance Sheets ................ $ (7,269) $ (17,119) $(40,322) $(38,499)
========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Assumptions used were:
Discount rate................................ 7.0% 7.5%
Rate of increase in compensation levels...... 5.0% 5.0%
Weighted average expected long-term
rate of return on assets................. 9.0% 9.0%
</TABLE>
The Company currently provides certain health care and life insurance
benefits for retired employees. Under the plans, substantially all of the
Company's employees may become eligible for these benefits if they reach
retirement age while working for the Company. However, the Company retains the
right to change these benefits anytime at its discretion.
In January 1993, the Company adopted SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions. The Company began expensing these
costs on an accrual basis for its Illinois customers and certain of its Iowa
customers in 1993 and including provisions for such costs in rates for these
customers. For its remaining Iowa customers, the Company deferred the portion of
these costs above the "pay-as-you-go" amount already included in rates until
recovery on an accrual basis was established in 1995. The Company is currently
amortizing the deferral, expensing the SFAS No. 106 accrual and including
provisions for these costs in rates.
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<PAGE>
Net periodic postretirement benefit cost includes the following components
for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefit earned during the period ...... $ 2,680 $ 2,118 $ 1,583
Interest cost ...................................... 8,822 8,341 7,185
Increase (decrease) in benefit cost from
actual return on assets .......................... (2,285) (1,598) (2,090)
Amortization of unrecognized transition obligation . 5,291 5,291 5,291
Amortization of unrecognized service cost .......... 650 - -
Amortization of unrecognized prior year (loss) ..... (298) - -
Other .............................................. (288) (297) (262)
One-time charge for early retirement ............... - - 4,353
Regulatory recognition of incurred cost ............ 4,888 5,112 5,140
-------- -------- --------
Net periodic postretirement benefit cost ........... $ 19,460 $ 18,967 $ 21,200
======== ======== ========
</TABLE>
During 1995, the Company recorded a one-time expense of $4.4 million
related to the early retirement portion of its restructuring plan.
The Company has established external trust funds to meet its expected
postretirement benefit obligations. The trust funds are comprised primarily of
guaranteed rate investment accounts and money market investment accounts. A
reconciliation of the funded status of the plan to the amounts realized as of
December 31 is presented below (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated present value of benefit obligations:
Retiree benefit obligation ............................. $ (74,534) $ (78,935)
Active employees fully eligible for benefits ........... (6,466) (2,798)
Other active employees ................................. (46,347) (34,772)
--------- ---------
Accumulated benefit obligation ......................... (127,347) (116,505)
Plan assets at fair value ................................ 52,174 36,783
--------- ---------
Accumulated benefit obligation greater than plan assets .. (75,173) (79,722)
Unrecognized net gain .................................... (11,248) (8,810)
Prior service cost ....................................... 8,277 -
Unrecognized transition obligation ....................... 79,370 84,662
--------- ---------
Postretirement benefit liability recognized in the
Consolidated Balance Sheets ............................ $ 1,226 $ (3,870)
========= =========
Assumptions used were:
Discount rate .......................................... 7.0% 7.5%
Weighted average expected long-term rate of return
on assets (after taxes) ............................. 6.5% 6.7%
</TABLE>
For purposes of calculating the postretirement benefit obligation, it is
assumed health care costs for covered individuals prior to age 65 will increase
by 10.0% in 1998, and that the rate of increase thereafter will decline by 1.0%
annually to an ultimate rate of 5.5% by the year 2003. For covered individuals
age 65 and older, it is assumed health care costs will increase by 7.0% in 1998,
and that the rate of increase thereafter will decline by 1.0% annually to an
ultimate rate of 5.5% by the year 2000.
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<PAGE>
If the assumed health care trend rates used to measure the expected cost of
benefits covered by the plans were increased by 1%, the total service and
interest cost would increase by $1.8 million and the accumulated postretirement
benefit obligation would increase by $15.4 million.
The Company sponsors defined contribution pension plans (401(k) plans)
covering substantially all employees. The Company's contributions to the plans,
which are based on the participants' level of contribution and cannot exceed
four percent of the participants' salaries or wages, were $4.6 million, $4.4
million and $3.7 million for 1997, 1996 and 1995, respectively.
(7) STOCK-BASED COMPENSATION PLANS:
The company has stock-based compensation arrangements as described below.
The company accounts for these plans under Accounting Principles Board Opinion
No. 25 and the related interpretations. The total compensation cost recognized
in income for stock-based compensation awards was $1.3 million, $0.6 million,
and $1.8 million for 1997, 1996, and 1995 respectively. Had the company used
Statement of Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), pro-forma net income for common stock would be $135.3
million, $130.9 million, and $122.6 million, while earnings per share would be
$1.38, $1.30, and $1.22 for the years ended 1997, 1996, and 1995 respectively.
Stock options and performance share awards have been granted pursuant to
the MidAmerican Energy Company 1995 Long-Term Incentive Plan (the "Plan"). Up to
four million shares are authorized to be granted under the Plan.
STOCK OPTIONS - Under the Plan, the Board of Directors have granted options to
purchase shares of MidAmerican Holdings common stock (the "Options") at the fair
market value of the shares on the date of the grant. The options vest over a
4-year period at a rate of 25% per year and expire ten years after the date of
grant. Stock option activity for 1997, 1996, and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 800,000 $14.66 700,000 $14.50 - -
Granted 46,666 $17.36 100,000 $15.75 700,000 $14.50
Exercised 165,000 $14.58 - - - -
Forfeited 115,000 $14.93 - - - -
Expired - - - - -
Outstanding, end of year 566,666 $15.12 800,000 $14.66 700,000 $14.50
Exercisable, end of year 315,000 $14.54 175,000 $14.50 - -
Weighted average fair value of
options granted during year $1.66 $1.48 $1.58
</TABLE>
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<PAGE>
The fair value of the options granted were estimated as of the date of the grant
using the Black-Scholes option pricing model. The model assumed:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Dividend rate per share $ 1.20 $ 1.20 $ 1.20
Expected volatility 16.55% 17.62% 23%
Expected life 10 Years 10 Years 10 Years
Risk free interest rate 6.14% 6.53% 6.28%
</TABLE>
The options outstanding at December 31, 1997 have an exercise price range of
$14.50 to $17.785, with a weighted average contractual life of 8.25 years.
PERFORMANCE SHARES - Under the Plan, participants are granted contingent shares
of common stock. The shares are contingent upon the attainment of specified
performance measures within a 3-year performance period. During the performance
period, the participant is entitled to receive dividends and vote the stock. The
stock is vested upon achievement of the performance measures. If the specified
criteria is not met within the 3-year performance period, the shares are
forfeited. The following table provides certain information regarding contingent
performance incentive shares granted under the Plan:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Number of performance shares granted 77,105 68,189 86,277
Fair value at date of grant (in thousands) $ 1,335 $ 1,176 $ 1,251
Weighted average per share amounts $ 17.3125 $ 17.2500 $ 14.5000
End of performance period 6/30/2000 6/30/99 6/30/98
</TABLE>
In addition, the company has granted 800 restricted shares to each non-employee
director in 1997, 1996 and 1995. Non-employee directors are restricted from
disposing of granted shares until such time as they cease to be a director of
the company. The following table provides certain information regarding the
directors restricted shares granted under the Plan.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Number of shares granted 11,200 12,000 13,600
Fair value at date of grant (in thousands) $ 194 $ 207 $ 197
Weighted average price per share amounts $17.3125 $17.2500 $14.5000
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN - Employees of the Company are allowed to purchase
company stock up to the lesser of 15% or $25,000 of their annual compensation at
a 15% discount. The number of shares acquired by employees under the plan were
140,943, 150,899, and 182,707 in 1997, 1996 and 1995, respectively. The Company
currently acquires shares in the open market for this plan. Participants who
purchase shares under the Plan are required to hold purchased shares for 180
days.
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<PAGE>
(8) SHORT-TERM BORROWING:
Interim financing of working capital needs and the construction program
may be obtained from the sale of commercial paper or short-term borrowing from
banks. Information regarding short-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Balance at year-end $138,054 $161,990 $184,800
Weighted average interest rate
on year-end balance 5.9% 5.4% 5.7%
Average daily amount outstanding
during the year $117,482 $151,318 $114,036
Weighted average interest rate on average daily
amount outstanding during the year 5.7% 5.5% 6.0%
</TABLE>
MidAmerican has authority from FERC to issue short-term debt in the form of
commercial paper and bank notes aggregating $400 million. As of December 31,
1997, MidAmerican had a $250 million revolving credit facility agreement and a
$10 million line of credit and Holdings had lines of credit totaling $120
million. MidAmerican's commercial paper borrowings are supported by the
revolving credit facility and the line of credit.
(9) RATE MATTERS:
As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the Iowa Utilities Board (IUB) issued an order in a
consolidated rate proceeding involving MidAmerican's pricing proposal and a
filing by the Iowa Office of Consumer Advocate (OCA). The order approved a March
1997 settlement agreement between MidAmerican, the OCA and other parties to the
proceeding. The agreement includes a number of characteristics of MidAmerican's
pricing proposal. Prices for residential customers were reduced $8.5 million
annually and $10.0 million annually, effective November 1, 1996, and July 11,
1997, respectively, and will be reduced an additional $5.0 million annually on
June 1, 1998, for a total annual decrease of $23.5 million. Rates for commercial
and industrial customers will be reduced a total of $10 million annually by June
1, 1998, through pilot projects, negotiated rates with individual customers and,
if needed, a base rate reduction effective June 1, 1998. The agreement includes
a tracking mechanism to currently recover the cost of capital improvements
required by the Cooper Nuclear Station Power Purchase Contract. The tracking
mechanism will offset approximately $9 million of these reductions.
In addition, the agreement accepted MidAmerican's proposal to eliminate the
Iowa energy adjustment clause (EAC) which was the mechanism through which fuel
costs were collected from Iowa customers prior to July 11, 1997. The EAC flows
the cost of fuel to customers on a current basis, and thus, fuel costs had
little impact on net income. Prospectively, base rates for Iowa customers will
include a factor for recovery of a representative level of fuel costs. To the
extent actual fuel costs vary from that factor, pre-tax earnings will be
impacted. The fuel cost factor will be reviewed in February 1999 and adjusted
prospectively if actual 1998 fuel costs vary 15% above or below the factor
included in base rates.
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<PAGE>
Under the agreement, if MidAmerican's annual Iowa electric
jurisdictional return on common equity exceeds 12%, then an equal sharing
between customers and shareholders of earnings above the 12% level begins; if it
exceeds 14%, then two-thirds of MidAmerican's share of those earnings will be
used for accelerated recovery of certain regulatory assets. The agreement
permits MidAmerican to file for increased rates if the return falls below 9%.
Other parties signing the agreement are prohibited from filing for reduced rates
prior to 2001 unless the return, after reflecting credits to customers, exceeds
14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the Federal Energy Regulatory Commission (FERC), is limited to 60 MW of
participation the first year and can be expanded by 15 MW annually until the
conclusion of the program. Any loss of revenues associated with the pilot
program will be considered part of the $10 million annual reduction for
commercial and industrial customers as described above, but may not be recovered
from other customer classes. The program was filed with the IUB and the FERC in
September 1997. The Company anticipates that the necessary approvals will be
received before the end of the second quarter of 1998.
(10) DISCONTINUED OPERATIONS:
In the third quarter of 1996, the Company announced the discontinuation
of certain nonstrategic businesses in support of its strategy of becoming the
leading regional energy and complementary services provider. In November of
1996, the Company signed a definitive agreement with KCS Energy, Inc. (KCS) to
sell an oil and gas exploration and development subsidiary and completed the
sale on January 3, 1997. The Company recorded an after-tax loss of $7.1 million
for the disposition in 1996 and an additional $0.9 million in 1997. In October
1997, the company sold its subsidiary that developed and continues to operate a
computerized information system facilitating the real-time exchange of power in
the electric industry. The Company recorded a $4.0 million estimated after-tax
loss on disposal in the third quarter of 1996 and an additional $3.2 million in
September 1997. In addition, in the third quarter of 1996 the Company received a
final settlement from the sale of a coal mining subsidiary which was reflected
as a discontinued operation by a predecessor company in 1982. The final
settlement, which resulted in an after-tax loss of $3.3 million, included the
reacquisition of preferred equity by the buyer and the settlement of reclamation
reserves.
Proceeds received from the disposition of the oil and gas subsidiary
included $210 million in cash and 870,000 warrants, after a stock split in 1997,
to purchase KCS common stock. The warrants were valued at $6 million. Proceeds
received from the disposition of the subsidiary that operates a computerized
information system for the exchange of power in the electric industry included
an unsecured note receivable for $0.7 million and warrants to purchase twenty
percent of the acquirer which have been valued at zero. Proceeds received from
the disposition of the coal mining subsidiary settlement were $15 million. Net
assets of the discontinued operations are separately presented on the
Consolidated Balance Sheets as Investment in Discontinued Operations.
Revenues from discontinued activities, as well as the results of operations
and the estimated loss on the disposal of discontinued operations for the years
ended December 31 are as follows (in thousands):
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<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
OPERATING REVENUES ................. $ - $ 233,952 $ 81,637
======== ========= ========
INCOME FROM OPERATIONS
Income (loss) before income taxes .. $ (200) $ 1,638 $ 4,704
Income tax benefit (expense) ....... 82 479 (1,645)
-------- --------- --------
Income (loss) from Operations ...... $ (118) $ 2,117 $ 3,059
======== ========= ========
LOSS ON DISPOSAL
Income (loss) before income taxes .. $(10,106) $ 9,047 $ -
Income tax benefit (expense) ....... 5,996 (23,879) -
-------- --------- --------
Loss on disposal ................... $ (4,110) $ (14,832 $ -
======== ========= ========
</TABLE>
(11) CONCENTRATION OF CREDIT RISK:
The Company's electric utility operations serve 560,000 customers in Iowa,
85,000 customers in western Illinois and 3,000 customers in southeastern South
Dakota. The Company's gas utility operations serve 486,000 customers in Iowa,
65,000 customers in western Illinois, 63,000 customers in southeastern South
Dakota and 4,000 customers in northeastern Nebraska. The largest communities
served by the Company are the Iowa and Illinois Quad-Cities; Des Moines, Sioux
City, Cedar Rapids, Waterloo, Iowa City and Council Bluffs, Iowa; and Sioux
Falls, South Dakota. The Company's utility operations grant unsecured credit to
customers, substantially all of whom are local businesses and residents. As of
December 31, 1997, billed receivables from the Company's utility customers
totalled $14.8 million. As described in Note 18, billed receivables related to
utility services have been sold to a wholly owned unconsolidated subsidiary.
MidAmerican Capital has investments in preferred stocks of companies in the
utility industry. As of December 31, 1997, the total cost of these investments
was $96 million.
MidAmerican Capital has entered into leveraged lease agreements with
companies in the airline industry. As of December 31, 1997, the receivables
under these agreements totalled $35 million.
(12) PREFERRED SHARES:
During 1996, MidAmerican redeemed all shares of the $1.7375 Series of
preferred stock. The redemptions were made at a premium, which resulted in a
charge to net income of $1.6 million.
The $5.25 Series Preferred Shares, which are not redeemable prior to
November 1, 1998 for any purpose, are subject to mandatory redemption on
November 1, 2003 at $100 per share. The $7.80 Series Preferred Shares have
sinking fund requirements under which 66,600 shares will be redeemed at $100 per
share each May 1, beginning in 2001 through May 1, 2006.
The total outstanding cumulative preferred stock of MidAmerican not subject
to mandatory redemption requirements may be redeemed at the option of the
Company at prices which, in the aggregate, total $31.8 million. The aggregate
total the holders of all preferred stock outstanding at December 31, 1997, are
entitled to upon involuntary bankruptcy is $181.8 million plus accrued
dividends. Annual dividend requirements for all preferred stock outstanding at
December 31, 1997, total $12.9 million.
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<PAGE>
(13) SEGMENT INFORMATION:
Information related to segments of the Company's business is as follows
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
UTILITY
Electric:
Operating revenues ........................ $1,126,300 $1,099,008 $ 1,094,647
Cost of fuel, energy and capacity ......... 235,760 234,317 230,261
Depreciation and amortization expense ..... 145,931 140,939 136,324
Other operating expenses .................. 502,109 424,594 459,344
---------- ---------- -----------
Operating income .......................... $ 242,500 $ 299,158 $ 268,718
========== ========== ===========
Gas:
Operating revenues ........................ $ 536,306 $ 536,753 $ 459,588
Cost of gas sold .......................... 346,016 345,014 279,025
Depreciation and amortization expense ..... 24,609 23,653 22,626
Other operating expenses .................. 127,092 106,831 122,017
---------- ---------- -----------
Operating income .......................... $ 38,589 $ 61,255 $ 35,920
========== ========== ===========
Operating income ............................ $ 281,089 $ 360,413 $ 304,638
Other income (expense) ...................... 14,699 3,998 (4,074)
Fixed charges ............................... 100,018 96,753 92,036
---------- ---------- -----------
Income from continuing operations
before income taxes ........................ 195,770 267,658 208,528
Income taxes ................................ 76,317 112,927 84,098
---------- ---------- -----------
Income from continuing operations ........... $ 119,453 $ 154,731 $ 124,430
========== ========== ===========
Capital Expenditures-
Electric ................................... $ 128,544 $ 116,243 $ 133,490
Gas ........................................ $ 38,388 $ 37,955 $ 57,281
1997 1996 1995
---------- ---------- -----------
NONREGULATED
Revenues ................................... $ 259,675 $ 236,851 $ 95,106
Cost of sales .............................. 240,182 218,256 70,351
Depreciation and amortization .............. 3,436 4,854 6,010
Other operating expenses ................... 26,640 30,516 31,029
---------- ---------- -----------
Operating income (loss) .................... (10,583) (16,775) (12,284)
Other income ............................... 34,320 14,874 15,734
Fixed charges .............................. 11,785 23,574 25,470
---------- ---------- -----------
Income (loss) from continuing operations
before income taxes ...................... 11,952 (25,475) (22,020)
Income taxes ............................... (7,927) (14,505) (17,295)
---------- ---------- -----------
Income (loss) from continuing operations ... $ 19,879 $ (10,970) $ (4,725)
========== ========== ===========
Capital expenditures ....................... $ 14,066 $ 55,788 $ 12,881
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
ASSET INFORMATION
Identifiable utility assets:
Electric (a) .............................. $2,825,573 $2,954,324 $ 2,947,832
Gas (a) ................................... 677,991 692,993 699,539
Used in overall utility operations .......... 11,341 114,545 30,084
Nonregulated ................................ 763,186 593,666 615,342
Investment in discontinued operations ....... - 166,320 177,300
---------- ---------- -----------
Total assets ............................. $4,278,091 $4,521,848 $ 4,470,097
========== ========== ===========
</TABLE>
(a) Utility plant less accumulated provision for depreciation, receivables,
inventories, nuclear decommissioning trust fund and regulatory assets.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. Tariffs for the Company's utility
services are established based on historical cost ratemaking. Therefore, the
impact of any realized gains or losses related to financial instruments
applicable to the Company's utility operations is dependent on the treatment
authorized under future ratemaking proceedings.
Cash and cash equivalents - The carrying amount approximates fair value due
to the short maturity of these instruments.
Quad Cities nuclear decommissioning trust fund - Fair value is based on
quoted market prices of the investments held by the fund.
Marketable securities - Fair value is based on quoted market prices.
Debt securities - Fair value is based on the discounted value of the future
cash flows expected to be received from such investments.
Equity investments carried at cost - Fair value is based on an estimate of
the Company's share of partnership equity, offers from unrelated third parties
or the discounted value of the future cash flows expected to be received from
such investments.
Notes payable - Fair value is estimated to be the carrying amount due to
the short maturity of these issues.
Preferred shares - Fair value of preferred shares with mandatory redemption
provisions is estimated based on the quoted market prices for similar issues.
Long-term debt - Fair value of long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
-82-
<PAGE>
The following table presents the carrying amount and estimated fair value
of certain financial instruments as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Instruments Owned by the Company:
Equity investments carried at cost ............. $ 33,979 $ 36,491 $ 95,339 $ 273,311
Financial Instruments Issued by the Company:
MidAmerican preferred securities; subject
to mandatory redemption ..................... $ 50,000 $ 53,650 $ 50,000 $ 52,920
MidAmerican-obligated preferred securities;
subject to mandatory redemption ............. $ 100,000 $ 104,250 $ 100,000 $ 100,490
Long-term debt, including current portion ...... $1,178,769 $1,214,951 $1,474,701 $1,522,500
</TABLE>
Included in investments on the Consolidated Balance Sheets is the Company's
investment in common stock of McLeodUSA Incorporated (McLeodUSA). McLeodUSA
common stock has been publicly traded since June 14, 1996. Investor agreements
related to McLeodUSA's initial public offering and subsequent merger with
Consolidated Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA prior to September 24, 1998,
without approval of McLeodUSA's board of directors. As a result of the
agreements, the Company's investment was considered restricted stock and as
such, was recorded at cost in all periods prior to September 1997. Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes and is recorded at fair value. At December 31, 1997 the cost and fair
value of the McLeodUSA investment were $45.2 million and $257.9 million,
respectively. The unrealized gain is recorded, net of income taxes, as a
valuation allowance in common shareholders' equity. At December 31, 1997, the
net unrealized gain and deferred income taxes for this investment were $212.7
million and $74.4 million, respectively.
