UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period September 30, 1998
----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- --------------------
Commission Registrant, State of Incorporation, IRS Employer
File Number Address and Telephone Number Identification No.
- - ----------- ----------------------------------- ------------------
1-12459 MIDAMERICAN ENERGY HOLDINGS COMPANY 42-1451822
(An Iowa Corporation)
666 Grand Ave. PO Box 657
Des Moines, Iowa 50303
515-242-4300
1-11505 MIDAMERICAN ENERGY COMPANY 42-1425214
(An Iowa Corporation)
666 Grand Ave. PO Box 657
Des Moines, Iowa 50303
515-242-4300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuers' classes
of common stock as of the latest practicable date.
Registrant Class Shares Outstanding at October 30, 1998
- - ------------------ ----------------- --------------------------------------
MidAmerican Energy Common Stock 94,104,682 *
Holdings Company without par value
MidAmerican Energy Common Stock 70,980,203 (all of which were held by
Company without par value MidAmerican Energy Holdings Company)
* MidAmerican Energy Holdings Company common shares outstanding at October 30,
1998, exclude 437,131 shares which are held by a subsidiary.
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
AND
MIDAMERICAN ENERGY COMPANY
This combined Form 10-Q is separately filed by MidAmerican Energy Holdings
Company (Company or Holdings) and MidAmerican Energy Company (MidAmerican).
Information herein relating to each individual registrant is filed by such
registrant on its own behalf. Accordingly, except for its subsidiaries,
MidAmerican makes no representation as to information relating to any other
subsidiary of Holdings.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements Page No.
MidAmerican Energy Holdings Company
Consolidated Statements of Income.............................. 3
Consolidated Statements of Comprehensive Income................ 4
Consolidated Balance Sheets.................................... 5
Consolidated Statements of Cash Flows.......................... 6
Notes to Consolidated Financial Statements..................... 7
MidAmerican Energy Company
Consolidated Statements of Income.............................. 12
Consolidated Balance Sheets.................................... 13
Consolidated Statements of Cash Flows.......................... 14
Notes to Consolidated Financial Statements..................... 15
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..... 42
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................. 42
ITEM 4. Submission of Matters to a Vote of Security Holders............ 43
ITEM 6. Exhibits and Reports on Form 8-K............................... 44
Signatures .............................................................. 45
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30 ENDED SEPT. 30
1998 1997 1998 1997 1998 1997
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility............................... $ 363,992 $ 334,336 $ 907,440 $ 850,453 $1,183,287 $1,109,438
Gas utility.................................... 63,156 60,208 303,644 352,686 487,264 534,933
Nonregulated................................... 85,562 40,701 166,577 197,528 228,724 295,168
--------- --------- ---------- ---------- ---------- ----------
512,710 435,245 1,377,661 1,400,667 1,899,275 1,939,539
--------- --------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity........... 71,906 67,258 174,190 178,682 231,268 235,337
Cost of gas sold............................ 33,127 34,320 171,096 221,252 295,860 346,541
Other operating expenses.................... 118,291 98,686 336,814 290,984 475,624 381,032
Maintenance................................. 27,522 24,217 80,845 70,315 108,620 90,320
Depreciation and amortization............... 44,178 42,815 132,560 126,883 176,217 168,349
Property and other taxes.................... 24,370 26,139 74,135 76,482 98,970 97,324
--------- --------- ---------- ---------- ---------- ----------
319,394 293,435 969,640 964,598 1,386,559 1,318,903
--------- --------- ---------- ---------- ---------- ----------
Nonregulated:
Cost of sales............................... 49,851 37,112 113,084 183,325 169,941 277,084
Other....................................... 28,723 6,750 49,212 22,168 57,120 32,402
--------- --------- ---------- ---------- ---------- ----------
78,574 43,862 162,296 205,493 227,061 309,486
--------- --------- ---------- ---------- ---------- ----------
Total operating expenses.................... 397,968 337,297 1,131,936 1,170,091 1,613,620 1,628,389
--------- --------- ---------- ---------- ---------- ----------
OPERATING INCOME.............................. 114,742 97,948 245,725 230,576 285,655 311,150
--------- --------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest income............................... 3,188 1,019 7,818 4,134 9,002 5,058
Dividend income............................... 2,340 3,252 7,792 10,507 11,077 14,411
Realized gains and losses on securities, net.. (2,249) (276) (230) 340 7,228 (969)
Other, net.................................... (887) 5,573 5,548 12,837 14,822 8,276
--------- --------- ---------- ---------- ---------- ----------
2,392 9,568 20,928 27,818 42,129 26,776
--------- --------- ---------- ---------- ---------- ----------
FIXED CHARGES
Interest on long-term debt.................... 21,009 20,617 61,617 66,909 84,606 92,295
Other interest expense........................ 3,482 2,383 10,110 7,831 12,313 10,493
Preferred dividends of subsidiaries........... 3,234 3,234 9,699 11,234 12,933 15,175
Allowance for borrowed funds.................. (1,074) (620) (2,749) (1,932) (3,414) (2,858)
--------- --------- ---------- ---------- ---------- ----------
26,651 25,614 78,677 84,042 106,438 115,105
--------- --------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES........................ 90,483 81,902 187,976 174,352 221,346 222,821
INCOME TAXES.................................. 36,861 32,197 74,621 66,297 76,714 85,057
--------- --------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS............. 53,622 49,705 113,355 108,055 144,632 137,764
--------- --------- ---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS
Income (loss) from operations
(net of income taxes)....................... - 407 - 1,105 (1,223) 312
Loss on disposal (net of income taxes)........ - (3,200) - (3,724) (386) (4,192)
--------- --------- ---------- ---------- ---------- ----------
- (2,793) - (2,619) (1,609) (3,880)
--------- --------- ---------- ---------- ---------- ----------
NET INCOME.................................... $ 53,622 $ 46,912 $ 113,355 $ 105,436 $ 143,023 $ 133,884
========= ========= ========== ========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING............. 94,105 97,097 94,504 98,752 94,873 99,213
EARNINGS PER COMMON SHARE
-BASIC AND DILUTED:
Continuing operations......................... $ 0.57 $ 0.51 $ 1.20 $ 1.09 $ 1.52 $ 1.39
Discontinued operations....................... - (0.03) - (0.02) (0.01) (0.04)
--------- ---------- ---------- ---------- ---------- ----------
Earnings per average common share............. $ 0.57 $ 0.48 $ 1.20 $ 1.07 $ 1.51 $ 1.35
========= ========= ========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE.................. $ 0.30 $ 0.30 $ 0.90 $ 0.90 $ 1.20 $ 1.20
========= ========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30 ENDED SEPT. 30
1998 1997 1998 1997 1998 1997
--------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME............................................ $ 53,622 $ 46,912 $113,355 $105,436 $143,023 $133,884
--------- --------- -------- -------- -------- --------
OTHER COMPREHENSIVE INCOME, NET
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) during period....... (142,235) 285,706 (88,982) 288,728 (153,783) 291,965
Less reclassification adjustment for realized gains
(losses) reflected in net income during period.... (2,249) (284) (230) 329 7,228 (993)
---------- --------- -------- -------- -------- --------
(139,986) 285,990 (88,752) 288,399 (161,011) 292,958
Income tax (benefit) expense.......................... (48,995) 100,357 (30,981) 101,146 (56,560) 102,741
--------- --------- -------- -------- -------- --------
(90,991) 185,633 (57,771) 187,253 (104,451) 190,217
--------- --------- -------- -------- -------- --------
COMPREHENSIVE INCOME.................................. $ (37,369) $ 232,545 $ 55,584 $292,689 $ 38,572 $324,101
========= ========= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
AS OF
---------------------------------------------
SEPT. 30 DECEMBER 31
---------------------------- -----------
1998 1997 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric.......................................................... $4,136,095 $4,062,408 $4,084,920
Gas............................................................... 774,482 746,173 756,874
---------- ---------- ----------
4,910,577 4,808,581 4,841,794
Less accumulated depreciation and amortization.................... 2,390,915 2,250,667 2,275,099
---------- ---------- ----------
2,519,662 2,557,914 2,566,695
Construction work in progress..................................... 87,442 53,236 55,418
---------- ---------- ----------
2,607,104 2,611,150 2,622,113
---------- ---------- ----------
POWER PURCHASE CONTRACT........................................... 166,345 188,860 173,107
---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS............................. - 6,655 -
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents......................................... 14,151 12,290 10,468
Receivables....................................................... 157,504 214,462 207,471
Inventories....................................................... 90,851 94,969 86,091
Other............................................................. 39,538 12,169 18,452
---------- ---------- ----------
302,044 333,890 322,482
---------- ---------- ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET........................ 738,836 883,186 799,524
---------- ---------- ----------
OTHER ASSETS...................................................... 408,611 376,814 360,865
---------- ---------- ----------
TOTAL ASSETS...................................................... $4,222,940 $4,400,555 $4,278,091
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity....................................... $1,245,883 $1,368,299 $1,301,286
MidAmerican preferred securities, not subject to
mandatory redemption.......................................... 31,759 31,765 31,763
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities.............................. 50,000 50,000 50,000
MidAmerican-obligated preferred securities of subsidiary trust
holding solely MidAmerican junior subordinated debentures.. 100,000 100,000 100,000
Long-term debt (excluding current portion)........................ 1,044,981 1,103,551 1,034,211
---------- ---------- ----------
2,472,623 2,653,615 2,517,260
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable..................................................... 212,499 141,354 138,054
Current portion of long-term debt ................................ 69,631 77,727 144,558
Current portion of power purchase contract........................ 14,361 13,718 14,361
Accounts payable.................................................. 140,020 133,523 145,855
Taxes accrued..................................................... 115,227 72,739 92,629
Interest accrued.................................................. 20,075 20,503 22,355
Other............................................................. 52,966 53,630 38,766
---------- ---------- ----------
624,779 513,194 596,578
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract........................................... 83,143 97,504 83,143
Deferred income taxes............................................. 720,658 809,287 761,795
Investment tax credit............................................. 78,847 84,556 83,127
Other ............................................................ 242,890 242,399 236,188
---------- ---------- ----------
1,125,538 1,233,746 1,164,253
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES.............................. $4,222,940 $4,400,555 $4,278,091
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
<CAPTION>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1998 1997 1998 1997
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 53,622 $ 46,912 $113,355 $ 105,436
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization................................... 52,243 51,118 150,303 147,100
Net decrease in deferred income taxes and
investment tax credit, net................................... (4,418) (3,124) (14,539) (15,072)
Amortization of other assets.................................... 11,624 5,773 30,969 18,247
Loss from discontinued operations............................... - 2,792 - 2,619
Loss (gain) on sale of securities, assets and other investments. 2,409 189 (6,186) (1,638)
Other-than-temporary decline in value of investments............ - 3 110 255
Impact of changes in working capital, net of effects
from discontinued operations.................................. (10,573) (2,406) 52,804 69,303
Other........................................................... (3,968) 7,993 12,392 8,039
--------- -------- -------- ---------
Net cash provided............................................. 100,939 109,250 339,208 334,289
--------- -------- -------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures............................... (45,633) (49,815) (114,225) (113,844)
Quad Cities Nuclear Power Station
decommissioning trust fund.................................. (2,875) (2,779) (8,533) (7,060)
Deferred energy efficiency expenditures......................... - (5,909) - (12,258)
Nonregulated capital expenditures............................... (1,612) (2,498) (40,295) (9,500)
Purchase of real estate brokerage companies..................... (26,500) - (105,485) -
Purchase of securities.......................................... (35,713) (10,866) (134,067) (127,273)
Proceeds from sale of securities................................ 44,934 36,168 149,751 168,217
Proceeds from sale of assets and other investments.............. 501 1,472 28,845 15,142
Investment in discontinued operations........................... - 96 - 145,289
Other investing activities, net................................. (454) (6,793) (467) (6,741)
--------- -------- -------- ---------
Net cash (used) provided .................................... (67,352) (40,924) (224,476) 51,972
--------- -------- -------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid........................................... (28,343) (29,122) (85,029) (88,845)
Issuance of long-term debt, net of issuance cost................ - - 158,440 -
Retirement of long-term debt, including reacquisition cost...... (157,882) (58,069) (233,304) (119,859)
Reacquisition of preferred shares............................... (1) - (4) (4)
Reacquisition of common shares.................................. - (21,311) (25,597) (67,876)
Decrease in MidAmerican Capital Company
unsecured revolving credit facility......................... - - - (174,500)
Net increase (decrease) in notes payable........................ 45,070 (4,831) 74,445 (20,636)
--------- -------- -------- ---------
Net cash used............................................... (141,156) (113,333) (111,049) (471,720)
--------- -------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (107,569) (45,007) 3,683 (85,459)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................ 121,720 57,297 10,468 97,749
--------- -------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 14,151 $ 12,290 $ 14,151 $ 12,290
========= ======== ======== =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized....................... $ 22,755 $ 27,085 $ 66,754 $ 77,063
========= ======== ======== =========
Income taxes paid............................................... $ 23,760 $ 25,349 $ 58,411 $ 102,102
========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
Holdings, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of the Company, all adjustments have been made to
present fairly the financial position, the results of operations, comprehensive
income and the changes in cash flows for the periods presented. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
1) 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 (MGP) facilities may pose a threat
to the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
MidAmerican is evaluating 27 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action. MidAmerican
is currently conducting field investigations at 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 its responsibility, 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 September 30, 1998, is $24 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce Commission (ICC) has approved the use of a tariff rider which permits
recovery of the actual costs of litigation, investigation and remediation
relating to former MGP sites. MidAmerican's present rates in Iowa provide for a
fixed annual recovery of MGP costs. MidAmerican intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.
The 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. Second, if potential legal liability exists, the costs of
performing a preliminary investigation and the costs of removing known
contaminated soil are accrued. Finally, 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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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.