The amortized cost, gross unrealized gain and losses and estimated fair
value of investments in debt and equity securities at December 31 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities ............. $257,316 $ 226,747 $ (10,522) $473,541
Municipal bonds ............... 35,217 2,116 (1) 37,332
U. S. Government securities ... 18,753 800 (4) 19,549
Corporate securities .......... 13,579 222 (3) 13,798
Cash equivalents .............. 9,862 - - 9,862
-------- --------- --------- --------
$334,727 $ 229,885 $ (10,530) $554,082
======== ========= ========= ========
Held-to-maturity:
Equity securities ............. $ 6,376 $ - $ - $ 6,376
Debt securities ............... 4,567 345 - 4,912
-------- --------- --------- --------
$ 10,943 $ 345 $ - $ 11,288
======== ========= ========= ========
</TABLE>
-83-
<PAGE>
<TABLE>
<CAPTION>
1996
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities ............ $208,226 $ 4,883 $ (8,325) $204,784
Municipal bonds .............. 41,800 3,041 (356) 44,485
U.S. Government securities ... 26,814 137 (157) 26,794
Cash equivalents ............. 11,152 - - 11,152
-------- --------- --------- --------
$287,992 $ 8,061 $ (8,838) $287,215
======== ========= ========= ========
Held-to-maturity:
Equity securities ............ $ 6,435 $ - $ (196) $ 6,239
Debt securities .............. 15,445 252 - 15,697
-------- --------- --------- --------
$ 21,880 $ 252 $ (196) $ 21,936
======== ========= ========= ========
</TABLE>
At December 31, 1997, the debt securities held by the Company had the
following maturities (in thousands):
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------- ------- ------ ------
<S> <C> <C> <C> <C>
Within 1 year $ 2,971 $ 2,987 $1,718 $2,014
1 through 5 years 14,057 14,377 2,137 2,143
5 through 10 years 26,821 28,119 139 147
Over 10 years 23,700 25,196 573 608
</TABLE>
During 1996, the Company sold a portion of its held-to-maturity securities
due to a significant deterioration in the issuer's credit worthiness. Such
securities had a carrying value of $4.8 million and proceeds from the sale were
$4.3 million.
The proceeds and the gross realized gains and losses on the disposition
of investments held by the Company for the years ended December 31, are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Proceeds from sales............... $211,691 $250,772 $106,910
Gross realized gains.............. 14,320 9,920 3,923
Gross realized losses............. (6,480) (7,950) (3,082)
</TABLE>
-84-
<PAGE>
(15) INCOME TAX EXPENSE:
Income tax expense from continuing operations includes the following for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current
Federal ..................... $ 91,627 $ 80,165 $ 54,430
State ....................... 21,619 22,100 13,330
--------- --------- --------
113,246 102,265 67,760
--------- --------- --------
Deferred
Federal ..................... (29,257) 2,627 5,750
State ....................... (8,242) (264) 1,470
--------- --------- --------
(37,499) 2,363 7,220
Investment tax credit, net ... (7,357) (6,206) (8,177)
--------- --------- --------
Total ...................... $ 68,390 $ 98,422 $ 66,803
========= ========= ========
</TABLE>
Included in Deferred Income Taxes in the Consolidated Balance Sheets as
of December 31 are deferred tax assets and deferred tax liabilities as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets
Related to:
Investment tax credits ................ $ 55,998 $ 61,349
Unrealized losses ..................... 7,880 12,034
Pensions .............................. 17,339 17,648
AMT credit carry forward .............. - 10,188
Nuclear reserves and decommissioning .. 15,287 8,233
Other ................................. 1,589 5,839
-------- --------
Total .............................. $ 98,093 $115,291
======== ========
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities
Related to:
Depreciable property .................. $504,594 $545,459
Income taxes recoverable
through future rates ............... 197,877 201,998
Unrealized gains ...................... 81,501 -
Energy efficiency ..................... 40,902 44,734
Reacquired debt ....................... 15,346 14,265
FERC Order 636 ........................ 2,857 9,023
Other ................................. 16,811 22,112
-------- --------
Total ............................... $859,888 $837,591
======== ========
</TABLE>
-85-
<PAGE>
The following table is a reconciliation between the effective income tax
rate, before preferred stock dividends of subsidiary, indicated by the
Consolidated Statements of Income and the statutory federal income tax rate for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Effective federal and state
income tax rate .......................... 31% 39% 34%
Amortization of investment tax credit ..... 3 2 4
State income tax, net of federal income
tax benefit .............................. (4) (6) (5)
Dividends received deduction .............. 2 2 2
Other ..................................... 3 (2) -
---- ---- ----
Statutory federal income tax rate ......... 35% 35% 35%
==== ==== ====
</TABLE>
(16) INVENTORIES:
Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Materials and supplies, at average cost.. $31,425 $32,222
Coal stocks, at average cost............. 14,225 32,293
Gas in storage, at LIFO cost............. 35,430 23,915
Fuel oil, at average cost................ 2,344 1,264
Other.................................... 2,667 1,170
------- --------
Total................................... $86,091 $90,864
======= =======
</TABLE>
At December 31, 1997 prices, the current cost of gas in storage was $50.3
million.
(17) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF MIDAMERICAN ENERGY FINANCING I:
In December 1996, MidAmerican Energy Financing I (the Trust), a
wholly-owned statutory business trust of MidAmerican, issued 4,000,000 shares of
7.98% Series MidAmerican-obligated mandatorily redeemable preferred securities
(the Preferred Securities). The sole assets of the Trust are $103.1 million of
MidAmerican 7.98% Series A Debentures due 2045 (the Debentures). There is a full
and unconditional guarantee by MidAmerican of the Trust's obligations under the
Preferred Securities. MidAmerican has the right to defer payments of interest on
the Debentures by extending the interest payment period for up to 20 consecutive
quarters. If interest payments on the Debentures are deferred, distributions on
the Preferred Securities will also be deferred. During any deferral,
distributions will continue to accrue with interest thereon and MidAmerican may
not declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.
The Debentures may be redeemed by MidAmerican on or after December 18,
2001, or at an earlier time if there is more than an insubstantial risk that
interest paid on the Debentures will not be deductible for federal income tax
purposes. If the Debentures, or a portion thereof, are redeemed, the Trust must
redeem a like amount of the Preferred Securities. If a termination of the Trust
occurs, the Trust will distribute to the
-86-
<PAGE>
holders of the Preferred Securities a like amount of the Debentures unless such
a distribution is determined not to be practicable. If such determination is
made, the holders of the Preferred Securities will be entitled to receive, out
of the assets of the trust after satisfaction of its liabilities, a liquidation
amount of $25 for each Preferred Security held plus accrued and unpaid
distributions.
(18) SALE OF ACCOUNTS RECEIVABLE:
In 1997 MidAmerican entered into a revolving agreement, which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special purpose entity established to purchase accounts receivable from
MidAmerican. Funding Corp. in turn has sold receivable interests to outside
investors. In consideration of the sale, MidAmerican received $70 million in
cash and the remaining balance in the form of a subordinated note from Funding
Corp. The agreement is structured as a true sale under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors and, as
such, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.
(19) EARNINGS PER SHARE
Reconciliation for the Income and Shares of the Basic and Diluted per share
computations for income from continuing operations for the years ended December
31 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
Per Per
Share Share
Income Shares Amount Income Shares Amount
-------- ------ ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
INCOME FROM CONTINUING
OPERATIONS.................... $139,332 $143,761
BASIC EPS
Income Available to Common
Shareholders.................. $139,332 98,058 $1.42 $143,761 100,752 $1.43
===== =====
EFFECT OF DILUTIVE SECURITIES
Stock Options................... - 107 - 89
-------- ------ -------- -------
DILUTED EPS
Income Available to Common
Shareholders.................. $139,332 98,165 $1.42 $143,761 100,841 $1.43
======== ====== ===== ======== ======= =====
</TABLE>
-87-
<PAGE>
<TABLE>
<CAPTION>
1995
-----------------------------
Per
Share
Income Shares Amount
-------- ------- ------
<S> <C> <C> <C>
INCOME FROM CONTINUING OPERATIONS..... $119,705
BASIC EPS
Income Available to Common
Shareholders...................... $119,705 100,401 $1.19
=====
EFFECT OF DILUTIVE SECURITIES........
Stock Options........................ - 20
-------- -------
DILUTED EPS
Income Available to Common
Shareholders........................ $119,705 100,421 $1.19
======== ======= =====
</TABLE>
(20) UNAUDITED QUARTERLY OPERATING RESULTS:
<TABLE>
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues .......................... $ 584,395 $ 390,615 $ 440,698 $ 506,573
Operating income ............................ 77,233 55,395 97,948 39,930
Income from continuing operations ........... 34,174 24,176 49,705 31,277
Income (loss) from discontinued operations .. (234) 408 (2,793) (1,609)
Earnings on common stock .................... 33,940 24,584 46,912 29,668
Earnings per average common share and
Earnings per average common share
assuming dilution:
Income from continuing operations ........... $ 0.34 $ 0.24 $ 0.51 $ 0.33
Income (loss) from discontinued operations .. - 0.01 (0.03) (0.02)
--------- --------- --------- ---------
$ 0.34 $ 0.25 $ 0.48 $ 0.31
========= ========= ========= =========
</TABLE>
-88-
<PAGE>
<TABLE>
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues .......................... $ 507,596 $ 391,466 $ 434,678 $ 538,872
Operating income ............................ 100,141 65,004 97,919 80,574
Income from continuing operations ........... 48,405 25,099 40,548 29,709
Income (loss) from discontinued operations .. 2,642 3,896 (17,992) (1,261)
Earnings on common stock .................... 51,047 28,995 22,556 28,448
Earnings per average common share and
Earnings per average common share
assuming dilution:
Income from continuing operations ........... $ 0.48 $ 0.25 $ 0.40 $ 0.29
Income (loss) from discontinued operations .. 0.03 0.04 (0.18) (0.01)
--------- --------- --------- ---------
$ 0.51 $ 0.29 $ 0.22 $ 0.28
========= ========= ========= =========
</TABLE>
The quarterly data reflect seasonal variations common in the utility
industry.
(21) OTHER INFORMATION:
The Company completed a merger-related restructuring plan during 1995.
Other operating expenses in the Consolidated Statements of Income for 1995
includes $33.4 million related to the restructuring plan.
Non-Operating - Other, Net, as shown on the Consolidated Statements of
Income includes the following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Other-than-temporary declines in value
of investments and other assets ............... $ (3,443) $(15,566) $(17,971)
IES merger costs ............................... - (8,689) -
Special purpose fund income .................... 1,989 3,301 1,863
Energy efficiency carrying charges ............. 4,993 3,255 3,092
Gain on sale of cushion gas .................... 855 3,182 -
Incentive gas purchase plan award .............. 4,914 2,677 -
Agency gas sales, net .......................... 1,184 1,840 228
Gain (loss) on reacquisition of long-term debt . (556) 1,105 -
Gain on sale of assets, net .................... 10,213 974 8,570
MidAmerican merger costs ....................... - - (4,624)
Allowance for equity funds used
during construction ........................... - - 481
Income (loss) from equity method investments ... 1,273 2,510 (312)
NPPD settlement ................................ 2,248 - -
Other .......................................... (1,559) 1,391 (1,794)
-------- -------- --------
Total ......................................... $ 22,111 $ (4,020) $(10,467)
======== ======== ========
</TABLE>
-89-
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements which have been prepared in conformity with generally accepted
accounting principles. In the opinion of management, the financial position,
results of operation and cash flows of the Company are reflected fairly in the
statements. The statements have been audited by the Company's independent public
accountants, Coopers & Lybrand L.L.P.
The Company maintains a system of internal controls which is designed to
provide reasonable assurance, on a cost effective basis, that transactions are
executed in accordance with management's authorization, the financial statements
are reliable and the Company's assets are properly accounted for and
safeguarded. The Company's internal auditors continually evaluate and test the
system of internal controls and actions are taken when opportunities for
improvement are identified. Management believes that the system of internal
controls is effective.
The Audit Committee of the Board of Directors, the members of which are
directors who are not employees of the Company, meets regularly with management,
the internal auditors and Coopers & Lybrand L.L.P. to discuss accounting,
auditing, internal control and financial reporting matters. The Company's
independent public accountants are appointed annually by the Board of Directors
on recommendation of the Audit Committee. The internal auditors and Coopers &
Lybrand L.L.P. each have full access to the Audit Committee, without management
representatives present.
/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and Chief Executive Officer
/s/ Alan L. Wells
Alan L. Wells
Senior Vice President and
Chief Financial Officer
-90-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To MidAmerican Energy Holdings Company and Subsidiaries:
We have audited the accompanying consolidated financial statements and the
financial statement schedule of MidAmerican Energy Holdings Company and
subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements
and financial schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Holdings Company and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 23, 1998
-91-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES
Electric utility ................................. $ 1,126,300 $ 1,099,008 $ 1,094,647
Gas utility ...................................... 536,306 536,753 459,588
----------- ----------- -----------
1,662,606 1,635,761 1,554,235
----------- ----------- -----------
OPERATING EXPENSES
Cost of fuel, energy and capacity ................ 235,760 234,317 230,261
Cost of gas sold ................................. 346,016 345,014 279,025
Other operating expenses ......................... 429,794 350,174 399,648
Maintenance ...................................... 98,090 88,621 85,363
Depreciation and amortization .................... 170,540 164,592 158,950
Property and other taxes ......................... 101,317 92,630 96,350
Income taxes ..................................... 74,562 111,206 85,400
----------- ----------- -----------
1,456,079 1,386,554 1,334,997
----------- ----------- -----------
OPERATING INCOME ................................. 206,527 249,207 219,238
----------- ----------- -----------
NON-OPERATING INCOME
Interest and dividend income ..................... 2,332 1,598 1,354
Non-operating income taxes ....................... (1,755) (1,721) 1,302
Other, net ....................................... 12,367 2,400 (5,428)
----------- ----------- -----------
12,944 2,277 (2,772)
----------- ----------- -----------
FIXED CHARGES
Interest on long-term debt ....................... 78,120 79,434 80,133
Other interest expense ........................... 10,027 10,842 9,396
Preferred dividends of subsidiary trust .......... 7,980 288 --
Allowance for borrowed funds ..................... (2,597) (4,212) (5,552)
----------- ----------- -----------
93,530 86,352 83,977
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS ................ 125,941 165,132 132,489
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ....... - (10,161) (1,666)
----------- ----------- -----------
NET INCOME ....................................... 125,941 154,971 130,823
PREFERRED DIVIDENDS .............................. 6,488 10,401 8,059
----------- ----------- -----------
EARNINGS ON COMMON STOCK ......................... $ 119,453 $ 144,570 $ 122,764
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-92-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
UTILITY PLANT
Electric ......................................................... $4,087,924 $4,013,851
Gas .............................................................. 756,874 723,491
---------- ----------
4,844,798 4,737,342
Less accumulated depreciation and amortization ................... 2,277,110 2,154,505
---------- ----------
2,567,688 2,582,837
Construction work in progress .................................... 55,418 49,305
---------- ----------
2,623,106 2,632,142
---------- ----------
POWER PURCHASE CONTRACT .......................................... 173,107 190,897
---------- ----------
CURRENT ASSETS
Cash and cash equivalents ........................................ 9,318 84,215
Receivables, less reserves of $0 and $1,845, respectively ........ 184,153 253,944
Inventories ...................................................... 84,298 90,864
Other ............................................................ 6,174 7,776
---------- ----------
283,943 436,799
---------- ----------
INVESTMENTS ...................................................... 115,029 118,344
---------- ----------
OTHER ASSETS ..................................................... 347,122 396,471
---------- ----------
TOTAL ASSETS ..................................................... $3,542,307 $3,774,653
========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ...................................... $ 985,744 $ 986,825
MidAmerican preferred securities, not subject to mandatory
redemption ................................................... 31,763 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities ............................... 50,000 50,000
MidAmerican-obligated preferred securities of subsidiary trust
holding solely MidAmerican junior subordinated debentures .... 100,000 100,000
Long-term debt (excluding current portion) ....................... 920,203 1,086,955
---------- ----------
2,087,710 2,255,549
---------- ----------
CURRENT LIABILITIES
Notes payable .................................................... 122,500 161,700
Current portion of long-term debt ................................ 124,460 49,560
Current portion of power purchase contract ....................... 14,361 13,718
Accounts payable ................................................. 128,390 122,974
Taxes accrued .................................................... 91,449 82,338
Interest accrued ................................................. 20,616 24,245
Other ............................................................ 22,598 24,452
---------- ----------
524,374 478,987
---------- ----------
OTHER LIABILITIES
Power purchase contract .......................................... 83,143 97,504
Deferred income taxes ............................................ 592,840 616,567
Investment tax credit ............................................ 83,127 88,842
Other ............................................................ 171,113 237,204
---------- ----------
930,223 1,040,117
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ............................. $3,542,307 $3,774,653
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-93-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 125,941 $ 154,971 $ 130,823
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ........................... 194,287 185,657 175,969
Net increase (decrease) in deferred income taxes and
investment tax credit, net ............................ (32,645) (3,111) 6,835
Amortization of other assets ............................ 33,112 20,541 19,630
Cash proceeds from sale of accounts receivable........... 70,000 - -
Loss from discontinued operations ....................... - 10,161 1,666
Gain on sale of assets and long-term investments......... - (6,104) -
Impact of changes in working capital, net of effects of
discontinued operations........... .................... 17,003 (58,371) (5,595)
Other ................................................... (28,160) 23,689 3,856
--------- --------- ---------
Net cash provided ..................................... 379,538 327,433 333,184
--------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .......................... (166,932) (154,198) (192,625)
Quad Cities Nuclear Power Station decommissioning trust fund (9,819) (8,607) (8,636)
Deferred energy efficiency expenditures .................... (12,258) (20,390) (35,841)
Nonregulated capital expenditures .......................... (5,920) (2,970) --
Proceeds from sale of assets and other investments ......... -- 11,620 --
Investment in discontinued operations ...................... -- 10,100 (47,968)
Other investing activities, net ............................ (788) 734 203
--------- --------- ---------
Net cash used ........................................... (195,717) (163,711) (284,867)
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ............................................. (126,988) (131,171) (126,887)
Issuance of long-term debt, net of issuance cost ........... -- 99,500 14,604
Retirement of long-term debt, including reacquisition cost . (92,524) (72,111) (14,277)
Reacquisition of preferred shares .......................... (6) (58,176) (10)
Issuance of preferred securities, net of issuance cost ..... -- 96,850 --
Issuance of common shares .................................. -- -- 15,083
Net increase (decrease) in notes payable ................... (39,200) (23,100) 60,300
--------- --------- ---------
Net cash used ........................................... (258,718) (88,208) (51,187)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... (74,897) 75,514 (2,870)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............. 84,215 8,701 11,571
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 9,318 $ 84,215 $ 8,701
========= ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .................. $ 90,718 $ 80,881 $ 89,055
========= ========= =========
Income taxes paid .......................................... $ 112,492 $ 103,627 $ 90,102
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-94-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
-----------------------------------------------
1997 1996
--------------------- --------------------
<S> <C> <C> <C> <C>
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
70,980,203 and 100,751,713 shares outstanding, respectively.......... $ 560,563 $ 560,597
Retained earnings...................................................... 425,181 426,228
------------ -----------
985,744 47.2% 986,825 43.8%
------------ ------ ----------- ------
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
$3.30 Series, 49,481 and 49,523 shares, respectively................. 4,948 4,952
$3.75 Series, 38,310 and 38,320 shares, respectively................. 3,831 3,832
$3.90 Series, 32,630 shares ......................................... 3,263 3,263
$4.20 Series, 47,369 shares.......................................... 4,737 4,737
$4.35 Series, 49,945 and 49,950 shares, respectively................. 4,994 4,995
$4.40 Series, 50,000 shares.......................................... 5,000 5,000
$4.80 Series, 49,898 shares.......................................... 4,990 4,990
------------ -----------
31,763 1.5% 31,769 1.4%
------------ ------ ----------- ------
Cumulative shares outstanding; subject to mandatory redemption:
$5.25 Series, 100,000 shares......................................... 10,000 10,000
$7.80 Series, 400,000 shares......................................... 40,000 40,000
------------ -----------
50,000 2.4% 50,000 2.2%
------------ ------ ----------- -------
MIDAMERICAN-OBLIGATED PREFERRED SECURITIES
MidAmerican-obligated mandatorily redeemable cumulative
preferred securities of subsidiary trust holding solely
MidAmerican junior subordinated debentures:
7.98% series, 4,000,000 shares..................................... 100,000 4.8% 100,000 4.4%
------------ ------ ----------- -------
LONG-TERM DEBT
Mortgage bonds:
5.05% Series, due 1998............................................... - 49,100
6.25% Series, due 1998............................................... - 75,000
7.875% Series, due 1999.............................................. 60,000 60,000
6% Series, due 2000.................................................. 35,000 35,000
6.75% Series, due 2000............................................... 75,000 75,000
7.125% Series, due 2003.............................................. 100,000 100,000
7.70% Series, due 2004............................................... 55,630 60,000
7% Series, due 2005.................................................. 90,500 100,000
7.375% Series, due 2008.............................................. 75,000 75,000
8% Series, due 2022.................................................. 50,000 50,000
7.45% Series, due 2023............................................... 6,940 26,500
8.125% Series, due 2023.............................................. 100,000 100,000
6.95% Series, due 2025............................................... 12,500 21,500
Pollution control revenue obligations:
5.15% to 5.75% Series, due periodically through 2003................. 8,064 8,424
5.95% Series, due 2023 (secured by general mortgage bonds)........... 29,030 29,030
</TABLE>
The accompanying notes are an integral part of these statements.