2) Clean Air Act:
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 the ozone standard in downwind states in the
eastern half of the United States. In September 1998, the EPA issued its final
rules in this proceeding. Iowa is not subject to the emissions reduction
requirements in the final rules, and, as such, MidAmerican's facilities are not
subject to additional emissions reductions as a result of this initiative.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards (NAAQS) for ozone and a new standard for fine particulate
matter. Based on data to be obtained from monitors located throughout each
state, the EPA will determine which states have areas that do not meet the air
quality standards (i.e., areas that are classified as nonattainment). If a state
has area(s) classified as nonattainment area(s), the state is required to submit
a State Implementation Plan specifying how it will reach attainment of the
standards through emission reductions or other means. In August 1998, the Iowa
Environmental Protection Commission adopted by reference the NAAQS for ozone and
fine particulate matter.
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. The attainment
status of areas in the state of Iowa will not be known for two to three years.
However, if MidAmerican's operations are determined to contribute to
nonattainment, the installation of additional control equipment, such as
scrubbers and/or selective catalytic reduction, on MidAmerican's units could be
required. The cost to install such equipment could be significant. MidAmerican
will continue to follow the attainment status of the areas in which it operates
and evaluate the potential impact of the status of these areas on MidAmerican
under the new regulations.
C) 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. MidAmerican
implemented an additional $0.9 million annual rate reduction for its Illinois
residential customers, effective August 1, 1998, in connection with Illinois'
electric utility restructuring law.
On June 27, 1997, the Iowa Utilities Board (IUB) approved a March 1997
settlement agreement between MidAmerican, the Iowa Office of Consumer Advocate
(OCA) and other parties. Six major components of the settlement and their status
are as follows:
1) On an annualized basis, prices for residential customers were reduced
$8.5 million, $10.0 million and $5.0 million effective November 1, 1996, July
11, 1997, and June 1, 1998, respectively, for a total annual decrease of $23.5
million.
2) Rates for industrial customers will be reduced by $6 million annually
and rates for commercial customers will be reduced by $4 million annually.
MidAmerican has been given permission to implement these reductions through a
retail access pilot project and through negotiated individual contracts. In the
event that these contracts in the aggregate do not reduce rates by $6 million
and $4 million, respectively, MidAmerican is required to apply any remaining
amount to across-the-board rate reductions to customers who do not enter into
contracts.
The effective date for these rate reductions was set for June 1, 1998, in
the IUB Order approving the settlement. However, the IUB approved a MidAmerican
request to extend the deadlines until September 1, 1998, for industrial
customers and December 31, 1998, for commercial customers. The delay in
deadlines includes an obligation
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to increase the amount of the reduction on a one-time basis to reflect the time
value of money between June 1, 1998, and the new deadlines. MidAmerican
estimates it will not have any interest obligation with respect to the
industrial contracts, and will not incur any material interest obligation
with respect to its commercial contracts.
The negotiated contracts have differing terms and conditions as well as
prices. The contracts range in length from five to ten years, and some have
price renegotiation and early termination provisions exercisable by either
party. The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts. Prices are set
as fixed prices; however, many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes, and transition costs. While the contract prices are fixed (except
for the potential adjustment elements), the costs MidAmerican incurs to fulfill
these contracts will vary. On an aggregate basis the annual revenues under
contract are approximately $155 million.
The IUB has recently considered the contracting process in two proceedings.
Its decisions in those proceedings allowed the contracting efforts to continue.
Contracts remain subject to IUB regulation.
3) A tracking mechanism (Cooper Tracker) is being used to currently
recover costs for capital improvements required by the Cooper Nuclear Station
Power Purchase Contract. Revenues from the Cooper Tracker will total
approximately $6 million in 1998. Other operating expenses will include a
comparable amount for currently expensing the related costs.
4) Elimination of the Iowa energy adjustment clause (EAC). Prior to
July 11, 1997, MidAmerican collected fuel costs from Iowa customers on a current
basis through the EAC, and thus, fuel costs had little impact on net income.
Since then, base rates for Iowa customers 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 are impacted. The fuel cost factor will be
reviewed in February 1999 and adjusted prospectively if actual 1998 fuel costs
vary by more than 15% above or below the factor included in base rates.
5) 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 IUB is reviewing MidAmerican's calculation of its 1997 return as a
result of an objection by the OCA. MidAmerican does not expect the ultimate
outcome of this issue to have a material impact on its financial condition or
results of operations.
6) MidAmerican has developed a pilot program for a market access service
which allows customers with at least 4 MW of load to choose energy suppliers.
The pilot program is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually 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, which has approved it, and the Federal Energy Regulatory
Commission (FERC). The Company anticipates FERC acceptance by year end.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible 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,
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<PAGE>
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 regulatory assets and
liabilities from its balance sheet related to its Illinois generation
operations. The net amount of such write-offs were immaterial. If other utility
operations no longer meet the criteria of SFAS 71, MidAmerican could be required
to write off the related regulatory assets and liabilities from its balance
sheet and thus, a material adjustment to earnings in that period could result.
As of September 30, 1998, MidAmerican had approximately $308 million of
regulatory assets in its Consolidated Balance Sheet because these costs are
expected to be recovered in future charges to utility customers.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
The MidAmerican Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely MidAmerican Junior Subordinated Debentures
included in the Consolidated Balance Sheets were issued by MidAmerican Energy
Financing I (the Trust), a wholly-owned statutory business trust of MidAmerican.
The sole assets of the Trust are $103.1 million of MidAmerican 7.98% Series A
Debentures due 2045.
F) COMMON SHAREHOLDERS' EQUITY:
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. As of September 30, 1998, the Company had
repurchased approximately 6.2 million shares for $114.8 million under the plan.
In addition, a subsidiary holds 437,131 shares of Holdings common stock which
are also excluded from shares outstanding.
G) DETAIL OF OTHER COMPREHENSIVE INCOME - INCOME TAXES:
For fiscal years beginning after December 15, 1997, full sets of
general-purpose financial statements are required to display comprehensive
income and its components in a financial statement that is displayed with the
same prominence as the other financial statements. Comprehensive income refers,
in general, to changes in the Company's equity, except those resulting from
transactions with shareholders. "Unrealized holding gains (losses)" reflects the
overall increase (decrease) in the market value of marketable securities held by
the Company as available-for-sale. The "reclassification adjustment" removes any
gains (losses) that have been realized from sales of those securities and
reflected in the Company's Net Income.
-10-
<PAGE>
The following table shows the income tax expense or benefit related to
each component (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended Sept. 30 Ended Sept. 30 Ended Sept. 30
-------------------- -------------------- ---------------------
1998 1997 1998 1997 1998 1997
--------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding gains/(losses)
during period
Before income taxes $(142,235) $285,706 $(88,982) $288,728 $(153,783) $291,965
Income tax benefit/(expense) 49,782 (100,257) 31,061 101,261 54,021 (102,393)
--------- -------- -------- -------- --------- --------
(92,453) 185,449 (57,921) 187,467 (99,762) 189,572
--------- -------- -------- -------- --------- --------
Less reclassification adjustment for
realized gains/(losses) reflected in
net income during period
Before income taxes (2,249) (284) (230) 329 7,228 (993)
Income tax benefit/(expense) 787 100 80 (115) (2,539) 348
--------- -------- -------- -------- --------- --------
(1,462) (184) (150) 214 4,689 (645)
--------- -------- -------- -------- --------- --------
Other Comprehensive Income, Net $ (90,991) $185,633 $(57,771) $187,253 $(104,451) $190,217
========= ======== ======== ======== ========= ========
</TABLE>
H) MCLEODUSA INCORPORATED INVESTMENT:
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. prohibited 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 September 30, 1998, the cost and fair
value of the McLeodUSA investment were $45.2 million and $176.3 million,
respectively. The unrealized gain is recorded, net of income taxes, as
accumulated comprehensive income in common shareholders' equity. At September
30, 1998, the unrealized gain and deferred income taxes for this investment were
$131.1 million and $45.9 million, respectively.
I) PENDING MERGER:
On August 11, 1998, a definitive merger agreement was entered into between
the Company and CalEnergy Company, Inc. (CalEnergy), a global provider of energy
services. Under the terms of the agreement, the shareholders of the Company will
receive $27.15 cash for each share of their common stock reflecting a 36 percent
premium over the August 11, 1998 closing price. The Company and CalEnergy each
held a special shareholder meeting on October 30, 1998, at which the
shareholders of each respective company approved the agreement and plan of
merger. Additionally, the pre-merger notification period under the
Hart-Scott-Rodino Antitrust Improvements Act has expired. The companies have
made filings with, and are awaiting favorable orders from, the FERC, the Nuclear
Energy Regulatory Commission, and the IUB, which has the right to review the
merger and to disapprove it only if found not in the public interest. State
regulators in Illinois, Nebraska and South Dakota have been notified of the
merger. Management believes completion of the merger could occur during the
first quarter of 1999.
-11-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30 ENDED SEPT. 30
1998 1997 1998 1997 1998 1997
-------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility.......................... $363,992 $ 334,336 $ 907,440 $ 850,453 $1,183,287 $1,109,438
Gas utility............................... 63,156 60,208 303,644 352,686 487,264 534,933
-------- --------- ---------- ---------- ---------- ----------
427,148 394,544 1,211,084 1,203,139 1,670,551 1,644,371
-------- --------- ---------- ---------- ----------- ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity......... 72,460 67,258 175,860 178,682 232,938 235,337
Cost of gas sold.......................... 33,127 34,320 171,096 221,252 295,860 346,541
Other operating expenses.................. 118,291 98,686 336,814 290,984 475,624 381,032
Maintenance............................... 27,522 24,217 80,845 70,315 108,620 90,320
Depreciation and amortization............. 44,178 42,815 132,560 126,883 176,217 168,349
Property and other taxes.................. 24,370 26,139 74,135 76,482 98,970 97,324
Income taxes.............................. 35,697 31,332 74,323 67,753 81,132 91,992
-------- --------- ---------- ---------- ---------- ----------
355,645 324,767 1,045,633 1,032,351 1,469,361 1,410,895
-------- --------- ---------- ---------- ---------- ----------
OPERATING INCOME.......................... 71,503 69,777 165,451 170,788 201,190 233,476
-------- --------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest and dividend income.............. 1,695 358 5,089 1,685 5,736 2,273
Non-operating income taxes................ 649 (2,200) 2,139 (4,493) 4,877 (8,434)
Other, net................................ (1,936) 4,727 (5,052) 9,066 (1,751) 18,751
-------- --------- ---------- ---------- ---------- ----------
408 2,885 2,176 6,258 8,862 12,590
-------- --------- ---------- ---------- ---------- ----------
FIXED CHARGES
Interest on long-term debt................ 18,280 18,650 53,425 57,868 73,677 77,655
Other interest expense.................... 3,166 2,382 9,863 7,824 12,066 10,486
Preferred dividends of subsidiary trust... 1,995 1,995 5,985 5,985 7,980 6,273
Allowance for borrowed funds.............. (1,074) (620) (2,749) (1,932) (3,414) (2,858)
-------- --------- ---------- ---------- ---------- ----------
22,367 22,407 66,524 69,745 90,309 91,556
-------- --------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS......... 49,544 50,255 101,103 107,301 119,743 154,510
LOSS FROM DISCONTINUED OPERATIONS......... - - - - - (1,584)
-------- --------- ---------- ---------- ---------- ----------
NET INCOME................................ 49,544 50,255 101,103 107,301 119,743 152,926
PREFERRED DIVIDENDS....................... 1,239 1,239 3,714 5,249 4,953 8,902
-------- --------- ---------- ---------- ---------- ----------
EARNINGS ON COMMON STOCK.................. $ 48,305 $ 49,016 $ 97,389 $ 102,052 $ 114,790 $ 144,024
======== ========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF
---------------------------------------------
SEPT. 30 DECEMBER 31
----------------------------- -----------
1998 1997 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric............................................................... $4,139,099 $4,065,411 $4,087,924
Gas.................................................................... 774,482 746,173 756,874
---------- ---------- ----------
4,913,581 4,811,584 4,844,798
Less accumulated depreciation and amortization......................... 2,393,211 2,252,537 2,277,110
---------- ---------- ----------
2,520,370 2,559,047 2,567,688
Construction work in progress.......................................... 87,442 53,236 55,418
---------- ---------- ----------
2,607,812 2,612,283 2,623,106
---------- ---------- ----------
POWER PURCHASE CONTRACT................................................ 166,345 188,860 173,107
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents.............................................. 12,502 7,065 9,318
Receivables............................................................ 128,700 192,574 184,153
Inventories............................................................ 88,726 93,142 84,298
Other.................................................................. 29,834 6,024 6,174
---------- ---------- ----------
259,762 298,805 283,943
---------- ---------- ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET............................. 164,360 106,318 115,029
---------- ---------- ----------
OTHER ASSETS........................................................... 312,874 361,807 347,122
---------- ---------- ----------
TOTAL ASSETS........................................................... $3,511,153 $3,568,073 $3,542,307
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity............................................ $ 992,465 $ 997,342 $ 985,744
MidAmerican preferred securities, not subject to
mandatory redemption................................................. 31,759 31,765 31,763
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities..................................... 50,000 50,000 50,000
MidAmerican-obligated preferred securities of subsidiary trust
holding solely MidAmerican junior subordinated debentures.......... 100,000 100,000 100,000
Long-term debt (excluding current portion)............................. 930,497 969,175 920,203
---------- ---------- ----------
2,104,721 2,148,282 2,087,710
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable.......................................................... 73,600 131,100 122,500
Current portion of long-term debt ..................................... 49,628 77,730 124,460
Current portion of power purchase contract............................. 14,361 13,718 14,361
Accounts payable....................................................... 129,119 118,436 128,390