-95-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
AS OF DECEMBER 31
-----------------------------------------------
1997 1996
--------------------- --------------------
<S> <C> <C> <C> <C>
LONG-TERM DEBT (CONTINUED)
Variable rate series -
Due 2016 and 2017 (3.7% and 3.5%, respectively)............. $ 37,600 $ 37,600
Due 2023 (secured by general mortgage bonds,
3.7% and 3.5%, respectively)............................. 28,295 28,295
Due 2023 (3.7% and 3.5%, respectively)...................... 6,850 6,850
Due 2024 (3.7% and 3.6%, respectively)...................... 34,900 34,900
Due 2025 (3.7% and 3.5%, respectively)...................... 12,750 12,750
Notes:
8.75% Series, due 2002......................................... 240 240
6.5% Series, due 2001.......................................... 100,000 100,000
6.4% Series, due 2003 through 2007............................. 2,000 2,000
Obligation under capital lease................................. 3,096 3,775
Unamortized debt premium and discount, net..................... (3,192) (4,009)
------------ -----------
Total....................................................... 920,203 44.1% 1,086,955 48.2%
------------ ------ ----------- ------
TOTAL CAPITALIZATION.............................................. $ 2,087,710 100.0% $ 2,255,549 100.0%
============ ====== =========== ======
</TABLE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
BEGINNING OF YEAR................................................. $ 426,228 $ 430,589 $ 426,683
--------- --------- ---------
NET INCOME........................................................ 125,941 154,971 130,823
--------- --------- ---------
DEDUCT (ADD):
(Gain) loss on reacquisition of preferred shares.................. 1,433 1,572 (5)
Dividends declared on preferred shares............................ 5,055 8,829 8,064
Dividends declared on common shares............................... 120,500 120,770 118,828
Dividend of Investment in Subsidiaries............................ - 28,161 -
Other............................................................. - - 30
--------- ---------- ---------
126,988 159,332 126,917
--------- ---------- ---------
END OF YEAR....................................................... $ 425,181 $ 426,228 $ 430,589
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-96-
<PAGE>
MIDAMERICAN ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MERGER AND FORMATION OF HOLDING COMPANY:
MidAmerican Energy Company (MidAmerican) was formed on July 1, 1995, as a
result of the merger of Iowa-Illinois Gas and Electric Company (Iowa-Illinois),
Midwest Resources Inc. (Resources) and its utility subsidiary, Midwest Power
Systems Inc. (Midwest Power). Each outstanding share of preferred and preference
stock of the predecessor companies was converted into one share of a similarly
designated series of MidAmerican preferred stock, no par value. Each outstanding
share of common stock of Resources and Iowa-Illinois was converted into one
share and 1.47 shares, respectively, of MidAmerican common stock, no par value.
The merger was accounted for as a pooling-of-interests and the financial
statements included herein are presented as if the companies were merged as of
the earliest period shown.
Prior to December 1, 1996, MidAmerican held the capital stock of
MidAmerican Capital Company (MidAmerican Capital) and Midwest Capital Group,
Inc. (Midwest Capital). Effective December 1, 1996, each share of MidAmerican
common stock was exchanged for one share of MidAmerican Energy Holdings Company
(Holdings) common stock. As part of the transaction, MidAmerican distributed the
capital stock of MidAmerican Capital and Midwest Capital to Holdings. See Note
(9) for additional information regarding the formation of the holding company.
(B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:
The accompanying Consolidated Financial Statements include MidAmerican and
its wholly owned subsidiaries. All significant intercompany transactions have
been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
(C) REGULATION:
Refer to Note 1(c) of Holdings' Notes to Consolidated Financial Statements
for information regarding the effects of regulation on the MidAmerican's
accounting policy.
(D) REVENUE RECOGNITION:
Refer to Note 1(d) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's revenue recognition accounting policy.
(E) DEPRECIATION AND AMORTIZATION:
Refer to Note 1(e) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's depreciation and amortization accounting
policy.
-97-
<PAGE>
(F) INVESTMENTS:
Investments include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Investments:
Nuclear decommissioning trust fund..... $ 93,251 $ 76,304
Corporate owned life insurance......... - 27,395
Coal transportation.................... 11,626 6,219
Other.................................. 10,152 8,426
-------- --------
Total.............................. $115,029 $118,344
======== ========
</TABLE>
Investments held by the nuclear decommissioning trust fund for the Quad
Cities units are classified as available-for-sale and are reported at fair value
with net unrealized gains and losses reported as adjustments to the accumulated
provision for nuclear decommissioning.
(G) CONSOLIDATED STATEMENTS OF CASH FLOWS:
MidAmerican considers all cash and highly liquid debt instruments purchased
with a remaining maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.
Net cash provided (used) from changes in working capital, net of effects
from discontinued operations was as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Receivables............... $ (209) $(55,014) $(19,044)
Inventories............... 6,566 (7,311) 5,777
Other current assets ..... 1,602 9,118 (4,358)
Accounts payable.......... 5,416 6,543 21,475
Taxes accrued............. 9,111 3,345 (8,586)
Interest accrued.......... (3,629) 603 (289)
Other current liabilities. (1,854) (15,655) (570)
------- -------- --------
Total.................. $17,003 $(58,371) $ (5,595)
======= ======== ========
</TABLE>
MidAmerican distributed the capital stock of MidAmerican Capital and
Midwest Capital to Holdings. See Note (10) for additional information.
(H) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:
Refer to Note 1(h) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's accounting for the Cooper Nuclear
Station (Cooper) long-term power purchase contract .
-98-
<PAGE>
(I) ACCOUNTING FOR DERIVATIVES:
1) Gas Futures Contracts and Swaps:
MidAmerican uses gas futures contracts and swap contracts to reduce its
exposure to changes in the price of natural gas purchased to meet the needs of
its customers and to manage margins on natural gas storage opportunities.
Investments in natural gas futures contracts, which total $1.5 million and $0.1
million as of December 31, 1997 and 1996, are included in Receivables on the
Consolidated Balance Sheets. Gains and losses on gas futures contracts that
qualify for hedge accounting are deferred and reflected as adjustments to the
carrying value of the hedged item or included in Other Assets on the
Consolidated Balance Sheets until the underlying physical transaction is
recorded if the instrument is used to hedge an anticipated future transaction.
The net gain or loss on gas futures contracts is included in the determination
of income in the same period as the expense for the physical delivery of the
natural gas. Realized gains and losses on gas futures contracts and the net
amounts exchanged or accrued under the natural gas swap contracts are included
in Cost of Gas Sold, Other Net consistent with the expense for the physical
commodity. Deferred net gains (losses) related to the Company's gas futures
contracts are $(0.4) million and $0.1 million as of December 31, 1997 and 1996,
respectively.
MidAmerican periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved, the contracts
are recorded at fair value and the gains or losses are included in the
determination of income. At December 31, 1997, MidAmerican held the following
hedging instruments:
<TABLE>
<CAPTION>
Weighted average
Notional volume Market Value
(MMBtu) (Per MMBtu)
--------------- ----------------
<S> <C> <C>
Natural Gas Futures (Long) 3,500,000 $2.278
Natural Gas Futures (Short) 1,500,000 $2.309
Natural Gas Swaps (Fixed to Variable) 1,150,000
Weighted average variable price $2.144
Weighted average fixed price $2.136
Natural Gas Swaps (Variable to Fixed) 5,425,707
Weighted average variable price $2.211
Weighted average fixed price $2.376
</TABLE>
(2) LONG-TERM DEBT:
MidAmerican's sinking fund requirements and maturities of long-term debt
for 1998 through 2002 are $125 million, $61 million, $111 million, $102 million
and $2 million, respectively.
The interest rate on MidAmerican's Adjustable Rate Series Mortgage Bonds is
reset every two years at 160 basis points over the average yield to maturity of
10-year Treasury securities. The rate was reset in 1997.
MidAmerican's Variable Rate Pollution Control Revenue Obligations bear
interest at rates that are periodically established through remarketing of the
bonds in the short-term tax-exempt market. MidAmerican, at its option, may
change the mode of interest calculation for these bonds by selecting from among
several alternative floating or fixed rate modes. The interest rates shown in
the Consolidated Statements of
-99-
<PAGE>
Capitalization are the weighted average interest rates as of December 31, 1997
and 1996. MidAmerican maintains dedicated revolving credit facility agreements
or renewable lines of credit to provide liquidity for holders of these issues.
Substantially all the former Iowa-Illinois utility property and franchises,
and substantially all of the former Midwest Power electric utility property in
Iowa, or approximately 82% of gross utility property, is pledged to secure
mortgage bonds.
(3) JOINTLY OWNED UTILITY PLANT:
Refer to Note 3 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's jointly owned utility plant.
(4) COMMITMENTS AND CONTINGENCIES:
(A) CAPITAL EXPENDITURES:
Utility construction expenditures for 1998 are estimated to be $201
million, including $13 million for Quad Cities nuclear fuel.
(B) MANUFACTURED GAS PLANT FACILITIES:
Refer to Note 4(b) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's Environmental Matters.
(C) CLEAN AIR ACT:
Refer to Note 4(c) of Holdings' Notes to Consolidated Financial Statements
for information regarding the impact of the revisions to the clean air act on
MidAmerican.
(D) LONG-TERM POWER PURCHASE CONTRACT:
Refer to Note 4(d) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's commitment under the Cooper long-term
power purchase contract.
(E) DECOMMISSIONING COSTS:
Refer to Note 4(e) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's commitment for decommissioning of
nuclear facilities.
(F) NUCLEAR INSURANCE:
Refer to Note 4(f) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's nuclear insurance coverage and the
potential assessments under such coverage.
-100-
<PAGE>
(G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:
Refer to Note 4(g) of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's commitment under various coal and
natural gas supply and transportation contracts.
(5) COMMON SHAREHOLDER'S EQUITY:
Common shares outstanding changed during the years ended December 31 as
shown in the table below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------- -------------------
Amount Shares Amount Shares Amount Shares
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year....... $560,597 100,752 $801,227 100,752 $786,420 99,687
Changes due to:
Issuance of common shares........ - - - - 15,083 1,065
Cancellation of common shares.... - (29,772) - - - -
Stock options.................... - - 623 - - -
Capital stock expense .......... (391) - (276) -
Distribution of investment in
subsidiaries to Holdings..... - - (240,862) - - -
Other............................ (34) - - - - -
-------- ------- -------- -------- -------- -------
Balance, end of year............. $560,563 70,980 $560,597 100,752 $801,227 100,752
======== ======= ======== ======== ======== =======
</TABLE>
(6) RETIREMENT PLANS:
MidAmerican Energy has noncontributory defined benefit pension plans
covering employees of MidAmerican and its affiliates, MidAmerican Capital and
Midwest Capital. No detailed segregation of the data is available by subsidiary.
Employees of MidAmerican represent approximately 95% of the payroll covered
under these plans. Refer to Note 6 of Holdings' Notes to Consolidated Financial
Statements for detailed information regarding net periodic pension cost and a
schedule reconciling the funded status of the plan with the amount recorded on
the consolidated financial statements of Holdings. MidAmerican's net periodic
pension costs under the plans for its continuing operations was $4.5 million,
$7.0 million and $11.4 million for 1997, 1996 and 1995, respectively.
MidAmerican provides certain health care and life insurance benefits for
retired employees of MidAmerican and its affiliates, MidAmerican Capital and
Midwest Capital. No detailed segregation of the data is available by subsidiary.
Employees of MidAmerican represent approximately 99% of the participants covered
under these plans. Refer to Note 6 of Holdings' Notes to Consolidated Financial
Statements for detailed information regarding net periodic postretirement
benefit cost and a schedule reconciling the funded status of the plan with the
amount recorded on the consolidated financial statements of Holdings.
MidAmerican Energy's net periodic postretirement benefit costs under the plans
for its continuing operations was $19.5 million, $18.7 million and $21.1 million
for 1997, 1996 and 1995, respectively.
-101-
<PAGE>
(7) STOCK-BASED COMPENSATION PLANS:
Refer to Note 7 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's stock-based compensation plans.
(8) SHORT-TERM BORROWING:
Interim financing of working capital needs and the construction program may
be obtained from the sale of commercial paper or short-term borrowing from
banks. Information regarding short-term debt follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at year-end ....................... $122,500 $161,700 $184,800
Weighted average interest rate
on year-end balance...................... 5.9% 5.4% 5.7%
Average daily amount outstanding
during the year.......................... 110,472 $151,162 $114,036
Weighted average interest rate on average
daily amount outstanding during the year. 5.7% 5.5% 6.0%
</TABLE>
MidAmerican has authority from FERC to issue short-term debt in the form of
commercial paper and bank notes aggregating $400 million. As of December 31,
1997, MidAmerican had a $250 million revolving credit facility agreement and a
$10 million line of credit. MidAmerican's commercial paper borrowings are
supported by the revolving credit facility and the line of credit.
(9) RATE MATTERS:
Refer to Note 9 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.
(10) DISCONTINUED OPERATIONS:
On April 24, 1996, MidAmerican shareholders approved a proposal to form
Holdings as a holding company for MidAmerican and its subsidiaries. Effective
December 1, 1996, each share of MidAmerican common stock was exchanged for one
share of Holdings common stock. As part of the transaction, MidAmerican
distributed the capital stock of MidAmerican Capital and Midwest Capital to
Holdings. The subsidiaries that were distributed to Holdings have been reflected
as discontinued operations.
In the third quarter of 1996 MidAmerican received a final settlement from
the sale of a coal mining subsidiary which was reflected as a discontinued
operation by a predecessor company in 1982. The final settlement, which resulted
in an after-tax loss of $3.3 million, includes the reacquisition of preferred
equity by the buyer and the settlement of reclamation reserves. Proceeds
received from the settlement were $15 million.
-102-
<PAGE>
Revenues from discontinued activities, as well as the results of
discontinued operations for the years ended December 31 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
OPERATING REVENUES.................... $ - $215,631 $176,743
======== ======== ========
INCOME (LOSS) FROM OPERATIONS
Income (loss) before income taxes.. $ - $ 12,588 $(17,317)
Income tax benefit (expense)....... - (19,457) 15,651
-------- -------- --------
Income (loss) from Operations...... $ - $ (6,869) $ (1,666)
======== ======== ========
LOSS ON DISPOSAL
Loss before income taxes........... $ - $ (5,579) $ -
Income tax benefit ................ - 2,287 -
-------- -------- --------
Loss on Disposal................... $ - $ (3,292) $ -
======== ======== ========
</TABLE>
(11) CONCENTRATION OF CREDIT RISK:
MidAmerican's electric utility operations serve 560,000 customers in Iowa,
85,000 customers in western Illinois and 3,000 customers in southeastern South
Dakota. MidAmerican's gas utility operations serve 486,000 customers in Iowa,
65,000 customers in western Illinois, 63,000 customers in southeastern South
Dakota and 4,000 customers in northeastern Nebraska. The largest communities
served by MidAmerican are the Iowa and Illinois Quad-Cities; Des Moines, Sioux
City, Cedar Rapids, Waterloo, Iowa City and Council Bluffs, Iowa; and Sioux
Falls, South Dakota. MidAmerican's utility operations grant unsecured credit to
customers, substantially all of whom are local businesses and residents. As of
December 31, 1997, billed receivables from MidAmerican's utility customers
totalled $14.8 million. As described in Note 18, billed receivables related to
utility services have been sold to a wholly owned unconsolidated subsidiary.
(12) PREFERRED SHARES:
Refer to Note 12 of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican's preferred shares.
-103-
<PAGE>
(13) SEGMENT INFORMATION:
Information related to segments of the MidAmerican's business is as follows
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
UTILITY
Electric-
Operating revenues..................... $1,126,300 $1,099,008 $1,094,647
Cost of fuel, energy and capacity...... 235,760 234,317 230,261
Depreciation and amortization expense.. 145,931 140,939 136,324
Other operating expenses............... 502,109 424,594 459,344
Income taxes........................... 65,445 92,365 76,955
---------- ---------- ----------
Operating income....................... $ 177,055 $ 206,793 $ 191,763
========== ========== ==========
Gas-
Operating revenues..................... $ 536,306 $ 536,753 $ 459,588
Cost of gas sold....................... 346,016 345,014 279,025
Depreciation and amortization expense.. 24,609 23,653 22,626
Other operating expenses............... 127,092 106,831 122,017
Income taxes........................... 9,117 18,841 8,445
---------- ---------- ----------
Operating income....................... $ 29,472 $ 42,414 $ 27,475
========== ========== ==========
Operating income.......................... $ 206,527 $ 249,207 $ 219,238
Other income (expense).................... 14,699 3,998 (4,074)
Income taxes - other (benefit)............ 1,755 1,721 (1,302)
Fixed charges............................. 93,530 86,352 83,977
---------- ---------- ----------
Income from continuing operations......... $ 125,941 $ 165,132 $ 132,489
========== ========== ==========
Capital Expenditures-
Electric............................... $ 128,544 $ 116,243 $ 135,344
Gas.................................... 38,388 37,955 57,281
ASSET INFORMATION
Identifiable assets-
Electric (a)........................... $2,832,803 $2,955,881 $2,950,285
Gas (a)................................ 680,961 692,993 699,702
Used in overall utility operations........ 16,358 119,557 38,067
Nonregulated.............................. 12,185 6,222 -
Investment in discontinued operations..... - - 288,147
---------- ---------- ----------
Total assets.............................. $3,542,307 $3,774,653 $3,976,201
========== ========== ==========
</TABLE>
(a) Utility plant less accumulated provision for depreciation, receivables,
inventories, nuclear decommissioning trust fund and regulatory assets.
-104-
<PAGE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments. Tariffs for MidAmerican's utility
services are established based on historical cost ratemaking. Therefore, the
impact of any realized gains or losses related to financial instruments
applicable to MidAmerican's utility operations is dependent on the treatment
authorized under future ratemaking proceedings.
Cash and cash equivalents - The carrying amount approximates fair value due
to the short maturity of these instruments.
Quad-Cities nuclear decommissioning trust fund - Fair value is based on
quoted market prices of the investments held by the fund.
Notes payable - Fair value is estimated to be the carrying amount due to
the short maturity of these issues.
Preferred shares - Fair value of preferred shares with mandatory redemption
provisions is estimated based on the quoted market prices for similar issues.