Taxes accrued.......................................................... 110,002 56,175 91,449
Interest accrued....................................................... 15,247 16,062 20,616
Other.................................................................. 30,069 26,438 22,598
---------- ---------- ----------
422,026 439,659 524,374
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract................................................ 83,143 97,504 83,143
Deferred income taxes.................................................. 588,284 615,589 592,840
Investment tax credit.................................................. 78,847 84,556 83,127
Other ................................................................. 234,132 182,483 171,113
---------- ---------- ----------
984,406 980,132 930,223
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES................................... $3,511,153 $3,568,073 $3,542,307
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-13-
<PAGE>
<TABLE>
<CAPTION>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 49,544 $ 50,255 $ 101,103 $ 107,301
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization............................. 50,926 50,290 147,341 144,719
Net decrease in deferred income taxes and
investment tax credit, net.............................. (2,951) (1,686) (8,836) (5,264)
Amortization of other assets.............................. 11,162 5,635 30,195 17,727
Impact of changes in working capital...................... (24,268) (4,530) 48,750 23,947
Other..................................................... 23,188 14,877 24,747 (10,284)
--------- -------- --------- ---------
Net cash provided....................................... 107,601 114,841 343,300 278,146
--------- -------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures........................... (45,633) (49,815) (114,225) (113,844)
Quad Cities Nuclear Power Station
decommissioning trust fund................................ (2,875) (2,779) (8,533) (7,060)
Deferred energy efficiency expenditures..................... - (5,909) - (12,258)
Nonregulated capital expenditures........................... (153) (2,071) (20,307) (5,377)
Proceeds from sale of assets and other investments.......... - - 19,854 -
Other investing activities, net............................. 425 (176) 1,463 751
--------- -------- --------- ---------
Net cash used ............................................ (48,236) (60,750) (121,748) (137,788)
--------- -------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.............................................. (34,738) (21,238) (94,414) (96,749)
Issuance of long-term debt, net of issuance cost............ - - 158,440 -
Retirement of long-term debt, including reacquisition cost.. (157,879) (28,102) (233,490) (90,155)
Reacquisition of preferred shares........................... (1) - (4) (4)
Net increase (decrease) in notes payable.................... 32,100 (13,200) (48,900) (30,600)
--------- -------- --------- ---------
Net cash used............................................. (160,518) (62,540) (218,368) (217,508)
--------- -------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (101,153) (8,449) 3,184 (77,150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 113,655 15,514 9,318 84,215
--------- -------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 12,502 $ 7,065 $ 12,502 $ 7,065
========= ======== ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized................... $ 28,046 $ 25,525 $ 67,572 $ 68,188
========= ======== ========= =========
Income taxes paid........................................... $ 19,194 $ 23,714 $ 52,630 $ 91,179
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-14-
<PAGE>
MIDAMERICAN ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
MidAmerican, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of MidAmerican, all adjustments have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented. Although MidAmerican believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in
MidAmerican's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
Refer to Note B of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's environmental matters.
C) RATE MATTERS:
Refer to Note C of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Refer to Note D of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's accounting for the effects of certain types
of regulation.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
Refer to Note E of Holdings' Notes to Consolidated Financial Statements for
information regarding the MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities.
F) STATEMENT OF COMPREHENSIVE INCOME:
MidAmerican did not have other comprehensive income for the periods
presented, and accordingly, a statement of comprehensive income has been
omitted. MidAmerican's total comprehensive income is equal to its earnings on
common stock for each period presented.
G) PENDING MERGER:
Refer to Note I of Holdings' Notes to Consolidated Financial Statements for
information regarding the pending merger.
-15-
<PAGE>
Item 2. 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 is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital, Midwest
Capital and MidAmerican Realty Services Company (MidAmerican Realty) are
Holdings' nonregulated subsidiaries. MidAmerican Capital manages marketable
securities and passive investment activities, nonregulated retail natural gas
businesses, security services and other energy-related, nonregulated activities.
Midwest Capital functions as a regional business development company in
MidAmerican's utility service territory. MidAmerican Realty includes the
Company's recently acquired real estate operations.
In May 1998, MidAmerican Realty completed its purchase of AmerUs Home
Services Inc. During the third quarter of 1998, the Company purchased HOME Real
Estate (HOME) and CBS Real Estate Company (CBS), the No. 1 and No. 2 residential
brokerage organizations in Omaha, Nebraska, and J. C. Nichols Real Estate, a
market leader in residential brokerage in the Kansas City metropolitan area.
HOME and CBS have combined and now operate as CBS HOME Real Estate. The acquired
companies are now subsidiaries of MidAmerican Realty and include real estate
operations in Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and
Wisconsin. On a consolidated basis, MidAmerican Realty has more than 1,150
employees and 4,500 sales agents and comprises the nation's second largest
independent residential real estate brokerage organization. In addition to
residential brokerage, MidAmerican Realty offers relocation, title, abstract and
mortgage services.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis (MD&A) addresses the financial
statements of Holdings and MidAmerican as presented in this joint filing.
Discussions related to MidAmerican also relate to Holdings. Information related
to MidAmerican Capital, Midwest Capital and MidAmerican Realty 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.
The consolidated financial statements of MidAmerican present amounts
related to MidAmerican Capital and Midwest Capital as discontinued operations
for the twelve months ended September 30, 1997, in order to reflect their
transfer to Holdings in December 1996.
-16-
<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, fuel transportation,
competitive factors, general economic conditions in the Company's service
territory, interest rates, inflation and federal and state regulatory actions.
MERGER ANNOUNCEMENT
On August 11, 1998, a definitive merger agreement was entered into between
the Company and CalEnergy Company, Inc. (CalEnergy), a global provider of energy
services. Under the terms of the agreement, the shareholders of the Company will
receive $27.15 cash for each share of their common stock reflecting a 36 percent
premium over the August 11, 1998, closing price. The Company and CalEnergy each
held a special shareholders meeting on October 30, 1998, at which the
shareholders of each respective company approved the agreement and plan of
merger. Additionally, the pre-merger notification period under the
Hart-Scott-Rodino Antitrust Improvements Act has expired. The companies have
made filings with, and are awaiting favorable orders from, the Federal Energy
Regulatory Commission (FERC), the Nuclear Energy Regulatory Commission (NRC),
and the Iowa Utilities Board (IUB), which has the right to review the merger and
to disapprove it only if found not in the public interest. State regulators in
Illinois, Nebraska and South Dakota have been notified of the merger. Management
believes completion of the merger could occur during the first quarter of 1999.
-17-
<PAGE>
RESULTS OF OPERATION
Holdings:
- - ---------
The following tables provide a summary of the earnings contributions of the
Company's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended September 30
--------------------------
Three Months Nine Months Twelve Months
--------------- --------------- ----------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Income (in millions)
Continuing operations
Utility $ 48.3 $ 49.0 $ 97.4 $102.0 $114.8 $145.6
Nonregulated operations 5.3 0.7 16.0 6.0 29.8 (7.8)
Discontinued operations - (2.8) - (2.6) (1.6) (3.9)
------ ------ ------ ------ ------ ------
Consolidated earnings $ 53.6 $ 46.9 $113.4 $105.4 $143.0 $133.9
====== ====== ====== ====== ====== ======
Earnings Per Common Share -
Basic and Diluted
Continuing operations
Utility $ 0.51 $ 0.50 $ 1.03 $ 1.03 $ 1.21 $ 1.47
Nonregulated operations 0.06 0.01 0.17 0.06 0.31 (0.08)
Discontinued operations - (0.03) - (0.02) (0.01) (0.04)
------ ------ ------ ------ ------ ------
Consolidated earnings $ 0.57 $ 0.48 $ 1.20 $ 1.07 $ 1.51 $ 1.35
====== ====== ====== ====== ====== ======
</TABLE>
MidAmerican:
- - ------------
The following table provides a summary of the earnings contributions of
MidAmerican's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended September 30
--------------------------
Three Months Nine Months Twelve Months
-------------- -------------- ----------------
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Earnings on Common Stock
Continuing operations $48.3 $49.0 $97.4 $102.0 $114.8 $145.6
Discontinued operations* - - - - - (1.6)
----- ----- ----- ------ ------ ------
Consolidated earnings $48.3 $49.0 $97.4 $102.0 $114.8 $144.0
===== ===== ===== ====== ====== ======
</TABLE>
* Discontinued operations for twelve months ended September 30, 1997,
includes the loss of MidAmerican Capital and Midwest Capital prior to their
transfer to Holdings on December 1, 1996.
EARNINGS DISCUSSION
Below is a list of some of the significant factors resulting in the
variances in earnings. The amounts represent the variance between the 1998 and
1997 periods. Therefore, a factor that had a negative impact on earnings in both
periods, but which had less of a negative impact in the 1998 period than in the
1997 period, would be displayed as a positive factor for comparison purposes.
The discussion that follows addresses these factors as well as other items
affecting the Company's results of operations.
-18-
<PAGE>
In the second half of 1997, MidAmerican began charging to expense
additional amortization of deferred energy efficiency costs, ongoing energy
efficiency costs and certain Cooper Nuclear Station costs consistent with
ratemaking treatment. These items have had a significant impact on other
operating expenses. In conjunction with expensing these items, MidAmerican began
recovery of these costs from its customers, which is reflected in revenues.
However, for purposes of the following table, these expenses are netted against
the related revenues. As a result, the "Other O&M expenses" line does not
reflect the impact of these items, and the net effect of the revenues and
expenses is included on the "Other factors" line under gross margin.
Approximate Net Income Variances: 1998 vs 1997
--------------------------------- ------------
For Periods Ended September 30
------------------------------
Three Months Nine Months Twelve Months
------------ ----------- -------------
($ In Millions)
MidAmerican:
Variation in electric and gas
gross margin due to -
Variation in the effect of weather $11.5 $ 2.0 $ 1.9
Customer growth 1.4 4.4 6.7
Electric retail rates and accruals (1.9) (4.4) (4.3)
Off-system sales 5.2 7.4 8.0
Other factors (4.9) 8.9 9.4
Nuclear O&M expenses 1.3 2.5 2.2
1996 inventory adjustment - - (3.7)
Storm repair expense (1.8) (2.1) (3.2)
Other O&M expenses (7.3) (16.1) (37.0)
Recognition of deferred energy
efficiency income (0.9) (2.7) (3.0)
1996 gain on sale of storage gas - - (2.4)
Utility nonregulated activities (0.6) (1.5) (2.5)
1997 settlement of NPPD lawsuit (1.3) (1.3) (1.3)
Nonregulated subsidiaries:
Write-downs of certain assets - - 7.4
Realized gain on sale of McLeodUSA
Incorporated common stock - - 5.2
Donation of appreciated stock - (2.4) (2.4)
Gains on sales of certain assets - 3.2 9.2
Income from a venture capital investment - 1.2 1.2
Realty operations 4.6 6.3 6.3
Reduction of interest on long-term debt - - 2.2
Discontinued operations 2.8 2.6 2.3
Average shares outstanding for 1997 period 97,097 98,752 99,213
Improved margins resulted in an increase in utility earnings for the third
quarter of 1998. The increase was offset by expenses for repair of damage from
storms in late June 1998 and by expenses for customer service, information
technology and marketing in preparation for a competitive utility environment.
-19-
<PAGE>
In the past two years, the Company's strategic realignment of operations
has significantly affected earnings of nonregulated subsidiaries. During 1997
and the first quarter of 1998, 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
the twelve months ended September 30, 1998, include 6 cents per share from the
sale of assets of railcar leasing and repair businesses in the fourth quarter of
1997. During the first nine months of 1998, the Company recorded earnings of 3
cents per share for the sale of its interest in a financial management company
and the liquidation of a partnership that owned commercial office buildings.
Losses from discontinued operations reduced earnings in each twelve-month period
shown above, though to a lesser degree in 1998 than in the 1997 period.
Although utility earnings for the current twelve-month period 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 its
strategic realignment which included strengthening its marketing and customer
service capabilities and adding to its information technology resources.
The Company's evaluation of its nonregulated investments has resulted in
write-downs of certain assets, primarily investments in alternative energy
projects, during the past two years. 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, and $9.4 million, or 9 cents per share, in
the twelve months ended September 30, 1998 and 1997, respectively.
Discontinued Operations -
Holdings:
- - ---------
During 1996, the Company discontinued some of its nonregulated operations.
The Consolidated Statements of Income reflect the income or loss from those
operations and the losses on disposal. Net assets of the discontinued operations
are presented separately in the Consolidated Balance Sheets as Investment in
Discontinued Operations.
In January 1997, the Company completed the sale of a portion of its
nonregulated operations, including its oil and gas exploration and development
operations. The twelve months ended September 30, 1997, reflects a $1.0 million
after-tax loss for the transaction. The original estimated loss was recorded in
September 1996.
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 an anticipated
after-tax loss on disposal of those operations in September 1996. An additional
$3.2 million after-tax loss on disposal was recorded in September 1997 and is
reflected in the twelve months ended September 30, 1997.
-20-
<PAGE>
UTILITY GROSS MARGIN
Electric Gross Margin:
- - ----------------------
<TABLE>
<CAPTION>
Periods Ended September 30
--------------------------
Three Months Nine Months Twelve Months
------------ ----------- ----------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $364 $334 $907 $850 $1,183 $1,109
Cost of fuel, energy and capacity* 72 67 176 179 233 235
---- ---- ---- ---- ------ ------
Electric gross margin $292 $267 $731 $671 $ 950 $ 874
==== ==== ==== ==== ====== ======
</TABLE>
*Amounts shown are from the MidAmerican Consolidated Statements of
Income. The amounts on Holdings' Consolidated Statements of Income reflect
an intercompany elimination.
A variety of factors contributed to the increase in MidAmerican's electric
gross margin for the 1998 periods compared to the 1997 periods. An increase in
revenues from energy efficiency cost recovery accounted for $9.0 million, $26.9
million and $35.9 million of the increase in margin for the three-, nine- and
twelve-month comparisons, respectively. Revenues from the Cooper Tracker
(discussed below) contributed $0.1 million, $3.3 million and $5.3 million to the
increases for the three, nine and twelve months ended September 30, 1998,
respectively. The increases in revenues from these factors are substantially
offset by increases in other operating expenses.