Long-term debt - Fair value of long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
available to MidAmerican for debt of the same remaining maturities. The
following table presents the carrying amount and estimated fair value of certain
financial instruments as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Instruments Issued by MidAmerican:
MidAmerican preferred securities; subject
to mandatory redemption................... $ 50,000 $ 53,650 $ 50,000 $ 52,920
MidAmerican-obligated preferred securities;
subject to mandatory redemption........... $ 100,000 $ 104,250 $ 100,000 $ 100,000
Long-term debt, including current portion.... $1,044,663 $1,076,167 $1,136,515 $1,177,792
</TABLE>
The amortized cost, gross unrealized gain and losses and estimated fair
value of investments held in the Quad Cities nuclear decommissioning trust fund
at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997
--------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Equity Securities.......... $ 24,336 $ 3,848 $ (122) $ 28,062
Municipal Bonds............ 35,217 2,116 (1) 37,332
U.S. Government Securities. 18,753 800 (4) 19,549
Corporate Securities....... 6,353 77 (3) 6,427
Cash equivalents........... 1,881 - - 1,881
-------- -------- ------- --------
$ 86,540 $ 6,841 $ (130) $ 93,251
======== ======== ======= ========
</TABLE>
-105-
<PAGE>
<TABLE>
<CAPTION>
1996
-------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available-for-sale:
Municipal bonds............ $41,800 $ 3,041 $(356) $44,485
U.S. Government Securities. 26,814 137 (157) 26,794
Cash equivalents........... 5,025 - - 5,025
------- ------- ----- -------
$73,639 $ 3,178 $(513) $76,304
======= ======= ===== =======
</TABLE>
At December 31, 1997, the debt securities held in the Quad Cities nuclear
decommissioning trust fund had the following maturities (in thousands):
<TABLE>
<CAPTION>
Available for Sale
-----------------------
Amortized Fair
Cost Value
--------- --------
<S> <C> <C>
Within 1 year................... $ 2,971 $ 2,987
1 through 5 years............... 14,057 14,377
5 through 10 years.............. 26,821 28,119
Over 10 years................... 16,474 17,825
</TABLE>
The proceeds and the gross realized gains and losses on the disposition of
investments held in the Quad Cities nuclear decommissioning trust fund for the
years ended December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Proceeds from sales..... $30,801 $ 4,106 $21,266
Gross realized gains.... 713 92 165
Gross realized losses... (659) (17) (448)
</TABLE>
(15) INCOME TAX EXPENSE:
Income tax expense from continuing operations includes the following for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Income taxes
Current
Federal ................... $ 83,466 $ 92,240 $ 60,312
State ..................... 25,495 23,798 16,950
--------- --------- --------
108,961 116,038 77,262
--------- --------- --------
Deferred
Federal ................... (23,143) 2,504 11,571
State ..................... (3,786) 583 1,094
--------- --------- --------
(26,929) 3,087 12,665
Investment tax credit, net .. (5,715) (6,198) (5,829)
--------- --------- --------
Total income tax expense .. $ 76,317 $ 112,927 $ 84,098
========= ========= ========
</TABLE>
-106-
<PAGE>
Included in Deferred Income Taxes in the Consolidated Balance Sheets as of
December 31 are deferred tax assets and deferred tax liabilities as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Deferred tax assets
Related to:
Investment tax credits ......................, $55,998 $61,349
Pensions ..................................... 17,339 17,648
Nuclear reserves and decommissioning ......... 15,287 8,233
Other ........................................ 799 5,839
------- -------
Total ...................................... $89,423 $93,069
======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities
Related to:
Depreciable property.......................... $417,333 $422,770
Income taxes recoverable through future rates. 197,877 201,998
Energy efficiency............................. 40,902 44,733
Reacquired debt............................... 15,346 14,265
FERC Order 636................................ 2,858 9,023
Other......................................... 7,947 16,847
-------- --------
Total...................................... $682,263 $709,636
======== ========
</TABLE>
The following table is a reconciliation between the effective income tax
rate, before preferred stock dividends of subsidiary, indicated by the
Consolidated Statements of Income and the statutory federal income tax rate for
the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Effective federal and state income tax rate..... 36% 41% 39%
Amortization of investment tax credit........... 3 2 3
State income tax, net of federal income
tax benefit................................... (7) (6) (5)
Other........................................... 3 (2) (2)
--- --- ---
Statutory federal income tax rate............... 35% 35% 35%
=== === ===
</TABLE>
-107-
<PAGE>
(16) INVENTORIES:
Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Materials and supplies, at average cost.... $ 31,425 $ 32,222
Coal stocks, at average cost............... 14,225 32,293
Gas in storage, at LIFO cost............... 35,430 23,915
Fuel oil, at average cost.................. 2,344 1,264
Other...................................... 874 1,170
-------- ---------
Total...................................... $ 84,298 $ 90,864
======== ========
</TABLE>
At December 31, 1997 prices, the current cost of gas in storage was $50.3
million.
(17) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF MIDAMERICAN ENERGY FINANCING I:
Refer to Note 17 of Holdings' Notes to Consolidated Financial Statements
for information regarding MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities Of MidAmerican Energy Financing I.
(18) SALE OF ACCOUNTS RECEIVABLE:
Refer to Note 18 of Holdings' Notes to Consolidated Financial Statements
for information regarding the sale of MidAmerican's accounts receivable to
MidAmerican Energy Funding Corporation.
(19) AFFILIATED COMPANY TRANSACTIONS:
The companies identified as affiliates are wholly owned subsidiaries of
Holdings. The basis for these charges is provided for in service agreements
between MidAmerican and its affiliates. In the opinion of management, the
expenses between entities are fair and reasonable.
During 1997, Holdings incurred charges which are of general benefit to all
of its subsidiaries. These costs were for administrative and general salaries
and expenses, outside services, director fees, pension, deferred compensation,
and retirement costs, some of which originated at MidAmerican. MidAmerican was
reimbursed for such charges in the amount of $4.1 million for 1997.
MidAmerican's allocated share of such costs and their allocated share of costs
which originated at Holdings were $13.8 million.
During 1997, MidAmerican was also reimbursed for charges incurred on behalf
of its affiliates, MidAmerican Capital and Midwest Capital. The majority of
these reimbursed expenses were for employee wages and benefits, insurance,
building rental, computer costs, administrative services, travel expense, and
general and administrative expense; including treasury, legal, shareholder
relations and accounting functions. The amount of such expenses was $6.6
million.
Prior to 1997, MidAmerican, as the parent company, incurred costs of
general benefit to itself and its subsidiaries. In addition, it incurred costs
for employee wages and benefits, insurance, building rent, computer costs,
administrative services, travel expense, and general and administrative expense;
including treasury, legal, shareholder relations and accounting functions, on
behalf of MidAmerican Capital and Midwest Capital. The total
-108-
<PAGE>
of such costs charged to MidAmerican Capital and Midwest Capital were $9.3
million and $4.6 million for 1996 and 1995, respectively
MidAmerican leases office facilities and other properties from affiliates.
Total lease payments were approximately $0.3 million, $0.3 million and $0.6
million for 1997, 1996 and 1995, respectively.
MidAmerican leases unit trains from an affiliate for the transportation of
coal to MidAmerican's generating stations. Unit train costs, including
maintenance, were approximately $2.8 million, $3.0 million and $3.0 million for
1997, 1996 and 1995, respectively.
MidAmerican purchased natural gas from Amgas, an affiliate. MidAmerican's
costs of gas related to these transactions was $0.5 million, $0.2 million and
$0.3 million for 1997, 1996 and 1995, respectively.
In 1997, MidAmerican purchased natural gas from InterCoast Trade and
Resources, an affiliate, in the amount of $11.4 million and sold natural gas to
InterCoast Trade and Resources in the amount of $6.1 million.
(20) UNAUDITED QUARTERLY OPERATING RESULTS:
<TABLE>
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues ........................ $465,881 $342,714 $394,544 $459,467
Operating income .......................... 56,407 44,604 69,777 35,739
Income from continuing operations.......... 35,224 21,822 50,255 18,640
Earnings on common stock .................. 32,450 20,586 49,016 17,401
</TABLE>
<TABLE>
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues......................... $458,260 $352,198 $384,071 $441,232
Operating income........................... 69,361 47,058 70,100 62,688
Income from continuing operations.......... 47,419 26,846 43,658 47,209
Income (loss) from discontinued operations. 6,105 4,333 (19,015) (1,584)
Earnings on common stock................... 51,047 28,995 22,556 41,972
</TABLE>
The quarterly data reflect seasonal variations common in the utility industry.
-109-
<PAGE>
(21) OTHER INFORMATION:
MidAmerican completed a merger-related restructuring plan during 1995.
Other operating expenses in the Consolidated Statements of Income for 1995
includes $31.9 million related to the restructuring plan.
Non-Operating - Other, Net, as shown on the Consolidated Statements of
Income includes the following for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- --------
<S> <C> <C> <C>
IES merger costs................................ $ - $(8,689) $ -
Energy efficiency carrying charges.............. 4,993 3,225 3,092
Gain on sale of cushion gas..................... 855 3,182 -
Incentive gas procurement plan award............ 4,914 2,677 -
Agency gas sales, net........................... 1,184 1,840 228
Donations....................................... (556) (1,271) (1,612)
Gain (loss) on reacquisition of long-term debt.. (923) 1,105 -
MidAmerican merger costs........................ - - (4,624)
Allowance for equity funds used
during construction........................... - - 481
NPPD settlement................................. 2,248 - -
Other........................................... (348) 331 (2,993)
------- ------- --------
Total......................................... $12,367 $ 2,400 $ (5,428)
======= ======= ========
</TABLE>
-110-
<PAGE>
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements which have been prepared in conformity with generally accepted
accounting principles. In the opinion of management, the financial position,
results of operation and cash flows of MidAmerican are reflected fairly in the
statements. The statements have been audited by the MidAmerican's independent
public accountants, Coopers & Lybrand L.L.P.
MidAmerican maintains a system of internal controls which is designed to
provide reasonable assurance, on a cost effective basis, that transactions are
executed in accordance with management's authorization, the financial statements
are reliable and MidAmerican's assets are properly accounted for and
safeguarded. MidAmerican's internal auditors continually evaluate and test the
system of internal controls and actions are taken when opportunities for
improvement are identified. Management believes that the system of internal
controls is effective.
The MidAmerican Energy Holdings Company Board of Directors, through its
Audit Committee comprised entirely of outside directors, meets regularly with
management, the internal auditors and Coopers & Lybrand L.L.P. to discuss
accounting, auditing, internal control and financial reporting matters.
MidAmerican's independent public accountants are appointed annually by the Board
of Directors on recommendation of the Audit Committee. The internal auditors and
Coopers & Lybrand L.L.P. each have full access to the Audit Committee, without
management representatives present.
/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and Chief Executive Officer
/s/ Alan L. Wells
Alan L. Wells
Senior Vice President and
Chief Financial Officer
-111-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To MidAmerican Energy Company and Subsidiaries:
We have audited the accompanying consolidated financial statements and the
financial statement schedule of MidAmerican Energy Company and subsidiaries
listed in Item 14(a) of this Form 10-K. These financial statements and financial
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Company and subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
January 23, 1998
-112-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR FINANCIAL STATISTICS
1997 1996 1995 1994 1993
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings per average common share --
Continuing operations:
Utility operations..................................... $ 1.22 $ 1.54 $ 1.24 $ 1.12 $ 1.29
Nonregulated activities................................ 0.20 (0.11) (0.05) 0.13 0.09
Discontinued operations................................... (0.04) (0.13) 0.03 (0.03) 0.01
-------- -------- -------- -------- --------
Earnings per average common share......................... $ 1.38 $ 1.30 $ 1.22 $ 1.22 $ 1.39
======== ======== ======== ======== ========
Average shares of common stock
outstanding (in thousands)............................. 98,058 100,752 100,401 98,531 97,762
Return on average common equity (%)....................... 10.8 10.6 10.1 10.1 11.6
Cash dividends declared per common share.................. $ 1.20 $ 1.20 $ 1.18 $ 1.17 $ 1.17
Common dividend payout ratio (%).......................... 87 92 97 96 84
Ratio of earnings to fixed charges--
Holdings............................................... 3.0 3.2 2.8 2.8 2.8
MidAmerican............................................ 3.1 4.1 3.4 3.3 3.4
Ratio of earnings to fixed charges and Cooper
Nuclear Station debt service--
Holdings............................................ 2.9 3.1 2.7 2.7 2.8
MidAmerican......................................... 3.0 4.0 3.3 3.2 3.3
Quarterly earnings per average common share
outstanding --
1st quarter......................................... $ 0.34 $ 0.51 $ 0.35 $ 0.45 $ 0.44
2nd quarter......................................... 0.25 0.29 0.25 0.22 0.22
3rd quarter......................................... 0.48 0.22 0.36 0.36 0.52
4th quarter ........................................ 0.31 0.28 0.27 0.19 0.20
Total assets (in millions)................................ $ 4,278 $ 4,522 $ 4,470 $ 4,389 $ 4,352
Capitalization (in millions) --
Common shareholders' equity............................ $ 1,301 $ 1,240 $ 1,226 $ 1,204 $ 1,181
Preferred shares, not subject to mandatory redemption.. 32 32 90 90 110
Preferred shares, subject to mandatory redemption...... 150 150 50 50 50
Long-term debt (excluding current portion)............. 1,034 1,395 1,403 1,398 1,341
Capitalization ratios % --
Common shareholders' equity............................ 51.7 44.0 44.3 43.9 44.0
Preferred shares, not subject to mandatory redemption.. 1.2 1.1 3.2 3.3 4.1
Preferred shares, subject to mandatory redemption...... 6.0 5.4 1.8 1.8 1.9
Long-term debt (excluding current portion)............. 41.1 49.5 50.7 51.0 50.0
Book value per common share at year-end................... $ 13.65 $ 12.31 $ 12.17 $ 12.08 $ 12.07
Utility construction expenditures (in thousands).......... $166,932 $154,198 $190,771 $211,669 $215,081
Net cash from utility operations less
dividends as a % of construction....................... 153 127 108 99 86
Number of full-time employees --
Utility................................................ 3,467 3,370 3,331 4,077 4,196
Nonregulated........................................... 163 236 271 274 347
</TABLE>
-113-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility ...................................... $ 1,126,300 $ 1,099,008 $ 1,094,647 $ 1,021,660 $ 1,002,970
Gas utility ........................................... 536,306 536,753 459,588 492,015 538,989
Nonregulated .......................................... 259,675 236,851 95,106 117,550 85,997
----------- ----------- ----------- ----------- -----------
1,922,281 1,872,612 1,649,341 1,631,225 1,627,956
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ................... 235,760 234,317 230,261 213,987 217,385
Cost of gas sold .................................... 346,016 345,014 279,025 326,782 366,049
Other operating expenses ............................ 429,794 350,174 399,648 354,190 340,720
Maintenance ......................................... 98,090 88,621 85,363 101,275 101,601
Depreciation and amortization ....................... 170,540 164,592 158,950 154,229 150,822
Property and other taxes ............................ 101,317 92,630 96,350 94,990 93,238
---------- ----------- ----------- ----------- ----------
1,381,517 1,275,348 1,249,597 1,245,453 1,269,815
---------- ----------- ----------- ----------- ----------
Nonregulated:
Cost of sales ....................................... 240,182 218,256 70,209 84,515 57,907
Other ............................................... 30,076 35,370 37,181 36,765 32,296
---------- ---------- ---------- ----------- -----------
270,258 253,626 107,390 121,280 90,203
---------- ---------- ---------- ----------- -----------
Total operating expenses .............................. 1,651,775 1,528,974 1,356,987 1,366,733 1,360,018
---------- ---------- ---------- ----------- -----------
OPERATING INCOME ...................................... 270,506 343,638 292,354 264,492 267,938
---------- ----------- ----------- ----------- ----------
NON-OPERATING INCOME
Interest income ....................................... 5,318 4,012 4,485 4,334 5,805
Dividend income ....................................... 13,792 16,985 16,954 17,087 17,601
Realized gains and losses on securities, net .......... 7,798 1,895 688 7,635 7,915
Other, net ............................................ 22,111 (4,020) (10,467) 4,316 20,842
---------- ---------- ---------- ----------- -----------
49,019 18,872 11,660 33,372 52,163
---------- ---------- ---------- ----------- -----------
FIXED CHARGES
Interest on long-term debt ............................ 89,898 102,909 105,550 101,267 107,044
Other interest expense ................................ 10,034 10,941 9,449 6,446 5,066
Preferred dividends of subsidiaries ................... 14,468 10,689 8,059 10,551 8,367
Allowance for borrowed funds .......................... (2,597) (4,212) (5,552) (3,955) (2,186)
----------- ----------- ----------- ----------- -----------
111,803 120,327 117,506 114,309 118,291
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES . 207,722 242,183 186,508 183,555 201,810
INCOME TAXES .......................................... 68,390 98,422 66,803 60,457 67,485
----------- ----------- ----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS ..................... 139,332 143,761 119,705 123,098 134,325
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS ............ (4,228) (12,715) 3,059 (2,909) 1,159
----------- ----------- ----------- ----------- -----------
NET INCOME ............................................ $ 135,104 $ 131,046 $ 122,764 $ 120,189 $ 135,484
=========== =========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING ..................... 98,058 100,752 100,401 98,531 97,762
EARNINGS PER COMMON SHARE
Continuing operations ................................. $ 1.42 $ 1.43 $ 1.19 $ 1.25 $ 1.38
Discontinued operations ............................... (0.04) (0.13) 0.03 (0.03) 0.01
----------- ----------- ----------- ---------- -----------
Earnings per average common share ..................... $ 1.38 $ 1.30 $ 1.22 $ 1.22 $ 1.39
=========== =========== =========== ========== ===========
DIVIDENDS DECLARED PER SHARE .......................... $ 1.20 $ 1.20 $ 1.18 $ 1.17 $ 1.17
=========== =========== =========== ========== ===========
</TABLE>
-114-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED FIVE-YEAR CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF DECEMBER 31
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric................................................ $4,084,920 $4,010,847 $3,881,699 $3,765,004 $3,642,415
Gas..................................................... 756,874 723,491 695,741 663,792 639,276
---------- ---------- ---------- ---------- ----------
4,841,794 4,734,338 4,577,440 4,428,796 4,281,691
Less accumulated depreciation and amortization.......... 2,275,099 2,153,058 2,027,055 1,885,870 1,801,668
---------- ---------- ---------- ---------- ----------
2,566,695 2,581,280 2,550,385 2,542,926 2,480,023
Construction work in progress........................... 55,418 49,305 104,164 101,252 111,726
---------- ---------- ---------- ---------- ----------
2,622,113 2,630,585 2,654,549 2,644,178 2,591,749
---------- ---------- ---------- ---------- ----------
POWER PURCHASE CONTRACT................................. 173,107 190,897 212,148 221,998 248,643
---------- ---------- ---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS................... - 166,320 177,300 186,246 168,907
---------- ---------- ---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents............................... 10,468 97,749 32,915 28,651 20,657
Receivables less reserves............................... 207,471 312,015 228,128 196,814 216,157
Inventories............................................. 86,091 90,864 85,235 92,248 100,675
Other................................................... 18,452 11,031 18,428 14,288 21,195
---------- ---------- ---------- ---------- ----------
322,482 511,659 364,706 332,001 358,684
---------- ---------- ---------- ---------- ----------
INVESTMENTS............................................. 799,524 622,972 646,456 595,510 614,153
---------- ---------- ---------- ---------- ----------
OTHER ASSETS............................................ 360,865 399,415 414,938 408,961 369,937
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS............................................ $4,278,091 $4,521,848 $4,470,097 $4,388,894 $4,352,073
========== ========== ========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity............................. $1,301,286 $1,239,946 $1,225,715 $1,204,112 $1,180,510
Preferred shares, not subject to mandatory redemption... 31,763 31,769 89,945 89,955 109,871
Preferred shares, subject to mandatory redemption....... 150,000 150,000 50,000 50,000 50,000
Long-term debt (excluding current portion).............. 1,034,211 1,395,103 1,403,322 1,398,255 1,341,003
---------- ---------- ---------- ---------- ----------
2,517,260 2,816,818 2,768,982 2,742,322 2,681,384
---------- ---------- ---------- ---------- ----------
CURRENT LIABILITIES
Notes payable........................................... 138,054 161,990 184,800 124,500 173,035
Current portion of long-term debt....................... 144,558 79,598 65,295 72,872 66,371
Current portion of power purchase contract.............. 14,361 13,718 13,029 12,080 10,830
Accounts payable........................................ 145,855 169,806 122,055 106,152 123,618
Taxes accrued........................................... 92,629 82,254 81,898 91,653 110,923
Interest accrued........................................ 22,355 28,513 30,635 30,659 31,021
Other................................................... 38,766 22,830 46,267 44,974 49,470
---------- ---------- ---------- ---------- ----------
596,578 558,709 543,979 482,890 565,268
---------- ---------- ---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract................................. 83,143 97,504 112,700 125,729 140,655
Deferred income taxes................................... 761,795 722,300 724,587 712,307 659,753
Investment tax credit................................... 83,127 88,842 95,041 100,871 106,729
Other .................................................. 236,188 237,675 224,808 224,775 198,284
---------- ---------- ---------- ---------- ----------
1,164,253 1,146,321 1,157,136 1,163,682 1,105,421
---------- ---------- ---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES.................... $4,278,091 $4,521,848 $4,470,097 $4,388,894 $4,352,073
========== ========== ========== ========== ==========
</TABLE>
-115-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED UTILITY FIVE-YEAR ELECTRIC STATISTICS
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES (in thousands)
Residential.................................... $ 417,845 $ 415,954 $ 434,105 $ 400,346 $ 386,047
Small general service.......................... 246,927 237,466 252,427 253,703 242,205
Large general service.......................... 249,444 241,172 219,075 204,481 193,616
Other sales.................................... 62,261 60,476 60,160 57,731 56,198
Sales for resale............................... 124,741 121,452 105,472 84,260 104,461
---------- ----------- ---------- ---------- -----------
Total from electric sales.................. 1,101,218 1,076,520 1,071,239 1,000,521 982,527
Other electric revenue......................... 25,082 22,488 23,408 21,139 20,443
---------- ----------- ---------- ---------- -----------
Total...................................... $1,126,300 $ 1,099,008 $1,094,647 $1,021,660 $ 1,002,970
========== =========== ========== ========== ===========
KWH SALES (in thousands)
Residential.................................... 4,740,688 4,652,031 4,767,608 4,500,265 4,475,883
Small general service.......................... 3,725,873 3,565,459 3,920,792 4,062,993 3,937,360
Large general service.......................... 6,204,087 6,067,325 5,351,933 5,091,685 4,851,493
Other.......................................... 995,295 988,022 957,463 938,620 930,117
Sales for resale............................... 6,987,268 6,727,326 5,509,161 3,605,092 5,566,208
---------- ----------- ----------- ----------- -----------
Total...................................... 22,653,211 22,000,163 20,506,957 18,198,655 19,761,061
========== =========== =========== =========== ===========
REVENUES FROM SALES AS A % OF TOTAL
Residential.................................... 37.9 38.6 40.5 40.0 39.3
Small general service.......................... 22.4 22.1 23.6 25.4 24.7
Large general service.......................... 22.7 22.4 20.5 20.4 19.7
Other.......................................... 5.7 5.6 5.6 5.8 5.7
Sales for resale............................... 11.3 11.3 9.8 8.4 10.6
---------- ----------- ---------- ---------- ------------
Total...................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
SALES AS A % OF TOTAL
Residential.................................... 20.9 21.1 23.2 24.7 22.7
Small general service.......................... 16.5 16.2 19.1 22.3 19.9
Large general service.......................... 27.4 27.6 26.1 28.0 24.5
Other.......................................... 4.4 4.5 4.7 5.2 4.7
Sales for resale............................... 30.8 30.6 26.9 19.8 28.2
---------- ----------- ---------- ---------- ------------
Total...................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
RETAIL ELECTRIC SALES BY JURISDICTION (%)
Iowa........................................... 88.6 88.7 88.4 88.6 88.7
Illinois....................................... 10.7 10.6 11.0 10.9 10.9
South Dakota................................... 0.7 0.7 0.6 0.5 0.4
---------- ----------- ---------- ---------- ------------
Total ..................................... 100.0 100.0 100.0 100.0 100.0
========== =========== ========== ========== ============
CUSTOMERS (end of year)
Residential.................................... 563,189 557,637 551,384 548,106 541,220
Small general service.......................... 73,488 73,022 72,616 69,905 68,829
Large general service.......................... 1,000 982 945 743 744
Other.......................................... 10,047 9,937 9,744 9,518 9,572
Sales for resale............................... 47 55 55 59 63
---------- ----------- ---------- ---------- ------------
Total...................................... 647,771 641,633 634,744 628,331 620,428
========== =========== ========== ========== ============
ANNUAL AVERAGE PER RESIDENTIAL CUSTOMER
Revenue per Kwh (cents)........................ 8.81 8.94 9.11 8.90 8.62
KWh sales...................................... 8,463 8,392 8,670 8,265 8,310
COOLING DEGREE DAYS
Actual......................................... 883 788 1,112 912 813
Percent warmer (colder) than normal............ (7.5) (17.5) 14.1 (6.5) (16.4)
ELECTRIC PEAK DEMAND (net MW).................. 3,548 3,537 3,553 3,226 3,284
SUMMER NET ACCREDITED CAPABILITY (MW).......... 4,293 4,301 4,311 4,145 4,072
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
UNAUDITED UTILITY FIVE-YEAR GAS STATISTICS
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES (in thousands)
Residential....................................... $ 339,924 $ 338,605 $ 279,819 $ 287,171 $ 319,359
Small general service............................. 152,661 153,616 128,501 142,894 150,913
Large general service............................. 15,201 17,670 23,280 36,729 37,761
Sales for resale and other........................ 2,914 2,050 5,303 5,514 10,376
--------- --------- --------- --------- ---------
Total revenue from gas sales .................. 510,700 511,941 436,903 472,308 518,409
Gas transported................................... 20.443 20,155 16,677 12,842 13,457
Other gas revenues................................ 5,163 4,657 6,008 6,865 7,123
--------- --------- --------- --------- ---------
Total.......................................... $ 536,306 $ 536,753 $ 459,588 $ 492,015 $ 538,989
========= ========= ========= ========= =========
THROUGHPUT (MMBtu in thousands)
Sales
Residential.................................... 57,039 61,732 57,153 54,732 60,612
Small general service.......................... 31,066 33,642 32,786 32,677 34,504
Large general service.......................... 3,920 4,634 6,222 8,253 9,681
Sales for resale and other..................... 1,800 977 3,582 3,231 4,305
--------- --------- --------- --------- --------
Total sales.................................. 93,825 100,985 99,743 98,893 109,102
Gas transported................................... 58,804 54,618 50,695 43,293 39,570
--------- --------- --------- --------- --------
Total.......................................... 152,629 155,603 150,438 142,186 148,672
========= ========= ========= ========= ========
REVENUES FROM THROUGHPUT AS A % OF TOTAL
Residential....................................... 64.0 63.6 61.7 59.2 60.0
Small general service............................. 28.7 28.9 28.3 29.4 28.4
Large general service............................. 2.9 3.3 5.1 7.6 7.1
Sales for resale and other........................ 0.5 0.4 1.2 1.1 2.0
Gas transported................................... 3.9 3.8 3.7 2.7 2.5
--------- --------- --------- --------- --------
Total.......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
SALES AS A % OF TOTAL (excludes gas transported)
Residential....................................... 60.8 61.1 57.3 55.3 55.6
Small general service............................. 33.1 33.3 32.9 33.0 31.6
Large general service............................. 4.2 4.6 6.2 8.4 8.9
Sales for resale and other........................ 1.9 1.0 3.6 3.3 3.9
--------- --------- --------- --------- --------
Total.......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
RETAIL GAS SALES BY JURISDICTION (%)
Iowa.............................................. 79.1 78.0 77.1 76.6 74.5
Illinois.......................................... 10.4 11.0 11.6 11.9 11.4
South Dakota...................................... 9.8 10.3 10.6 10.8 5.4
Other............................................. 0.7 0.7 0.7 0.7 8.7
--------- --------- --------- --------- --------
Total ......................................... 100.0 100.0 100.0 100.0 100.0
========= ========= ========= ========= ========
CUSTOMERS (end of year)
Residential....................................... 558,501 550,786 541,732 535,301 526,863
Small general service............................. 58,739 58,059 57,207 55,855 54,972
Large general service............................. 767 821 830 876 868
Gas transported and other......................... 569 504 1,128 171 128
--------- --------- --------- --------- --------
Total.......................................... 618,576 610,170 600,897 592,203 582,831
========= ========= ========= ========= ========
ANNUAL AVERAGES PER RESIDENTIAL CUSTOMER
Revenue per MMBtu................................. $ 5.96 $ 5.49 $ 4.90 $ 5.25 $ 5.27
MMBtu sales....................................... 103 113 106 103 111
HEATING DEGREE DAYS
Actual............................................ 6,872 7,445 6,841 6,565 7,097
Percent colder (warmer) than normal............... 1.6 10.1 0.9 (3.5) 3.2
COST PER MMBTU.................................... $ 3.69 $ 3.42 $ 2.80 $ 3.30 $ 3.36
</TABLE>
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<PAGE>
SCHEDULE II
MIDAMERICAN ENERGY HOLDINGS COMPANY AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(In Thousands)
Column A Column B Column C Column D Column E
Balance at Additions Balance at
Beginning Charged End
Description of Year to Income Deductions of Year
- - ----------- ---------- --------- ---------- ---------
Reserves Deducted From Assets
To Which They Apply:
Reserve for uncollectible
accounts:
Year ended 1997........... $2,093 $7,683 $(9,429) $ 347
====== ====== ======= ======
Year ended 1996........... $2,296 $6,145 $(6,348) $2,093
====== ====== ======= ======
Year ended 1995........... $2,099 $4,934 $(4,737) $2,296
====== ====== ======= ======
Reserves Not Deducted
From Assets:
Year ended 1997........... $4,267 $3,971 $(1,981) $6,257
====== ====== ======= ======
Year ended 1996........... $3,177 $2,683 $(1,593) $4,267
====== ====== ======= ======
Year ended 1995........... $4,574 $2,662 $(4,059) $3,177
====== ====== ======= ======
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<PAGE>
SCHEDULE II
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(In Thousands)
Column A Column B Column C Column D Column E
Balance at Additions Balance at
Beginning Charged End
Description of Year to Income Deductions of Year
- - ----------- ---------- --------- ---------- ----------
Reserves Deducted From Assets
To Which They Apply:
Reserve for uncollectible
accounts:
Year ended 1997.............. $1,845 $7,386 $(9,231) $ -
====== ====== ======= ======
Year ended 1996.............. $2,214 $5,854 $(6,223) $1,845
====== ====== ======= ======
Year ended 1995.............. $2,008 $4,680 $(4,474) $2,214
====== ====== ======= ======
Reserves Not Deducted
From Assets:
Year ended 1997.............. $4,267 $2,971 $(1,981) $5,257
====== ====== ======= ======
Year ended 1996.............. $3,177 $2,683 $(1,593) $4,267
====== ====== ======= ======
Year ended 1995.............. $4,574 $2,662 $(4,059) $3,177
====== ====== ======= ======
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrants have duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
MIDAMERICAN ENERGY COMPANY
-----------------------------------
Registrants
Date: March 19, 1998 By /s/ Stanley J. Bright
---------------------------------------------
(Stanley J. Bright) Chairman, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the date indicated:
Signature Title Date
--------- ----- ----
MidAmerican Energy Holdings Company
/s/ Stanley J. Bright Chairman, President and March 19, 1998
- - ------------------------------ Chief Executive Officer
(Stanley J. Bright)
/s/ Alan L. Wells Senior Vice President and March 19, 1998
- - ------------------------------ Chief Financial Officer
(Alan L. Wells)
/s/ John W. Aalfs Director March 19, 1998
- - ------------------------------
(John W. Aalfs)
/s/ Ross D. Christensen Director March 19, 1998
- - ------------------------------
(Ross D. Christensen)
/s/ Russell E. Christiansen Director March 19, 1998
- - ------------------------------
(Russell E. Christiansen)
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<PAGE>
/s/ John W. Colloton Director March 19, 1998
- - ------------------------------
(John W. Colloton)
/s/ Frank S. Cottrell Director March 19, 1998
- - ------------------------------
(Frank S. Cottrell)
/s/ Jack W. Eugster Director March 19, 1998
- - ------------------------------
(Jack W. Eugster)
/s/ Mel Foster, Jr. Director March 19, 1998
- - ------------------------------
(Mel Foster, Jr.)
/s/ Nolden Gentry Director March 19, 1998
- - ------------------------------
(Nolden Gentry)
/s/ James M. Hoak, Jr. Director March 19, 1998
- - ------------------------------
(James M. Hoak, Jr.)
/s/ Richard L. Lawson Director March 19, 1998
- - ------------------------------
(Richard L. Lawson)
/s/ Robert L. Peterson Director March 19, 1998
- - ------------------------------
(Robert L. Peterson)
/s/ Nancy L. Seifert Director March 19, 1998
- - ------------------------------
(Nancy L. Seifert)
/s/ W. Scott Tinsman Director March 19, 1998
- - ------------------------------
(W. Scott Tinsman)
/s/ Leonard L. Woodruff Director March 19, 1998
- - ------------------------------
(Leonard L. Woodruff)
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<PAGE>
MidAmerican Energy Company
/s/ Stanley J. Bright Chairman, President and March 19, 1998
- - ------------------------------ Chief Executive Officer
(Stanley J. Bright)
/s/ Alan L. Wells Senior Vice President and March 19, 1998
- - ------------------------------ Chief Financial Officer
(Alan L. Wells)
/s/ David J. Levy Director March 19, 1998
- - ------------------------------
(David J. Levy)
/s/ John A. Rasmussen, Jr. Director March 19, 1998
- - ------------------------------
(John A. Rasmussen, Jr.)
/s/ Wayne O. Smith Director March 19, 1998
- - ------------------------------
(Wayne O. Smith)
/s/ Ronald W. Stepien Director March 19, 1998
- - ------------------------------
(Ronald W. Stepien)
/s/ Beverly A. Wharton Director March 19, 1998
- - ------------------------------
(Beverly A. Wharton)
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<PAGE>
EXHIBIT INDEX
Exhibits Filed Herewith
- - -----------------------
The exhibits filed herewith are attached to this combined Form 10-K in
numerical order. They are listed below under the heading of the registrant or
registrants to whom they apply.
Holdings
12.1 Computation of ratios of earnings to fixed charges and computation of
ratios of earnings to fixed charges plus preferred dividend
requirements.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
MidAmerican
3.3 Restated Articles of Incorporation of MidAmerican Energy Company, as
amended December 22, 1997.
12.2 Computation of ratios of earnings to fixed charges and computation of
ratios of earnings to fixed charges plus preferred dividend
requirements.
21.2 Subsidiaries of the Registrant.
23.3 Consent of Coopers & Lybrand L.L.P.
Exhibits Incorporated by Reference
- - ----------------------------------
Holdings
3.1 Restated Articles of Incorporation of MidAmerican Energy Holdings
Company, as amended December 19, 1996. (Filed as Exhibit 3.1 to
Holdings' Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-12459.)
3.2 Bylaws of MidAmerican Energy Holdings Company, as amended July 24,
1996. (Filed as Exhibit 3.2 to Holdings' Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 1-12459.)
4.1 Shareholder Rights Agreement dated as of December 18, 1996 between
Holding's and Continental Stock Transfer and Trust Company. (Filed as
Exhibit 4 to Holdings' Current Report on Form 8-K dated December 18,
1996, Commission File No. 1-12459.)
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<PAGE>
10.39 Form of Indemnity Agreement between MidAmerican Energy Holdings
Company and its directors and officers. (Filed as Exhibit 10.2 to
Holdings' Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-12459.)
10.40 Employment Agreement between Stanley J. Bright and MidAmerican Energy
Holdings Company dated January 24, 1996. (Filed as Exhibit 10.3 to
Holdings' Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 1-12459.)
10.41 Employment Agreement between Russell E. Christiansen and MidAmerican
Energy Holdings Company dated January 24, 1996, as amended January 29,
1997. (Filed as Exhibit 10.4 to Holdings' Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 1-12459.)
MidAmerican Energy
3.4 Restated Bylaws of MidAmerican Energy Company, as amended July 24,
1996. (Filed as Exhibit 3.1 to MidAmerican's Quarterly Report on Form
10-Q for the period ended June 30, 1996, Commission File No. 1-11505.)
Holdings and MidAmerican Energy
4.2 General Mortgage Indenture and Deed of Trust dated as of January 1,
1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust
Company of New York, Trustee. (Filed as Exhibit 4(b)-1 to Midwest
Resources' Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 1-10654.)
4.3 First Supplemental Indenture dated as of January 1, 1993, between
Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New
York, Trustee. (Filed as Exhibit 4(b)-2 to Midwest Resources' Annual
Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 1-10654.)
4.4 Second Supplemental Indenture dated as of January 15, 1993, between
Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New
York, Trustee. (Filed as Exhibit 4(b)-3 to Midwest Resources' Annual
Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 1-10654.)
4.5 Third Supplemental Indenture dated as of May 1, 1993, between Midwest
Power Systems Inc. and Morgan Guaranty Trust Company of New York,
Trustee. (Filed as Exhibit 4.4 to Midwest Resources' Annual Report on
Form 10-K for the year ended December 31, 1993, Commission File No.
1-10654.)
4.6 Fourth Supplemental Indenture dated as of October 1, 1994, between
Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
(Filed as Exhibit 4.5 to Midwest Resources' Annual Report on Form 10-K
for the year ended December 31, 1994, Commission File No. 1-10654.)
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<PAGE>
4.7 Fifth Supplemental Indenture dated as of November 1, 1994, between
Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
(Filed as Exhibit 4.6 to Midwest Resources' Annual Report on Form 10-K
for the year ended December 31, 1994, Commission File No. 1-10654.)
4.8 Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947.
(Filed by Iowa-Illinois as Exhibit 7B to Commission File No. 2-6922.)
4.9 Sixth Supplemental Indenture dated as of July 1, 1967. (Filed by
Iowa-Illinois as Exhibit 2.08 to Commission File No. 2-28806.)
4.10 Twentieth Supplemental Indenture dated as of May 1, 1982. (Filed as
Exhibit 4.B.23 to Iowa-Illinois' Quarterly Report on Form 10-Q for the
period ended June 30, 1982, Commission File No. 1-3573.)
4.11 Resignation and Appointment of successor Individual Trustee. (Filed by
Iowa-Illinois as Exhibit 4.B.30 to Commission File No. 33-39211.)
4.13 Twenty-Eighth Supplemental Indenture dated as of May 15, 1992. (Filed
as Exhibit 4.31.B to Iowa-Illinois' Current Report on Form 8-K dated
May 21, 1992, Commission File No. 1-3573.)
4.14 Twenty-Ninth Supplemental Indenture dated as of March 15, 1993. (Filed
as Exhibit 4.32.A to Iowa-Illinois' Current Report on Form 8-K dated
March 24, 1993, Commission File No. 1-3573.)
4.15 Thirtieth Supplemental Indenture dated as of October 1, 1993. (Filed
as Exhibit 4.34.A to Iowa-Illinois' Current Report on Form 8-K dated
October 7, 1993, Commission File No. 1-3573.)
4.16 Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest
Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed
as Exhibit 4.15 to MidAmerican's Annual Report on Form 10-K dated
December 31, 1995, Commission File No. 1-11505.)
4.17 Thirty-First Supplemental Indenture dated as of July 1, 1995, between
Iowa-Illinois Gas and Electric Company and Harris Trust and Savings
Bank, Trustee. (Filed as Exhibit 4.16 to MidAmerican's Annual Report
on Form 10-K dated December 31, 1995, Commission File No. 1-11505.)
10.1 MidAmerican Energy Company Severance Plan For Specified Officers dated
November 1, 1996. (Filed as Exhibit 10.1 to Holdings' and
MidAmerican's respective Annual Reports on the combined Form 10-K for
the year ended December 31, 1996, Commission File Nos. 1-12459 and
1-11505, respectively.)
10.2 MidAmerican Energy Company Deferred Compensation Plan for Directors.
(Filed as Exhibit 10.1 to MidAmerican's Annual Report on Form 10-K
dated December 31, 1995, Commission File No. 1-11505.)
10.3 MidAmerican Energy Company Deferred Compensation Plan for Executives.
(Filed as Exhibit 10.2 to MidAmerican's Annual Report on Form 10-K
dated December 31, 1995, Commission File No. 1-11505.)
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<PAGE>
10.4 MidAmerican Energy Company Supplemental Retirement Plan for Designated
Officers. (Filed as Exhibit 10.3 to MidAmerican's Annual Report on
Form 10-K dated December 31, 1995, Commission File No. 1-11505.)
10.5 MidAmerican Energy Company Key Employee Short-Term Incentive Plan.
(Filed as Exhibit 10.4 to MidAmerican's Annual Report on Form 10-K
dated December 31, 1995, Commission File No. 1-11505.)
10.6 Deferred Compensation Plan for Executives of Midwest Resources Inc.
and Subsidiaries. (Filed as Exhibit 10.1 to Midwest Resources' Annual
Report on Form 10-K for the year ended December 31, 1990, Commission
File No. 1-10654).
10.7 Deferred Compensation Plan for Board of Directors of Midwest Resources
Inc. and Subsidiaries. (Filed as Exhibit 10.2 to Midwest Resources'
Annual Report on Form 10-K for the year ended December 31, 1990,
Commission File No. 1-10654).
10.8 Midwest Resources Inc. Directors Retirement Plan. (Filed as Exhibit
10.3 to Midwest Resources' Annual Report on Form 10-K for the year
ended December 31, 1990, Commission File No. 1-10654.)
10.9 Non-Cash Bonus Award Plan for Executives of Midwest Resources Inc.
(Filed as Exhibit 10.4 to Midwest Resources' Annual Report on Form
10-K for the year ended December 31, 1990, Commission File No.
1-10654).
10.10 Midwest Resources Inc. revised and amended Executive Deferred
Compensation Plan for IOR and Subsidiaries, dated January 29, 1992.
(Filed as Exhibit 10.5 to Midwest Resources' Annual Report on Form
10-K for the year ended December 31, 1991, Commission File No.
1-10654.)
10.11 Midwest Resources Inc. revised and amended Board of Directors
Deferred Compensation Plan for IOR and Subsidiaries, dated January 29,
1992. (Filed as Exhibit 10.6 to Midwest Resources' Annual Report on
Form 10-K for the year ended December 31, 1991, Commission File No.
1-10654.)
10.12 Midwest Resources Inc. revised and amended Executive Incentive
Compensation Plan for IOR and Subsidiaries, dated January 29, 1992.
(Filed as Exhibit 10.7 to Midwest Resources' Annual Report on Form
10-K for the year ended December 31, 1991, Commission File No.
1-10654.)
10.13 Midwest Resources Inc. and Participating Subsidiaries Long-Term
Incentive Compensation Plan. (Filed as Exhibit 10.8 to Midwest
Resources' Annual Report on Form 10-K for the year ended December 31,
1991, Commission File No. 1-10654.)
10.14 Midwest Power Group 1992 Key Executive Incentive Compensation Plan.
(Filed as Exhibit 10.9 to Midwest Resources' Annual Report on Form
10-K for the year ended December 31, 1991, Commission File No.
1-10654.)
10.15 Midwest Resources Inc. Supplemental Retirement Plan (formerly the
Midwest Energy Company Supplemental Retirement Plan). (Filed as
Exhibit 10.10 to Midwest Resources' Annual Report on Form 10-K for the
year ended December 31, 1993, Commission File No. 1-10654.)
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<PAGE>
10.16 Power Sales Contract between Iowa Power Inc. and Nebraska Public Power
District, dated September 22, 1967. (Filed as Exhibit 4-C-2 to Iowa
Power Inc.'s (IPR) Registration Statement, Registration No. 2-27681.)
10.17 Amendments Nos. 1 and 2 to Power Sales Contract between Iowa Power
Inc. and Nebraska Public Power District. (Filed as Exhibit 4-C-2a to
IPR's Registration Statement, Registration No. 2-35624.)
10.18 Amendment No. 3 dated August 31, 1970, to the Power Sales Contract
between Iowa Power Inc. and Nebraska Public Power District, dated
September 22, 1967. (Filed as Exhibit 5-C-2-b to IPR's Registration
Statement, Registration No. 2-42191.)