Regarding the increase in energy efficiency revenues, on September 29,
1997, MidAmerican began collection of its remaining deferred energy efficiency
costs and current, ongoing energy efficiency costs. Including an allowed return
on the deferred costs, the annual increase in electric revenues is approximately
$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 approximately $31.1 million annually for currently incurred electric
energy efficiency costs and amortization of previously incurred costs.
The Cooper Tracker allows MidAmerican to collect on a current basis the
Iowa portion of expenses for Cooper capital improvement advances. Prior to the
Cooper Tracker, capital improvement advances were capitalized when incurred and
amortized over future periods in accordance with ratemaking treatment.
The effect of temperatures contributed $21 million to the increase in
margin for the third quarter of 1998 compared to 1997. Compared to normal, 1998
third quarter temperatures resulted in an increase in gross margin of $14
million, while the 1997 third quarter was cooler than normal, resulting in a
decrease in margin of $7 million. Moderate customer growth resulted in a $2.2
million increase in electric gross margin compared to the 1997 third quarter.
Total retail sales of electricity increased 7.2%. A reduction in other usage
factors and sales mix reduced gross margin compared to the 1997 quarter.
The average cost of fuel, energy and capacity per unit in the third quarter
of 1998 was above the 1997 level and resulted in a decrease to gross margin
compared to the third quarter of 1997. 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 energy costs did not affect gross margin
or net income due to corresponding changes in revenues collected through the
EACs. With the elimination of the Iowa EAC, fluctuations in energy costs now
have an impact on gross margin and net income.
-21-
<PAGE>
Reductions of electric retail rates resulted in a $3.2 million decrease in
revenues and gross margin compared to the third quarter of 1997.
Sales for resale decreased 7.7% for the quarter comparison. However,
margins on off-system sales, which account for most of MidAmerican's sales for
resale, contributed $8.8 million more to gross margin in the 1998 quarter than
the sales in the third quarter of 1997. Refer to the discussion of the energy
market under "Competition" in the Operating Activities and Other Matters section
of MD&A.
For the comparison of the nine-month periods ended September 30, the
variance in temperatures resulted in a $16 million increase in electric gross
margin. Compared to normal, the 1998 temperatures resulted in an increase in
gross margin of $6 million, while the 1997 period reflects a $10 million
decrease in margin. An increase in sales not dependent on weather also
contributed to the increase in margin. Moderate but steady customer growth
improved gross margin by $6.2 million compared to the 1997 nine-month period.
Total retail sales of electricity increased 4.1% compared to nine months ended
September 30, 1997.
Reductions of electric retail rates, including the effect of a 1997 accrual
for a then potential refund, resulted in a $7.4 million decrease in revenues and
gross margin compared to the first nine months of 1997.
Year-to-date sales for resale decreased 9.0% compared to the nine months
ended September 30, 1997. However, margins on off-system sales contributed $12.5
million more to gross margin in the 1998 period than the sales in the same
period of 1997.
For the twelve months ended September 30 comparison, the effect of
temperatures increased gross margin by $19 million in the 1998 period compared
to the 1997 period. When compared to normal, the impact of temperatures resulted
in a $11 million increase in electric gross margin for the 1998 twelve-month
period compared to an $8 million reduction in gross margin for the twelve months
ended September 30, 1997. Moderate but steady growth in the number of customers
increased gross margin $8.7 million compared to the 1997 period. An increase in
sales that are not dependent on weather also contributed to the increase in
gross margin. Electric retail sales increased 3.5% for the 1998 twelve-month
period compared to the twelve months ended September 30, 1997.
Retail rate reductions, including the effect of an accrual for a potential
refund, reduced electric gross margin by approximately $7.3 million compared to
the twelve months ended September 30, 1997. Refer to "Rate Matters" in Liquidity
and Capital Resources later in this discussion for further information regarding
the Iowa proceeding.
Sales for resale decreased 9.1% for the twelve months ended September
30 comparison, while margins on the off-system sales increased approximately
$13.6 million.
Gas Gross Margin:
- - -----------------
Periods Ended September 30
--------------------------
Three Months Nine Months Twelve Months
------------ ----------- -------------
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
(In millions)
Operating revenues $63 $60 $304 $353 $487 $535
Cost of gas sold 33 34 171 221 296 347
--- --- ---- ---- ---- ----
Gas gross margin $30 $26 $133 $132 $191 $188
=== === ==== ==== ==== ====
-22-
<PAGE>
Revenues include purchase gas adjustment clauses (PGAs) through which
MidAmerican has been allowed to recover the cost of gas sold from most of its
gas utility customers. Consequently, fluctuations in the cost of gas sold do not
affect gross margin or net income because revenues reflect comparable
fluctuations in revenues from PGAs. A decrease in the per-unit cost of gas
compared to 1997 reduced revenues and cost of gas sold in each of the 1998
periods shown above. MidAmerican recently made a filing with the IUB which would
modify the use of the PGA beginning May 1, 2000. Refer to Small Volume Gas
Transportation under the Operating Activities and Other Matters section of MD&A
for further discussion.
Recovery of gas energy efficiency costs resulted in a $3.1 million increase
in revenues and gross margin for the quarter. As discussed in the electric gross
margin section, on September 29, 1997, MidAmerican began recovery of its energy
efficiency costs which had not previously been approved for recovery. Including
an allowed return on deferred costs, the annual increase in gas revenues is
approximately $12.8 million. The effect on earnings of this increase is
partially offset by a corresponding increase in other operating expenses of
approximately $11.1 million annually for deferred and ongoing gas energy
efficiency costs.
Temperatures in the third quarter of 1998 were warmer than normal resulting
in a $2 million decrease in gas gross margin for the period, while temperatures
in the third quarter of 1997 were close to normal.
Energy efficiency revenues increased $9.3 million for the nine months ended
September 30, 1998, compared to the same period in 1997, while customer growth
accounted for $1.1 million of the increase in gas margin. The mix of sales also
contributed to the increase compared to the 1997 period. The variance in
temperatures between the 1998 and 1997 nine-month periods resulted in a $12
million decrease in gas margin. Temperatures in the nine months ended September
30, 1998, were 15.7% warmer than normal yielding in an $11 million decrease in
gas gross margin for the period. Colder-than-normal temperatures in the nine
months ended September 30, 1997, increased margin in that period by
approximately $1 million. Retail sales in 1998 decreased 12.3% compared to the
1997 nine-month period.
Mild temperatures resulted in a $16 million decrease in gas gross margin
for the twelve months ended September 30, 1998, compared to the twelve months
ended September 30, 1997. When compared to normal, the impact of temperatures
resulted in an $12 million reduction in gas gross margin in the 1998
twelve-month period compared to a $4 million increase in gas gross margin for
the twelve months ended September 30, 1997.
The increase in recovery of gas energy efficiency costs for the
twelve-month period recovered approximately $12.5 million of the loss in
revenues and margin resulting from milder temperatures. Moderate customer
growth, contributing $2.7 million to gross margin, and an increase from other
usage factors also helped offset the decrease in gross margin due to the
weather.