10.19 Amendment No. 4 dated March 28, 1974, to the Power Sales Contract
between Iowa Power Inc. and Nebraska Public Power District, dated
September 22, 1967. (Filed as Exhibit 5-C-2-c to IPR's Registration
Statement, Registration No. 2-51540.)
10.20 Revised and amended Executive Compensation Plan for Iowa Resources
Inc. and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.21 to
Iowa Resources Inc.'s (IOR) Annual Report on Form 10-K for the year
ended December 31, 1985, Commission File No. 1-7830.)
10.21 Revised and amended Executive Deferred Compensation Plan for IOR and
Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.22 to IOR's
Annual Report on Form 10-K for the year ended December 31, 1985,
Commission File No. 1-7830.)
10.22 Revised and amended Deferred Compensation Plan for Board of Directors
of IOR and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.22
to IOR's Annual Report on Form 10-K for the year ended December 31,
1985, Commission File No. 1-7830.)
10.23 Revised and amended Executive Compensation Plan for IOR and
Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.14 to
IOR's Annual Report on Form 10-K for the year ended December 31, 1987,
Commission File No. 1-7830.)
10.24 Revised and amended Executive Deferred Compensation Plan for IOR and
Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.15 to
IOR's Annual Report on Form 10-K for the year ended December 31, 1987,
Commission File No. 1-7830.)
10.25 Revised and amended Deferred Compensation Plan for Board of Directors
of IOR and Subsidiaries, dated December 18, 1987. (Filed as Exhibit
10.16 to IOR's Annual Report on Form 10-K for the year ended December
31, 1987, Commission File No. 1-7830.)
10.27 Change in control agreement between Russell E. Christiansen and
Midwest Energy Company dated as of May 5, 1989. (Filed as Exhibit
10(e) in MWE's Form 10-K for the year ended December 31, 1989,
Commission File No. 1-8708.)
10.29 Amendments to Midwest Resources Executive Deferred Compensation
Plans, dated October 30, 1992. (Filed as Exhibit 10(h) to Midwest
Resource's Annual Report on Form 10-K for the year ended December 31,
1992, Commission File No. 1-10654.)
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<PAGE>
10.30 Midwest Power Systems 1993 Key Executive Incentive Compensation Plan.
(Filed as Exhibit 10.30 in Midwest Resources' Annual Report on Form
10-K for the year ended December 31, 1993, Commission File No.
1-10654.)
10.31 Supplemental Retirement Plan for Principal Officers, as amended as of
July 1, 1993. (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report
on Form 10-K for the year ended December 31, 1993, Commission File No.
1-3573.)
10.32 Compensation Deferral Plan for Principal Officers, as amended as of
July 1, 1993. (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report
on Form 10-K for the year ended December 31, 1993, Commission File No.
1-3573.)
10.33 Board of Directors' Compensation Deferral Plan. (Filed as Exhibit
10.K.4 to Iowa-Illinois' Annual Report on Form 10-K for the year ended
December 31, 1992, Commission File No. 1-3573.)
10.34 Revised and amended Supplemental Retirement Income Plan for Iowa
Resources Inc. and Subsidiaries dated October 24, 1984. (Filed as
Exhibit 10.15 to Midwest Resources' Annual Report on Form 10-K for the
year ended December 31, 1994, Commission File No. 1-10654.)
10.35 Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement
Plan. (Filed as Exhibit 10.24 to Midwest Resources' Annual Report on
Form 10-K for the year ended December 31, 1994, Commission File No.
1-10654.)
10.36 Deferred Compensation Plan of Midwest Energy Company and Subsidiary
Corporations. (Filed as Exhibit 10.25 to Midwest Resources' Annual
Report on Form 10-K for the year ended December 31, 1994, Commission
File No. 1-10654.)
10.37 Form of Indemnity Agreement between MidAmerican Energy Company and
its directors and officers. (Filed as Exhibit 10.37 to MidAmerican's
Annual Report on Form 10-K dated December 31, 1995, Commission File
No. 1-11505.)
10.38 MidAmerican Energy Company 1995 Long-Term Incentive Plan. (Filed as
Exhibit 10(a) to Holdings' Registration Statement on Form S-4, File
No. 333-01645.)
10.42 Amendment No. 5 dated September 2, 1997, to the Power Sales contract
between MidAmerican Energy Company and Nebraska Public Power District,
dated September 22, 1967. (Filed as Exhibit 10.2 to Holdings' and
MidAmerican's respective Quarterly Reports on the combined Form 10-Q
for the quarter ended September 30, 1997, Commission File Nos. 1-12459
and 1-11505, respectively.)
10.43 Amendment No. 1 dated October 29, 1997, to the MidAmerican Energy
Company 1995 Long-Term Incentive Plan. (Filed as Exhibit 10.1 to
Holdings' and MidAmerican's respective Quarterly Reports on the
combined Form 10-Q for the quarter ended September 30, 1997,
Commission File Nos. 1-12459 and 1-11505, respectively.)
Note: Pursuant to (b) (4) (iii)(A) of Item 601 of Regulation S-K, the
Company has not filed as an exhibit to this Form 10-K certain
instruments with respect to long-term debt not being registered if the
total amount of securities authorized thereunder does not exceed 10%
of total assets of the Company but hereby agrees to furnish to the
Commission on request any such instruments.
-128-
EXHIBIT 3.3
RESTATED
ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 409.1007 of the Iowa Business
Corporation Act, the undersigned corporation hereby adopts the following
Restated Articles of Incorporation ("Articles of Incorporation"):
ARTICLE I
The name of the corporation is "MidAmerican Energy Company" (hereinafter
sometimes called the "Corporation") and its registered office shall be located
at 666 Grand Avenue, Des Moines, Iowa 50306 with the right to establish and
maintain branch offices at such other points within and without the State of
Iowa as the Board of Directors of the Corporation may, from time to time,
determine. The name of the Corporation's registered agent at such registered
office is Paul J. Leighton, Vice President and Corporate Secretary.
ARTICLE II
The nature of the business or purposes to be conducted or promoted is to
engage in any or all lawful act or activity for which a corporation may be
incorporated under the Iowa Business Corporation Act.
ARTICLE III
A. The aggregate number of shares which the Corporation shall have
authority to issue is 350,000,000 shares of Common Stock, no par value ("Common
Stock"), and 100,000,000 shares of Preferred Stock, no par value ("Preferred
Stock").
B. The shares of authorized Common Stock shall be identical in all respects
and shall have equal rights and privileges. For all purposes, each registered
holder of Common Stock shall, at each meeting of shareholders, be entitled to
one vote for each share of Common Stock held, either in person or by proxy duly
authorized in writing. Except to the extent required by law or as permitted by
these Articles of Incorporation, as amended from time to time, the registered
holders of the shares of Common Stock shall have unlimited and exclusive voting
rights.
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C. The Board of Directors, at any time or from time to time, may, and is
hereby authorized to, issue and dispose of any of the authorized and unissued
shares of Common Stock and any treasury shares for such kind and amount of
consideration and to such persons, firms or corporations, as may be determined
by the Board of Directors, subject to any provisions of law then applicable. The
holders of Common Stock shall have no preemptive rights to acquire or subscribe
to any shares, or securities convertible into shares, of Common Stock.
D. The Board of Directors, at any time or from time to time may, and is
hereby authorized to, divide the authorized and unissued shares of Preferred
Stock into one or more classes or series and in connection with the creation of
any class or series to determine, in whole or in part, to the full extent now or
hereafter permitted by law, by adopting one or more articles of amendment to the
Articles of Incorporation providing for the creation thereof, the designation,
preferences, limitations and relative rights of such class or series, which may
provide for special, conditional or limited voting rights, or no rights to vote
at all, and to issue and dispose of any of such shares and any treasury shares
for such kind and amount of consideration and to such persons, firms or
corporations, as may be determined by the Board of Directors, subject to any
provisions of law then applicable.
E. The Board of Directors, at any time or from time to time may, and is
hereby authorized to, create and issue, whether or not in connection with the
issuance and sale of any shares of Common Stock, Preferred Stock or other
securities of the Corporation, warrants, rights and/or options entitling the
holders thereof to purchase from the Corporation any shares of Common Stock,
Preferred Stock or other securities of the Corporation. Such warrants, rights or
options shall be evidenced by such instrument or instruments as shall be
approved by the Board of Directors of the Corporation. The terms upon which, the
time or times (which may be limited or unlimited in duration) at or within
which, and the price or prices (which shall be not less than the minimum amount
prescribed by law, if any) at which any such shares or other securities may be
purchased from the Corporation upon the exercise of any such warrant, right or
option shall be fixed and stated in the resolution or resolutions of the Board
of Directors providing for the creation and issuance of such warrants, rights or
options. The Board of Directors is hereby authorized to create and issue any
such warrants, rights or options from time to time for such consideration, if
any, and to such persons, firms or corporations, as the Board of Directors may
determine.
F. The Corporation may authorize the issuance of some or all of the shares
of any or all of the classes of its capital stock without certificates.
G. The Corporation shall not be required to issue certificates representing
any fraction or fractions of a share of stock of any class but may issue in lieu
thereof one or more non-dividend bearing and non-voting scrip certificates in
such form or forms as shall be approved by the Board of Directors, each scrip
certificate representing a fractional interest in one share of stock of any
class. Such scrip certificates upon presentation together with similar scrip
certificates representing in the aggregate an interest in one or more full
shares of stock of any class shall entitle the holders thereof to receive one or
more full shares of stock of such class. Such scrip certificates may contain
such
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terms and conditions as shall be fixed by the Board of Directors and may become
void and of no effect after a period to be determined by the Board of Directors
and to be specified in such scrip certificates.
H. The Corporation shall be entitled to treat the person in whose name any
share of Common Stock or Preferred Stock is registered as the owner thereof for
all purposes and shall not be bound to recognize any equitable or other claim
to, or interest in, such share on the part of any person, whether or not the
Corporation shall have notice thereof except as may be expressly provided
otherwise by the laws of the State of Iowa.
ARTICLE IV
The term of corporate existence of the Corporation shall be perpetual.
ARTICLE V
A. All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of, the Board of Directors. The number of directors of the Corporation
shall be fixed by the Bylaws but shall be no less than ten (10) and no greater
than twenty-two (22), and such number may be increased or decreased from time to
time in accordance with the Bylaws, but no decrease shall have the effect of
shortening the term of any incumbent director. Directors shall be elected by the
shareholders at each annual meeting of the Corporation as specified herein and
in the Bylaws. Directors need not be shareholders.
B. Each director shall serve until his or her successor is elected and
qualified or until his or her prior death, retirement, resignation or removal.
Should a vacancy occur or be created, whether arising through death, resignation
or removal of a director or through an increase in the number of directors, such
vacancy shall be filled solely by a majority vote of the remaining directors
though less than a quorum of the Board of Directors. A director so elected to
fill a vacancy shall serve for the remainder of the then present term of office
of the Board of Directors.
C. Any director or the entire Board of Directors may be removed for cause
as set forth in this paragraph C. Removal of a director for cause must be
approved by the affirmative vote of the holders of shares of capital stock of
the Corporation having at least 75% of the votes of all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, only at a meeting called for the
purpose of removing the director and after notice stating that the purpose, or
one of the purposes, of the meeting is removal of the director. Any action for
removal of a director must be taken within one year of such cause.
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D. The Board of Directors, by a vote of a majority of the entire Board of
Directors, may appoint from the directors an executive committee and such other
committees as they may deem judicious; and to such extent as shall be provided
in the resolution of the Board of Directors or in the Bylaws, may delegate to
such committees all or any of the powers of the Board of Directors which may be
lawfully delegated, and such committees shall have and thereupon may exercise
all or any of the powers so delegated to them. The Board of Directors or the
Bylaws may provide the number of members necessary to constitute a quorum of any
committee and the number of affirmative votes necessary for action by any
committee.
E. The Board of Directors shall elect such officers of the Corporation as
specified in the Bylaws. All vacancies in the offices of the Corporation shall
be filled by the Board of Directors. The Board of Directors shall also have
authority to appoint such other managing officers as they may from time to time
determine.
ARTICLE VI
Special meetings of shareholders of the Corporation may be called at any
time by the Chairman of the Board of Directors or by the President on at least
ten days' notice to each shareholder entitled to vote at the special meeting, by
mail at such shareholder's last known post office address, specifying the time,
place and purpose or purposes of the special meeting.
ARTICLE VII
The private property of the shareholders of the Corporation shall be exempt
from all corporate debts.
ARTICLE VIII
A. In addition to any affirmative vote required by law or under any other
provision of these Articles of Incorporation:
(i) any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with or into any Other Entity (as hereinafter
defined); or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of related transactions) to or
with any Other Entity of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined) of
$25,000,000 or more; or
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(iii)the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of related transactions) of any securities of
the Corporation or any Subsidiary to any Other Entity in exchange for cash,
securities or other property (or a combination thereof) having an aggregate
Fair Market Value of $25,000,000 or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation; or
(v) any reclassification of securities (including any reverse stock
split), recapitalization, reorganization, merger or consolidation of the
Corporation with any of its Subsidiaries or any similar transaction
(whether or not with or into or otherwise involving any Other Entity) which
has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Other Entity; or
(vi) any direct or indirect purchase or other acquisition by the
Corporation of any equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
in effect on June 30, 1995) of any class from an Interested Securityholder
(as hereinafter defined) who has beneficially owned such securities for
less than two years prior to the date of such purchase or any agreement in
respect thereof, shall require the affirmative vote of the holders of
shares of capital stock of the Corporation having at least 75% (excluding,
in the case of (i) through (v) above, shares beneficially owned by a 25%
Shareholder (as hereinafter defined), and, in the case of (vi) above,
shares beneficially owned by such Interested Securityholder) of the votes
of all outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, considered for the purpose of
this Article VIII as one class ("Voting Shares"). Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that some lesser percentage vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of paragraph A of this Article VIII shall not be
applicable to any particular Business Combination (as hereinafter defined), and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Incorporation, if
all of the conditions specified in either of the following subparagraphs 1 and 2
shall have been satisfied.
1. A majority of the Continuing Directors (as hereinafter defined)
shall have approved the Business Combination (but only if a majority of the
Board of Directors are Continuing Directors); or
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2. All of the following conditions shall have been met:
a. The ratio of:
(i) the aggregate amount of the cash and the Fair Market
Value as of the date of consummation of the Business
Combination of other consideration to be received per
share by holders of a particular class or series of
Voting Shares in such Business Combination
to
(ii) the Fair Market Value per share of such class or series
of Voting Shares on the date of the first public
announcement of such Business Combination or the date
on which any 25% Shareholder became a 25% Shareholder,
whichever is higher is at least as great as the ratio
(which ratio shall equal the number one in the event
that such 25% Shareholder has never beneficially owned
any shares of such class or series of Voting Shares) of
(x) the highest per share price (including brokerage
commissions, transfer taxes and soliciting dealers'
fees) which such 25% Shareholder has theretofore paid
for any share of such class or series of Voting Shares
acquired by it
to
(y) the Fair Market Value per share of such class or series
of Voting Shares on the date of the initial acquisition
by such 25% Shareholder of any share of such class or
series of Voting Shares;
b. The aggregate amount of the cash and Fair Market Value as of
the date of consummation of the Business Combination of other
consideration to be received per share by holders of each class or
series of Preferred Stock in such Business Combination is not less
than the highest preferential amount per share to which holders of
shares of such class or series of Preferred Stock would, respectively,
be entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, regardless of whether
the Business Combination to be consummated constitutes such an event;
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<PAGE>
c. The consideration to be received by holders of a particular
class or series of Voting Shares in such Business Combination shall be
in cash or in the same form and of the same kind as the consideration
paid by the 25% Shareholder in acquiring the shares of such class or
series of Voting Shares already owned by it;
d. After such 25% Shareholder has acquired ownership of not less
than 25% of the then outstanding Voting Shares (a "25% Interest") and
prior to the consummation of such Business Combination:
(i) the 25% Shareholder shall have taken steps to ensure
that the Corporation's Board of Directors includes at all times
representation by Continuing Director(s) proportionate to the
ratio that the Voting Shares which from time to time are owned by
persons who are not 25% Shareholders ("Public Holders") bear to
all Voting Shares outstanding at such respective times (with a
Continuing Director to occupy any resulting fractional board
position);
(ii) there shall have been no reduction in the rate of
distributions ("Dividends") payable on the Common Stock except as
may have been approved by a majority vote of the Continuing
Directors;
(iii) such 25% Shareholder shall not have acquired any newly
issued shares of stock, directly or indirectly, from the
Corporation (except upon conversion of convertible securities
acquired by it prior to obtaining a 25% Interest or as a result
of a pro rata stock Dividend or stock split); and
(iv) such 25% Shareholder shall not have acquired any
additional Voting Shares or securities convertible into or
exchangeable for Voting Shares except as a part of the
transaction which resulted in such 25% Shareholder acquiring its
25% Interest;
e. Prior to or upon the consummation of such Business
Combination, such 25% Shareholder shall not have (i) received the
benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by the Corporation, or
(ii) made any major change in the Corporation's business or equity
capital structure without the unanimous approval of the entire Board
of Directors; and
f. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 and the General Rules and Regulations
promulgated thereunder shall have been mailed to all holders of Voting
Shares for the purpose of soliciting shareholders' approval of such
Business Combination. Such proxy statement shall contain at the front
thereof in a prominent place, any recommendations
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<PAGE>
as to the advisability (or inadvisability) of the Business Combination
which the Continuing Directors, or any of them, may have furnished in
writing and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the
fairness (or lack of fairness) of the terms of such Business
Combination, from a financial point of view, to the holders of Voting
Shares other than any 25% Shareholder (such investment banking firm to
be selected by a majority of the Continuing Directors, to be furnished
with all information it reasonably requests and to be paid a
reasonable fee for its services upon receipt by the Corporation of
such opinion).
C. For the purposes of this Article VIII:
1. The term "Business Combination" shall mean any transaction which is
referred to in any one or more of clauses (i) through (v) of paragraph A of
this Article VIII;
2. The term "Other Entity" shall include (a) any 25% Shareholder and
(b) any other person (whether or not itself a 25% Shareholder) which after
any Business Combination, would be an Affiliate (as hereinafter defined) of
any 25% Shareholder;
3. The term "person" shall mean any individual, firm, trust,
partnership, association, corporation or other entity;
4. The term "25% Shareholder" shall mean, in respect to any Business
Combination, any person (other than the Corporation or any Subsidiary) who
or which, as of the record date for the determination of shareholders
entitled to notice of and to vote on such Business Combination, or
immediately prior to the consummation of any such transactions,
(a) is the beneficial owner, directly or indirectly, of not less
than 25% of the Voting Shares, or
(b) is an Affiliate of the Corporation and at any time within
five years prior thereto was the beneficial owner, directly or
indirectly, of not less than 25% of the then outstanding Voting
Shares, or
(c) is an assignee of or has otherwise succeeded to any shares of
capital stock of the Corporation which were at any time within five
yearsprior thereto beneficially owned by any 25% Shareholder, and such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
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5. A person shall be the beneficial owner of any Voting Shares
(a) which such person or any of its Affiliates and Associates (as
hereinafter defined) beneficially own, directly or indirectly, or
(b) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (ii) the right to vote pursuant to any agreement, arrangement or
understanding, or
(c) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation;
6. The outstanding Voting Shares shall include shares deemed owned
through application of subparagraph 5 of this paragraph C above but shall
not include any other Voting Shares which may be issuable pursuant to any
agreement or upon exercise of conversion rights, warrants or options, or
otherwise;
7. The term "Continuing Director" shall mean (a) a person who was a
member of the Board of Directors elected by the Public Holders prior to the
date as of which any 25% Shareholder acquired in excess of 10% of the then
outstanding Voting Shares or (b) a person designated (before his or her
initial election as a director) as a Continuing Director by a majority of
the then Continuing Directors;
8. The term "other consideration to be received" shall include,
without limitation, Voting Shares retained by Public Holders in the event
of a Business Combination in which the Corporation is the surviving
corporation;
9. The terms "Affiliate" and "Associate" shall have the respective
meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on June
30, 1995;
10. The term "Subsidiary" shall mean any corporation or other entity
of which a majority of the outstanding voting securities or other equity
interests having the power, under ordinary circumstances, to elect a
majority of the directors or otherwise to direct the management and
policies, of such corporation or other entity, is owned, directly or
indirectly, by the Corporation;
11. The term "Interested Securityholder" shall mean, with respect to
any transaction which is referred to in Clause (vi) of paragraph A of this
Article VIII, any person
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(other than the Corporation or any Subsidiary) who or which, as of the
record date for the determination of shareholders entitled to notice of and
to vote on such transaction, or immediately prior to the consummation of
any such transaction,
(a) is the beneficial owner, directly or indirectly, of not less
than five percent of the Voting Shares, or
(b) is an Affiliate of the Corporation and at any time within two
years prior thereto was the beneficial owner, directly or indirectly,
of not less than five percent of the then outstanding Voting Shares,
or
(c) is an assignee of or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time within
two years prior thereto beneficially owned by an Interested
Securityholder, and such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving
a public offering within the meaning of the Securities Act of 1933;
and
12. The term "Fair Market Value" shall mean (i) in the case of capital
stock, the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such capital stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such
capital stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such capital stock is not listed on such exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such capital stock is listed, or, if such
capital stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of such capital stock during the 30- day
period preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system then in
use, or if no such quotations are available the fair market value on the
date in question of a share of such capital stock as determined by a
majority of the Continuing Directors in good faith; and (ii) in the case of
property other than cash or capital stock, the fair market value of such
property on the date in question as determined in good faith by a majority
of the Continuing Directors; provided that any such determination by the
Continuing Directors shall only be effective if made at a meeting at which
a majority of Continuing Directors is present.
D. A majority of the Continuing Directors shall have the power and duty to
determine for purposes of this Article VIII, on the basis of information known
to them, (i) the number of Voting Shares beneficially owned by any person, (ii)
whether a person is an Affiliate or Associate of another, (iii) whether a person
has an agreement, arrangement or understanding with another as to the matters
referred to in subparagraph 4 of paragraph C, (iv) whether the assets subject to
any Business Combination have an aggregate Fair Market Value of $25,000,000 or
more, and (v) such other matters with respect to which a determination is
required under this Article VIII.
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E. Nothing contained in this Article VIII shall be construed to relieve any
25% Shareholder from any fiduciary obligation imposed by law.
ARTICLE IX
Any amendment, alteration, change or repeal of Article VA, VB and VC,
Article VIII or this Article IX of these Articles of Incorporation shall require
the affirmative vote of the holders of shares of capital stock of the
Corporation having at least 75% of the votes of all outstanding Voting Shares
(as defined in Article VIII), excluding from such affirmative vote shares
beneficially owned by any 25% Shareholder or by any Interested Securityholder in
the case of an amendment of the provisions of paragraph A of Article VIII that
exclude from an affirmative vote required pursuant to such paragraph A shares
beneficially owned by 25% Shareholders or shares beneficially owned by
Interested Securityholders, as the case may be.
ARTICLE X
The Board of Directors may make Bylaws and from time to time may alter,
amend or repeal any Bylaws; but any Bylaws made by the Board of Directors may be
altered or repealed by the shareholders entitled to vote generally at any annual
meeting or at any special meeting provided notice of such proposed alteration or
repeal be included in the notice of meeting.
ARTICLE XI
A. A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders; or
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(iii) for any transaction from which the director derives an improper
personal benefit; or
(iv) under Section 490.833, or a successor provision, of the Iowa
Business Corporation Act.
B. If, after the date these Articles of Incorporation are filed with the
Secretary of State of the State of Iowa, the Iowa Business Corporation Act is
amended to authorize corporate action
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further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be deemed eliminated or limited
to the fullest extent permitted by the Iowa Business Corporation Act, as so
amended. Any repeal or modification of Section A or Section B of this Article
XI, by the shareholders of the Corporation shall be prospective only and shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE XII
A. Each person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative, investigative, or arbitration and whether formal or informal
("proceeding"), by reasons of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity while serving as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Iowa Business Corporation Act, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than the Iowa Business Corporation Act permitted the Corporation to
provide prior to such amendment), against all reasonable expenses, liability and
loss (including, without limitation, attorneys' fees, all costs, judgments,
fines, Employee Retirement Income Security Act excise taxes or penalties and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith. Such right shall be a contract right and
shall include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director, officer or
employee in his or her capacity as a director, officer or employee (and not in
any other capacity in which service was or is rendered by such person while a
director, officer or employee including, without limitation, service to an
employee benefit plan) in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of (i) a written
undertaking, by or on behalf of such director, officer or employee, to repay all
amounts so advanced if it should be determined ultimately that such director,
officer or employee is not entitled to be indemnified under this Article XII or
otherwise, or (ii) a written affirmation by or on behalf of such director,
officer or employee that, in such person's good faith belief, such person has
met the standards of conduct set forth in the Iowa Business Corporation Act.
B. If a claim under Section A is not paid in full by the Corporation within
thirty (30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to also be paid the expenses of prosecuting such
claim. It shall be a defense to any such action that the claimant has not met
the standards of conduct which
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make it permissible under the Iowa Business Corporation Act for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. The failure of the Corporation (including
its Board of Directors, independent legal counsel or its shareholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the Iowa Business
Corporation Act, shall not be a defense to the action or create a presumption
that the claimant had not met the applicable standard of conduct.
C. Indemnification provided hereunder shall, in the case of the death of
the person entitled to indemnification, inure to the benefit of such person's
heirs, executors or other lawful representatives. The invalidity or
unenforceability of any provision of this Article XII shall not affect the
validity or enforceability of any other provision of this Article XII.
D. Any action taken or omitted to be taken by (i) any director, officer or
employee in good faith and in compliance with or pursuant to any order,
determination, approval or permission made or given by a commission, board,
official or other agency of the United States or of any state or other
governmental authority with respect to the property or affairs of the
Corporation or any such business corporation, not-for-profit corporation, joint
venture, trade association or other entity over which such commission, board,
official or agency has jurisdiction or authority or purports to have
jurisdiction or authority or (ii) by any director of the Corporation pursuant to
Section D of Article VIII shall be presumed to be in compliance with the
standard of conduct set forth in Section 490.851 (or any successor provision) of
the Iowa Business Corporation Act whether or not, in the case of clause (i), it
may thereafter be determined that such order, determination, approval or
permission was unauthorized, erroneous, unlawful or otherwise improper.
E. Unless finally determined, the termination of any litigation, whether by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the action taken or omitted to
be taken by the person seeking indemnification did not comply with the standard
of conduct set forth in Section 490.851 (or any successor provision) of the Iowa
Business Corporation Act.
F. The rights conferred on any person by this Article XII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, Bylaws,
agreement, vote of shareholders or disinterested directors or otherwise.
G. The Corporation may maintain insurance, at its expense, to protect
itself and any such director, officer or employee of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Iowa Business Corporation Act.
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<PAGE>
The duly adopted Restated Articles of Incorporation supersede the original
Articles of Incorporation and all amendments thereto.
The Restated Articles of Incorporation amend the Articles of Incorporation
requiring shareholder approval. The Restated Articles of Incorporation were
approved by the shareholders. The designation, number of outstanding shares,
number of votes entitled to be cast by each voting group entitled to vote
separately on the Restated Articles of Incorporation, and the number of votes of
each voting group indisputably represented are as follows:
Votes Entitled
Designation Shares To Be Cast On Votes Represented
Of Group Outstanding Restated Articles at Meeting
----------- ----------- ----------------- -----------------
Common Stock 1,000 1,000 1,000
The total number of undisputed votes cast for and against the Restated
Articles of Incorporation by each voting group entitled to vote separately on
the Restated Articles of Incorporation are as follows:
Voting Group Votes For Votes Against
------------ --------- -------------
Common Stock 1,000 0
The number of votes cast for the Restated Articles of Incorporation by each
voting group was sufficient for approval by that voting group.
These Restated Articles of Incorporation are to be effective when filed by
the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ PAUL J. LEIGHTON
----------------------------------
Paul J. Leighton, Vice President and
Secretary
MER-141.rev
06/22/95
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<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. As of June 30, 1995, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation ("Articles of
Incorporation") of the Corporation, determining certain terms of its class of
shares designated in Article III of its Articles of Incorporation as Preferred
Stock, no par value ("Preferred Stock"), and creating and determining the terms
of the ten series of Preferred Stock (collectively, the "Merger Series") to be
issued on the date on which the merger ("Merger") of Midwest Resources Inc., an
Iowa corporation ("Midwest Resources"), Midwest Power Systems Inc., an Iowa
corporation ("Midwest Power"), and Iowa-Illinois Gas and Electric Company, an
Illinois corporation ("Iowa-Illinois"), with and into the Corporation becomes
effective ("Effective Date of the Merger"), upon the conversion of (i) all
shares of each series of Midwest Power Preferred Stock, no par value ("Midwest
Power Preferred Stock"), into shares of a particular series of Preferred Stock,
and (ii) all shares of each series of Iowa-Illinois Preference Shares, without
par value ("Iowa-Illinois Preference Stock"), into shares of a particular series
of Preferred Stock, including the certain preferences, limitations and relative
rights of holders of shares of Preferred Stock, and the designation,
preferences, limitations and relative rights of each Merger Series.
3. The text of the Amendment determining the terms of the Preferred Stock
and the terms of each Merger Series, is as follows:
<PAGE>
A. Designations. Each Merger Series is given one of the following
distinguishing designations:
$1.7375 Series
$3.30 Series
$3.75 Series
$3.90 Series
$4.20 Series
$4.35 Series
$4.40 Series
$4.80 Series
$5.25 Series
$7.80 Series
B. Number of Shares. Each Merger Series shall consist of the following
number of shares of Preferred Stock:
Series Number of Shares
-------------- ----------------
$1.7375 Series 2,400,000
$3.30 Series 49,622
$3.75 Series 38,320
$3.90 Series 32,630
$4.20 Series 47,369
$4.35 Series 49,950
$4.40 Series 50,000
$4.80 Series 49,898
$5.25 Series 100,000
$7.80 Series 400,000
C. Distributions ("Dividends").
(1) The holders of the shares of each Merger Series in preference
to the holders of Common Stock and the holders of any other shares of
the Corporation which rank junior to the Preferred Stock, shall be
entitled to receive, but only when and as declared by the Board of
Directors, out of any assets legally available therefor, Dividends in
lawful money of the United States of America, in the amount per annum
set forth in the designation of such Merger Series in these Articles
of Amendment creating such Merger Series, and no more.
(2) Dividends on the Merger Series shares shall be payable
quarterly on the first day of each of the months of March, June,
September and December ("Dividend Payment Date") with respect to the
quarterly Dividend period ending on the date preceding each such
Dividend Payment Date, to shareholders of record as of a date to be
fixed by the Board of Directors, not exceeding thirty (30)
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<PAGE>
days and not less than ten (10) days preceding such Dividend Payment
Dates; provided, however, that the first Dividend payable on the $5.25
Series and the $7.80 Series shall be paid as follows:
(a) if a regular Dividend Payment Date for the shares of
Iowa-Illinois Preference Stock which were converted into shares
of such Merger Series in the merger of Midwest Resources, Midwest
Power and Iowa-Illinois with and into the Corporation
("Iowa-Illinois Payment Date"), occurs after the Effective Date
of the Merger but before the first Dividend Payment Date after
the Effective Date of the Merger ("First Dividend Payment Date"),
then
(i) a Dividend shall be paid on the shares of such
Merger Series on the Iowa-Illinois Payment Date in the
regular quarterly amount, and
(ii) a Dividend shall be paid on the shares of such
Merger Series on the First Dividend Payment Date, but only
in the amount obtained by multiplying the regular quarterly
amount of such Dividend by a fraction (A) the numerator of
which is the number of days in the period commencing on the
Iowa-Illinois Payment Date and ending on and including the
day prior to the First Dividend Payment Date, and (B) the
denominator of which is the number of days in the period
commencing on the Dividend Payment Date preceding the
Effective Date of the Merger and ending on and including the
day prior to the First Dividend Payment Date; or
(b) if the First Dividend Payment Date occurs before an
Iowa-Illinois Payment Date, a Dividend shall be paid on the
shares of such Merger Series on the First Dividend Payment Date,
but only in the amount obtained by multiplying the regular
quarterly amount of such Dividend by a fraction (i) the numerator
of which is the number of days in the period commencing on the
Iowa-Illinois Payment Date preceding the Effective Date of the
Merger and ending on and including the day prior to the First
Dividend Payment Date, and (ii) the denominator of which is the
number of days in the period commencing on the Dividend Payment
Date preceding the Effective Date of the Merger and ending on and
including the day prior to the First Dividend Payment Date.
3
<PAGE>
(3) Except as provided in Section C (2), Dividends on each Merger
Series share shall be cumulative from the Dividend Payment Date
preceding the Effective Date of the Merger. Accumulations of Dividends
shall not bear interest.
(4) Except as provided in Section C (2), no Dividend shall be
paid upon, or declared and set apart for, any Merger Series share for
any quarterly period or portion thereof unless (i) at the same time a
like proportionate Dividend for the same quarterly period or portion
thereof shall be paid upon, or declared and set aside, for all Merger
Series shares and all other shares of Preferred Stock on which
Dividends are payable on a Dividend Payment Date and (ii) no Dividends
on any other shares of Preferred Stock are accrued and unpaid.
(5) So long as any Merger Series shares are outstanding, the
Corporation shall not (i) pay or declare or set aside any Dividend or
other distribution on any shares of Common Stock or on any other
junior shares of the Corporation which rank below the Preferred Stock
with respect to any assets, Dividends or other distributions or upon
Liquidation or (ii) purchase, redeem or otherwise acquire for value
any shares of Common Stock or such junior shares, in each case unless
and until full Dividends have been declared and paid upon or set apart
for payment on all shares of Preferred Stock, with respect to all
Dividend periods and the Dividend period which includes the date of
such Dividend or distribution on Common Stock or such junior shares;
provided, however, that the foregoing terms of this Section C (5)
shall not apply to the declaration and payment of Dividends or other
distributions on any shares of Common Stock or such junior shares if
payable solely in shares of Common Stock or such junior shares, nor to
the acquisition of shares of Common Stock or such junior shares in
exchange for, or through the application of the proceeds of the sale
of, any shares of Common Stock or such junior shares.
D. Redemption.
(1) Subject to the limitations set forth in Section F, the
outstanding shares of each Merger Series may be redeemed by the
Corporation, at its option, by action of its Board of Directors, as a
whole at any time or in part from time to time, by paying in cash on a
redemption date specified by the Board of Directors, the following
redemption prices, in each case plus an amount equal to accrued and
unpaid Dividends thereon to such redemption date:
4
<PAGE>
$1.7375 Series:
$26.3900 per share on December 1, 1994
through November 30, 1995
$26.0425 per share on December 1, 1995
through November 30, 1996
$25.6950 per share on December 1, 1996
through November 30, 1997
$25.3475 per share on December 1, 1997
through November 30, 1998
$25.000 per share on or after December 1,
1998
$3.30 Series:
$101.50 per share
$3.75 Series:
$102.75 per share
$3.90 Series:
$105.00 per share
$4.20 Series:
$103.439 per share
$4.35 Series:
$102.00 per share
$4.40 Series:
$101.50 per share
$4.80 Series:
$102.70 per share
$5.25 Series:
$101.97 per share on November 1, 1998
through October 31, 1999
$101.31 per share on November 1, 1999
through October 31, 2000
$100.66 per share on November 1, 2000
through October 31, 2001
$100.00 per share on or after November 1,
2001
$7.80 Series:
$107.80 per share on May 1, 1996 through
April 30, 2001
$103.90 per share on May 1, 2001 through
April 30, 2002
$101.95 per share on or after May 1, 2002
provided, however, that (i) prior to December 1, 1998, no shares of
the $1.7375 Series may be redeemed through a refunding, directly or
indirectly, by or in anticipation of the incurring of any debt which
has an interest cost, or the issuance of stock ranking equally with or
prior to the $1.7375 Series as to Dividends or assets which has a
Dividend cost to the Corporation (computed in accordance with
generally accepted financial practice), of less that 7.15% per annum,
(ii) prior
5
<PAGE>
to November 1, 1998, no shares of the $5.25 Series may be redeemed at
the option of the Corporation, and (iii) prior to May 1, 1996, no
shares of the $7.80 Series may be redeemed at the option of the
Corporation.
(2) Subject to the limitations set forth in Section F, the
Corporation shall on November 1, 2003 redeem all shares of the $5.25
Series then outstanding at $100.00 per share, plus accrued and unpaid
Dividends thereon through October 31, 2003.
(3) "Accrued and unpaid Dividends" as used in this Amendment with
respect to any Merger Series share means the amount, if any, by which
the applicable amount of Dividend per annum from the date after which
Dividends on such share become cumulative to the date in question,
exceeds the Dividends actually paid or declared and set aside for
payment thereon.
(4) Notice of any proposed redemption of any Merger Series shares
shall be given by the Corporation by mailing a copy of such notice not
more than sixty (60) nor less than thirty (30) days prior to the date
fixed for such redemption to the holders of record of such shares to
be redeemed, at their respective addresses then appearing on the books
of the Corporation; but no failure to mail such notice or any defect
therein, or in the mailing thereof, shall affect the validity of the
proceedings for the redemption of any Merger Series shares so to be
redeemed.
(5) In case of redemption of only a part of the shares of any
Merger Series at the time outstanding, the shares of such Merger
Series to be redeemed shall be selected by lot in such manner as the
Board of Directors may determine.
(6) On the redemption date specified in the notice of such
redemption the Corporation shall, and at any time within sixty (60)
days prior to such redemption date may, deposit in trust, for the
account of the holders of the Merger Series shares to be redeemed,
funds necessary for such redemption with a bank or trust company in
good standing, organized under the laws of the United State of America
or of the State of Iowa, doing business in the City of Des Moines,
Iowa, having combined capital, surplus and undivided profits of at
least $2,500,000 and designated in such notice of redemption.
(7) Notice having been given and funds necessary for such
redemption having been deposited, all as provided in this Section D,
all Merger Series shares with respect to the redemption of which such
notice shall be given and deposit made, shall thenceforth, whether or
not the date fixed for such redemption shall have yet occurred, or the
certificates for such shares shall have been
6
<PAGE>
surrendered for cancellation, be deemed no longer to be outstanding
for any purpose, and all rights with respect to such shares shall
thereupon cease and terminate except only the right of the holders of
the certificates for such shares to receive, out of the funds so
deposited in trust, upon or after the redemption date (unless an
earlier date is fixed by the Board of Directors), the redemption
funds, without interest, to which they are entitled upon endorsement,
if required, and surrender of their certificates for such shares.
(8) At the expiration of six (6) years after the redemption date
such trust shall terminate and any such moneys then remaining on
deposit with such bank or trust company which are unclaimed by the
holders of the certificates for the Merger Series shares which have
been so redeemed, plus interest thereon, if any, shall be paid by such
bank or trust company to the Corporation, free of trust, and
thereafter the holders of the certificates for such shares shall have
no claim against such bank or trust company but only claims as
unsecured creditors against the Corporation for the amount payable
upon the redemption thereof, without interest.
(9) Any interest on or other accretions to funds deposited with
such bank or trust company pursuant to this Section D shall belong to
the Corporation.
E. Sinking Fund. Subject to the limitations set forth in Section F,
while any shares of the $7.80 Series shall remain outstanding, the
Corporation shall on or before May 1, 2001, and on or before May 1 of each
year thereafter to and including May 1, 2005 (each such May 1 being
hereinafter in this Section E called a "Sinking Fund Redemption Date"), set
aside, separate and apart from its other funds, an amount equal to
$6,660,000 (or such lesser amount as may be sufficient to redeem all of the
shares of the $7.80 Series then outstanding) as a mandatory sinking fund
payment for the exclusive benefit of shares of the $7.80 Series, plus such
further amount as shall equal the accrued and unpaid Dividends on the
shares of the $7.80 Series to be redeemed out of such payment (as
hereinafter in this Section E provided) through the day preceding the
applicable Sinking Fund Redemption Date. The obligation of the Corporation
to make such payments shall be cumulative, so that if for any reason the
full amount thereof shall not be set aside for any year, the amount of the
deficiency from time to time shall be added to the amount due from the
Corporation on subsequent Sinking Fund Redemption Dates until the
deficiency shall have been fully satisfied. The Corporation shall be
entitled to credit against any such mandatory sinking fund payment shares
of the $7.80 Series redeemed, purchased or otherwise acquired by the
Corporation, except through application of any sinking fund payment
(whether mandatory or optional), and not theretofore so credited, at the
sinking fund redemption price hereinafter specified in this Section E.
7
<PAGE>
In addition to the mandatory sinking fund payments required by the immediately
preceding paragraph, the Corporation may at its option, in respect of any
Sinking Fund Redemption Date, set aside, separate and apart from its other
funds, an amount not in excess of $6,660,000 as an optional sinking fund payment
for the exclusive benefit of shares of the $7.80 Series, plus such further
amount as shall equal the accrued and unpaid Dividends on the shares of the
$7.80 Series to be redeemed out of such payment (as hereinafter in this Section
E provided) through the day preceding the applicable Sinking Fund Redemption
Date. The privilege of making such payments shall not be cumulative, and no such
payment shall relieve the Corporation to any extent from its obligation to make
any subsequent mandatory sinking fund payment.
Any amounts set aside by the Corporation pursuant to this Section E shall be
applied on the date of such setting aside if a Sinking Fund Redemption Date or
otherwise on the first Sinking Fund Redemption Date occurring thereafter to the
redemption of shares of the $7.80 Series at $100.00 per share, plus accrued and
unpaid Dividends through the day preceding the applicable Sinking Fund
Redemption Date, in the manner and upon the notice provided in Section D. If any
Sinking Fund Redemption Date shall be a Saturday, Sunday or other day on which
banking institutions in Chicago, Illinois or New York, New York are authorized
or obligated to remain closed, such term shall be construed to refer to the next
preceding business day. Subject to the limitations stated in Section F, the
Corporation shall on May 1, 2006 redeem any shares of the $7.80 Series then
outstanding at $100.00 per share, plus accrued and unpaid Dividends through
April 30, 2006.
F. Repurchase.
(1) The Corporation may from time to time purchase or otherwise
acquire Merger Series shares at a price not exceeding the amount at
the time payable in the event of redemption thereof otherwise than
through the operation of the applicable sinking fund, if any.
(2) If and so long as the Corporation shall be in default in the
payment of any quarterly Dividend on any Merger Series shares, or
shall be in default in the payment of funds into or the setting aside
of funds for any sinking fund created for any Merger Series shares,
the Corporation shall not (other than by the use of unapplied funds,
if any, paid into or set aside for a sinking fund or funds prior to
such default):
(a) redeem any Merger Series shares, unless all Merger
Series shares are redeemed, or
8
<PAGE>
(b) purchase or otherwise acquire for a valuable
consideration any Merger Series shares, except pursuant to offers
of sale made by the holders of Merger Series shares in response
to an invitation for tenders given by mail by the Corporation
simultaneously to the holders of record of all Merger Series
shares then outstanding, at their respective addresses then
appearing on the books of the Corporation.
G. Preference on Liquidation.
(1) Before any distribution of any assets of the Corporation
shall be made to the holders of any Common Stock or any other junior
shares of the Corporation which rank below the Preferred Stock with
respect to any assets, Dividends or other distributions:
(a) in the event of any liquidation, dissolution or winding
up ("Liquidation") of the Corporation which is voluntary:
(i) the holders of the shares of the $1.7375 Series,
$3.30,Series, $3.75 Series, $4.35 Series, $4.40 Series,
$4.80 Series, $5.25 Series and $7.80 Series shall b entitled
to receive an amount per share equal to the amount which
would then be payable upon such share in the event of
redemption thereof in accordance with Section D(1), except
that prior to November 1, 1998, the holders of the shares of
the $5.25 Series shall be entitled to receive $105.25 per
share and prior to May 1, 2001, the holders of the shares of
the $7.80 Series shall be entitled to receive $107.80 per
share, and no more; and
(ii) the holders of the shares of the $3.90 Series and
$4.20 Series shall be entitled to receive the amount of one
hundred dollars ($100) per share plus accrued and unpaid
Dividends to the date of payment of such amount, and no
more.
(b) in the event of any Liquidation of the Corporation which
is involuntary:
(i) the holders of the shares of the $3.30 Series,
$3.75 Series, $3.90 Series, $4.20 Series, $4.35 Series,
$4.40 Series, $4.80 Series, $5.25 Series and $7.80 Series
shall be entitled to receive the amount of one hundred
dollars ($100) per share plus accrued and unpaid Dividends
to the date of payment of such amount, and no more; and
9
<PAGE>
(ii) the holders of the shares of the $1.7375 Series
shall be entitled to receive the amount of twenty-five
dollars ($25.00) per share plus accrued and unpaid Dividends
to the date of payment of such amount, and no more.
(2) If upon any Liquidation the assets distributable among the
holders of the shares of Preferred Stock shall be insufficient to
permit the payment of the full preferential amounts to which they
shall be entitled, then the entire assets of the Corporation to be
distributed shall be distributed among the holders of the shares of
Preferred Stock then outstanding ratably in proportion to the amounts
to which such holders are respectively entitled.
(3) If upon any Liquidation the holders of the shares of
Preferred Stock shall receive the full preferential amounts to which
they shall be entitled, the remaining assets and funds of the
Corporation shall be distributed among the holders of the shares of
Common Stock and of any other junior shares of the Corporation which
rank below the Preferred Stock with respect to any assets, or
Dividends or other distributions, according to their respective rights
and preferences and according to their respective shares.
(4) Neither a consolidation nor a merger of the Corporation, nor
a sale or transfer of substantially all its assets as an entirety, nor
a redemption or a purchase or other acquisition by the Corporation of
less than all of its shares of any class at the time outstanding,
shall be regarded as a Liquidation within the meaning of this Section
G.
H. Voting Rights.
(1) Except to the extent required by law or as permitted by this
Section H, the holders of Merger Series shares shall have no voting
rights.
(2) If at any time Dividends on any Preferred Stock shall be
accrued and unpaid in an amount equivalent to six or more full
quarterly Dividends, the holders of all shares of Preferred Stock,
voting together as a single class for such purpose, shall be entitled
until, but only until, all Dividends accrued and unpaid on all shares
of Preferred Stock shall have been paid (or deposited in trust for
payment on or before the next succeeding Dividend Payment Date with
respect to Merger Series shares, and on or before the next succeeding
date or dates upon which Dividends are payable on other series of
Preferred Stock), to elect two (2) Directors of the Corporation.
10
<PAGE>
(3) While the holders of the shares of Preferred Stock remain
entitled to elect two (2) Directors of the Corporation, the payment of
Dividends on Preferred Stock, including accrued an unpaid Dividends,
shall not be unreasonably withheld if the financial condition of the
Corporation permits payment thereof.
(4) The right of the holders of the shares of Preferred Stock
under this Section H to elect two (2) Directors of the Corporation may
be exercised at any annual meeting of shareholders or, within the
limitations of this Section H, at a special meeting of shareholders
held for such purpose; whenever such right shall have become vested,
upon request signed by any holder of record of shares of Preferred
Stock and delivered to the Corporation at its principal office not
less than ninety (90) days prior to the date for the annual meeting
next following the date of such vesting, the President of the
Corporation shall call a special meeting of shareholders, to be held
within sixty (60) days after the receipt of such request, for the
purpose of electing a new Board of Directors, of which two (2) shall,
subject to the provisions of this Section H, be elected by a vote of
the holders of the Preferred Stock to serve until the next annual
meeting or until their successors shall be elected and shall qualify.
(5) No such special meeting shall be required to be held within
120 days after such a prior special meeting, and the term of office of
each Director of the Corporation shall terminate at the time of any
such special meeting or adjournment thereof, notwithstanding that the
term for which such Director had been elected shall not then have
expired, and provided that the successor of such Director is duly
elected and qualified.
(6) In the event that at any special meeting at which the holders
of the shares of Preferred Stock shall be entitled to elect two (2)
Directors of the Corporation, a quorum of the holders of the shares of
Preferred Stock shall not be present in person or by proxy, the
holders of Common Stock, if a quorum thereof be present in person or
by proxy, shall temporarily elect the Directors of the Corporation,
which holders of the shares of Preferred Stock were entitled but
failed to elect, such Directors to be designated as having been so
elected and their respective terms of office to expire at such times
thereafter as their successors shall be elected by holders of the
shares of Preferred Stock as provided in this Section H.
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<PAGE>
(7) Whenever the holders of the shares of Preferred Stock shall
be entitled to elect two (2) Directors, any holder of record of a
share of Preferred Stock shall have the right, during regular business
hours, in person or by a duly authorized representative, to examine
the Corporation stock records of the Preferred Stock for the purpose
of communicating with other holders of Preferred Stock with respect to
the exercise of such right of election, and to make a list of such
holders.
(8) Whenever, under the terms of this Section H, the holders of
the shares of Preferred Stock shall be divested of the right to elect
two (2) Directors, upon request signed by any holder of record of
Common Stock and delivered to the Corporation at its principal office
not less than ninety (90) days prior to the date for the annual
meeting next following the date of such divesting, the President of
the Corporation shall call a special meeting of the holders of Common
Stock to be held within sixty (60) days after the receipt of such
request for the purpose of electing a new Board of Directors to serve
until the next annual meeting or until their respective successors
shall be elected and shall qualify.
(9) The term of office of each Director of the Corporation shall
terminate at the time of any such special meeting or adjournment
thereof at which a quorum of holders of Common Stock shall be present
in person or by proxy, notwithstanding that the term for which such
Director had been elected shall not then have expired, and provided
that the successor to such Director is duly elected and qualified.
(10) If, during any interval between annual meetings of
shareholders for the election of Directors and while the holders of
the shares of Preferred Stock shall be entitled to elect two (2)
Directors, a Director in office who has been elected by the holders of
the shares of Preferred Stock, shall, by reason of resignation, death
or removal, cease to be a Director, (a) the vacancy or vacancies shall
be filled by vote of the remaining Director then in office who was
elected by the holders of the shares of Preferred Stock or who
succeeded to a Director so elected, and (b) if any vacancy which
occurred more than six months prior to the date of the next ensuing
annual meeting is not so filled within forty (40) days after the
occurrence thereof, the President of the Corporation shall call a
special meeting of the holders of the shares of Preferred Stock and
such vacancy shall be filled at such special meeting.
(11) A Director elected by holders of the shares of Preferred
Stock may be removed from office only by vote of the holders of a
majority of the votes of the outstanding shares of Preferred Stock.
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<PAGE>
(12) At any annual or special meeting of the shareholders held
for any purpose, including the purpose of electing Directors when the
holders of the shares of Preferred Stock shall be entitled to elect
two (2) Directors, the presence in person or by proxy of holders of a
majority of the votes of the outstanding shares of Preferred Stock
shall be required to constitute a quorum of the holders of the shares
of Preferred Stock.
(13) At any meeting of shareholders at which the holders of the
shares of Preferred Stock are required to vote by law or are permitted
to vote by any articles of amendment to the Articles of Incorporation,
each holder of Merger Series shares shall have one vote for each such
Merger Series share except the holders of $1.7375 Series shares, which
shall have 1/4 vote for each such $1.7375 Series share, and each
holder of shares of each other series of Preferred Stock shall have
the number or fraction of votes set forth for each such share in the
articles of amendment to the Articles of Incorporation in which the
terms of such series are determined, in each case standing in the name
of such holder on the books of the Corporation on the record date
fixed for such purpose, or, if no record date is fixed, on the date on
which such vote is taken.
(14) The holders of shares of Preferred Stock shall not be
entitled to receive notice of any meeting at which they are not
entitled to vote.
I. No Preemptive Rights. No holder of Merger Series shares as such
shall have any preemptive or preferential right to purchase or subscribe
for any shares of stock or rights or options to purchase stock or any other
securities of the Corporation of any kind whatsoever whether now or
hereafter authorized.
13
<PAGE>
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Secretary
MER-142
06/22/95
14
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. As of December 13, 1995, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, cancelling the following Preferred Stock:
Series Number of Shares Cancelled
------ --------------------------
$3.30 Series 7
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$3.30 Series 49,615
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Secretary
MER-145
12/21/1995
<PAGE>
ARTICLES OF CORRECTION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to section 124 of the Iowa Business Corporation Act, the
undersigned corporation adopts the following articles of correction.
1. The name of the corporation is MidAmerican Energy Company.
2. The document to be corrected is the Articles of Amendment to the
Restated Articles of Incorporation of MidAmerican Energy Company.
3. The document to be corrected was filed by the secretary of state on
December 28, 1995.
4. The incorrect statements in the document to be corrected are as follows:
Series Number of Shares Cancelled
------ --------------------------
$3.30 Series 7
Series Number of Shares Remaining
------ --------------------------
$3.30 Series 49,615
5. The reason that the document is incorrect is due to the fact that the 7
should have been 99 and the 49,615 should have been 49,523.
6. The corrected statement is as follows:
Series Number of Shares Cancelled
------ --------------------------
$3.30 Series 99
Series Number of Shares Remaining
------ --------------------------
$3.30 Series 49,523
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
MER-145a
01/18/1996
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. As of April 23, 1996, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, cancelling the following Preferred Stock:
Series Number of Shares Cancelled
------ --------------------------
$1.7375 Series 350,000
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$1.7375 Series 2,050,000
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Secretary
MER-146.wpd
04/23/1996
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. As of July 24, 1996, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, canceling the following Preferred Stock:
Series Number of Shares Canceled
------ -------------------------
$1.7375 Series 119,000
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$1.7375 Series 1,931,000
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Secretary
MER-147.wpd
07/18/1996
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. As of October 30, 1996, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, canceling the following Preferred Stock:
Series Number of Shares Canceled
------ -------------------------
$1.7375 Series 43,000
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$1.7375 Series 1,888,000
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
MER-148.wpd
10/11/1996
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On January 22, 1997, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, canceling the following series of Preferred Stock of the
Corporation in its entirety:
Series Number of Shares Canceled
------ -------------------------
$1.7375 Series 1,888,0000
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$1.7375 Series 0
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. LEIGHTON
----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
MER-149.wpd
01.30.97
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. Article VA of the Restated Articles of Incorporation, as amended, is
hereby amended by deleting the second sentence thereof in its entirety and
substituting the following sentence therefor:
The number of directors of the Corporation shall be fixed by the
Bylaws but shall be no less than three (3) and no greater than
twenty-two (22), and such number may be increased or decreased from
time to time in accordance with the Bylaws, but no decrease shall have
the effect of shortening the term of any incumbent director.
3. The date of adoption of the amendment was April 17, 1997.
4A. The amendment was approved by the shareholders. The designation, number
of outstanding shares, number of votes entitled to be cast by each voting group
entitled to vote separately on the amendment, and the number of votes of each
voting group indisputably represented is as follows:
Votes Entitled
Designation Shares To Be Cast Votes
of Group Outstanding On Amendment Represented
----------- ----------- -------------- -----------
Common Stock 100,751,713 100,751,713 100,751,713
<PAGE>
4B. The total number of undisputed votes cast for and against the amendment
by each voting group entitled to vote separately on the amendment are as
follows:
Voting Group Votes For Votes Against
------------ ----------- -------------
Common Stock 100,751,713 0
The number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
These Articles of Amendment to the Restated Articles of Incorporation, as
amended, are to be effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD41797
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On May 8, 1997, the Board of Directors of MidAmerican Energy Company, an
Iowa corporation ("Corporation"), duly adopted the following Articles of
Amendment to the Restated Articles of Incorporation of the Corporation,
canceling the following series of Preferred Stock of the Corporation in its
entirety:
Series Number of Shares Canceled
------------ -------------------------
$3.30 Series 33
$4.35 Series 5
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------------
$3.30 Series 49,490
$4.35 Series 49,945
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
MER-150.wpd
05.08.97
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On August 7, 1997, the Board of Directors of MidAmerican Energy Company,
an Iowa corporation ("Corporation"), duly adopted the following Articles of
Amendment to the Restated Articles of Incorporation of the Corporation, as
amended, canceling the following series of Preferred Stock of the Corporation in
its entirety:
Series Number of Shares Canceled
------------ -------------------------
$3.30 Series 5
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------------ --------------------------
$3.30 Series 49,485
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD8797
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On October 27, 1997, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, as amended, canceling the following series of Preferred Stock of
the Corporation in its entirety:
Series Number of Shares Canceled
----------- -------------------------
$3.75 Series 10
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------------ --------------------------
$3.75 Series 38,310
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD1097
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On November 7, 1997, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, as amended, canceling the following series of Preferred Stock of
the Corporation in its entirety:
Series Number of Shares Canceled
------------ -------------------------
$3.30 Series 3
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------------ --------------------------
$3.30 Series 49,482
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD1197
<PAGE>
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
MIDAMERICAN ENERGY COMPANY
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to the provisions of Section 490.601, and in accordance with
Section 490.602(4), of the Iowa Business Corporation Act, the undersigned
corporation hereby adopts the following Articles of Amendment to the
corporation's Restated Articles of Incorporation.
1. The name of the corporation is:
MidAmerican Energy Company
2. On December 22, 1997, the Board of Directors of MidAmerican Energy
Company, an Iowa corporation ("Corporation"), duly adopted the following
Articles of Amendment to the Restated Articles of Incorporation of the
Corporation, as amended, canceling the following series of Preferred Stock of
the Corporation in its entirety:
Series Number of Shares Canceled
------ -------------------------
$3.30 Series 1
3. The total number of authorized Preferred Stock for the following Series,
is remaining after the cancellation:
Series Number of Shares Remaining
------ --------------------------
$3.30 Series 49,481
The Articles of Amendment to the Restated Articles of Incorporation were
adopted by the Board of Directors without action by the shareholders. These
Articles of Amendment to the Restated Articles of Incorporation are to be
effective when filed by the Secretary of State.
MIDAMERICAN ENERGY COMPANY
/s/ P. J. Leighton
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD1297
EXHIBIT 12.1
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 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 ........................... $139,332 $ - $139,332 $143,761 $ - $143,761
Pre-tax (gain) loss of less than 50% owned persons .......... 2,234 - 2,234 (698) - (698)
-------- ------ -------- -------- ------ --------
141,566 - 141,566 143,063 - 143,063
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 68,390 - 68,390 98,422 - 98,422
Interest on long-term debt .................................. 89,898 3,760 93,658 102,909 3,615 106,524
Other interest charges ...................................... 10,034 - 10,034 10,941 - 10,941
Preferred stock dividends of subsidiary...................... 6,488 - 6,488 10,401 - 10,401
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 288 - 288
Interest on leases .......................................... 268 - 268 375 - 375
-------- ------ -------- -------- ------ --------
183,058 3,760 186,818 223,336 3,615 226,951
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 324,624 3,760 328,384 366,399 3,615 370,014
-------- ------ -------- -------- ------ ---------
Fixed Charges:
Interest on long-term debt .................................. 89,898 3,760 93,658 102,909 3,615 106,524
Other interest charges ...................................... 10,034 - 10,034 10,941 - 10,941
Preferred stock dividends of subsidiary ..................... 7,980 - 7,980 288 - 288
Interest on leases .......................................... 268 - 268 375 - 375
-------- ------ -------- -------- ------ ---------
Total fixed charges ....................................... 108,180 3,760 111,940 114,513 3,615 118,128
-------- ------ -------- -------- ------ ---------
Ratio of earnings to fixed charges .......................... 3.00 - 2.93 3.20 - 3.13
======== ====== ======== ======== ====== =========
Preferred stock dividends of subsidiary ..................... $ 6,488 $ - $ 6,488 $ 10,401 $ - $ 10,401
Ratio of net income before income taxes to net income ....... 1.4690 - 1.4690 1.6384 - 1.6384
-------- ------ -------- -------- ------ ---------
Preferred stock dividend requirements before income tax ..... 9,531 - 9,531 17,041 - 17,041
-------- ------ -------- -------- ------ ---------
Fixed charges plus preferred stock dividend requirements .... 117,711 3,760 121,471 131,554 3,615 135,169
-------- ------ -------- -------- ------ ---------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.76 - 2.70 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
<TABLE>
<CAPTION>
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)
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
<TABLE>
<CAPTION>
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)
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 ..................... - - - - - -
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
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 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 ........................... $125,941 $ - $125,941 $165,132 $ - $165,132
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 76,317 - 76,317 112,927 - 112,927
Interest on long-term debt .................................. 78,120 3,760 81,880 79,434 3,615 83,049
Other interest charges ...................................... 10,027 - 10,027 10,842 - 10,842
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 288 - 288
Interest on leases .......................................... 268 - 268 375 - 375
-------- ------ -------- -------- ------ --------
172,712 3,760 176,472 203,866 3,615 207,481
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 298,653 3,760 302,413 368,998 3,615 372,613
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt .................................. 78,120 3,760 81,880 79,434 3,615 83,049
Other interest charges ...................................... 10,027 - 10,027 10,842 - 10,842
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 288 - 288
Interest on leases .......................................... 268 - 268 375 - 375
-------- ------ -------- -------- ------ --------
Total fixed charges........................................ 96,395 3,760 100,155 90,939 3,615 94,554
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 3.10 - 3.02 4.06 - 3.94
======== ====== ======== ======== ====== ========
Preferred stock dividends of subsidiary...................... $ 6,488 $ - $ 6,488 $ 10,401 $ - $ 10,401
Ratio of net income before income taxes to net income ....... 1.6060 - 1.6060 1.6839 - 1.6839
-------- ------ -------- -------- ------ --------
Preferred stock dividend requirements before income tax ..... 10,420 - 10,420 17,514 - 17,514
-------- ------ -------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .... 106,815 3,760 110,575 108,453 3,615 112,068
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.80 - 2.73 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
<TABLE>
<CAPTION>
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)
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
<TABLE>
<CAPTION>
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)
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-
EXHIBIT 21.1
SUBSIDIARIES OF MIDAMERICAN ENERGY HOLDINGS COMPANY
The information required by this exhibit is incorporated herein by
reference to the material appearing under item 1 on pages 1 through 3 of
Holdings' Form U-3A-2 filed with the SEC on February 27, 1998.
EXHIBIT 21.2
SUBSIDIARIES OF MIDAMERICAN ENERGY COMPANY
AS OF DECEMBER 31, 1997
Jurisdiction
Subsidiary of Incorporation
- - ---------- ----------------
CBEC Railway Inc. Iowa
MidAmerican Energy Financing I Delaware
As of the end of the year covered by this report, MidAmerican Energy Company's
remaining subsidiaries, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary as defined in Rule 1-02(w) of
Regulation S-X.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of MidAmerican Energy Holdings Company on Form S-3 (File No. 33-60549)
and Form S-8 (File Nos. 33-60849, 33-60851 and 333-02803) of our report dated
January 23, 1998, on our audits of the consolidated financial statements of
MidAmerican Energy Holdings Company as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996, and 1995, which report is included in
this Form 10-K.
/s/ Coopers & Lybrand L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
March 20, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of MidAmerican Energy Company on Form S-3 (File No. 333-15387) and
Form S-8 (File No. 2-85102) of our report dated January 23, 1998, on our audits
of the consolidated financial statements of MidAmerican Energy Company as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996, and
1995, which report is included in this Form 10-K.
/s/ Coopers & Lybrand L.L.P.
----------------------------
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
March 20, 1998