UTILITY OPERATING EXPENSES
Other Operating Expenses -
Utility other operating expenses increased $19.6 million, $45.8 million and
$94.6 million for the three, nine and twelve months ended September 30, 1998,
respectively, compared to the same periods in 1997.
As mentioned in the gross margin discussions, on September 29, 1997,
MidAmerican began additional recovery of deferred energy efficiency costs and
current recovery of ongoing costs. As the deferred costs are recovered in
revenues, they are amortized to expense. In addition, ongoing energy efficiency
costs, which historically were deferred until future periods, are now charged to
expense currently. The increase in energy efficiency costs accounted for $10.7
million, $32.2 million and $43.1 million of the increase in other operating
-23-
<PAGE>
expenses for the three, nine and twelve months ended September 30, 1998,
respectively, compared to the same periods in 1997.
In addition to the energy efficiency expense increase, operating expenses
related to Cooper increased due in part 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 in the Electric Gross Margin section, MidAmerican is
recovering on a current basis the Iowa portion of these costs from its Iowa
electric customers through the Cooper Tracker. Recovery in Illinois is included
in base rates. This change accounted for increases of $1.3 million and $3.1
million for the nine-month and twelve-month comparisons, respectively. Excluding
these currently recovered Cooper costs, nuclear operations expenses decreased
$4.7 million, $10.6 million and $6.9 million, respectively, for the three-month,
nine-month and twelve-month comparisons due to reductions in expenses at the
Quad Cities Station.
Continued restructuring of the Company in preparation for a competitive
industry has required additional expenses. MidAmerican has increased its
emphasis on marketing-related efforts, as well as customer service operations,
resulting in increases in consulting costs, advertising, employee incentive
compensation and other related expenses. Increases in such expenses accounted
for a majority of the remaining increases for the quarter and nine-month period
comparisons. In addition, the 1998 twelve-month period reflects increases in
certain employee benefits expenses, customer assistance and energy efficiency
administrative costs, manufactured gas plant site clean-up costs and rent
expense.
Maintenance -
Maintenance expenses increased $3.3 million and $10.5 million for the 1998
three-month and nine-month periods ended September 30 compared to the same
periods ended September 30, 1997. Increased maintenance costs at the Quad Cities
Station accounted for $2.5 million and $6.2 million of the three-month and
nine-month increases, respectively. Additionally, the Company incurred repair
costs for storms in June 1998, totalling $3.1 million and $3.5 million for the
three months and nine months ended September 30, 1998, respectively. A decrease
in other generation maintenance expenses partially offset the increases for the
quarter.
Maintenance expenses for the twelve months ended September 30, 1998,
were $18.3 million greater than in the comparable 1997 period. In the fourth
quarter of 1996, MidAmerican made an adjustment to align power plant inventory
accounting of predecessor companies. That adjustment reduced expenses by $6.2
million for the twelve-month period ended September 30, 1997. In addition, the
Company incurred $2.0 million in maintenance expenses for restoration following
a snow storm in October 1997 and $3.5 million for costs related to the June 1998
storms. Maintenance expenses at the Quad Cities Station increased $3.1 million
in the twelve-month period ended September 30, 1998, compared to the twelve
months ended September 30, 1997. 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 Quad Cities Station.
-24-
<PAGE>
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- - ---------
Revenues of nonregulated subsidiaries increased $44.9 million for the
three-month period ended September 30, 1998, and decreased $31.0 million and
$66.4 million for the nine months and twelve months ended September 30, 1998,
compared to their respective 1997 periods.
Revenues from the natural gas marketing subsidiaries decreased $22.6
million, $111.7 million and $148.6 million for the 1998 three-month, nine-month
and twelve-month periods, respectively. Related sales volumes decreased 8
million MMBtu's (61%), 35 million MMBtu's (55%) and 55 million MMBtu's (54%)
compared to the sales volumes in the 1997 periods. The decrease in sales volumes
is due primarily to the expiration of wholesale contracts which have not been
replaced. Additionally, nonregulated retail sales volumes have decreased, but
the remaining sales are at improved margin levels. A decrease in the average
price per unit, reflective of a decrease in the cost of gas sold, also reduced
revenues in each of the periods ended September 30, 1998.
Cost of sales related to natural gas marketing for the 1998 periods
reflects decreases in the average cost of gas per unit as well as the effect of
reduced sales volumes. Total gross margin (total price less cost of gas) on
nonregulated natural gas sales increased $1.7 million, $0.3 million and $1.0
million for the 1998 three, nine, and twelve months ended September 30,
respectively, compared to the 1997 periods.
The Company has acquired several real estate brokerage operations in 1998.
Nonregulated revenues for the 1998 quarter reflect $69.5 million from the real
estate brokerage operations. For the nine-month and twelve-month periods, real
estate brokerage revenues totaled $87.8 million. Nonregulated cost of sales for
the third quarter of 1998 includes $37.4 million related to the real estate
brokerage companies. For the nine months and twelve months ended September 30,
1998, real estate brokerage cost of sales totaled $43.9 million. Other operating
expenses for those operations were $23.7 million for the three-month period and
$32.1 million for the nine- and twelve-month periods in 1998.
Nonregulated other operating expenses for the 1998 twelve-month period
reflect a decrease of approximately $4.0 million due primarily to administrative
costs in the 1997 period which are no longer incurred because of the absence of
operations the Company sold in early 1997.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- - ------------
Interest and Dividend Income -
Interest income increased in each 1998 comparative period due to an
increase in temporary cash investments.
Other, Net -
In the fourth quarter of 1997, MidAmerican sold a portion of its accounts
receivable. Other, Net for the quarter, nine months and twelve months ended
September 30, 1998, includes deductions for discounts on receivables sold, net
of related subservicer fees, totaling $1.4 million, $4.4 million and $4.7
million, respectively. Refer to the Financing Activities section of Liquidity
and Capital Resources later in MD&A for a discussion of the receivables sale.
-25-
<PAGE>
Recognition of deferred income from energy efficiency programs totaled
zero, $0.2 million and $0.4 million for the 1998 three-month, nine-month and
twelve-month periods ended September 30, respectively. The comparable 1997
periods reflect income of $1.5 million, $4.8 million and $5.4 million,
respectively. The decrease is due to the additional recovery of energy
efficiency costs begun September 29, 1997, as discussed in the Utility Gross
Margin section of MD&A.
Other, Net for the nine-month and twelve-month periods ended September 30,
1997, includes a reduction for net losses on reacquired long-term debt of $0.9
million and $0.2 million, respectively.
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 each 1997 period
reflects $2.2 million of pre-tax income for recovery of litigation costs
incurred in pre-1997 years.
MidAmerican was awarded pre-tax income in each nine-month and twelve-month
period presented for performance under its incentive gas procurement program. In
the second quarter of 1998 and 1997, MidAmerican received $2.0 million and $1.7
million, respectively. Twelve months ended September 30, 1998 and 1997, reflect
amounts of $5.3 million and $4.4 million, respectively.
As part of its preparation for a competitive electric utility environment,
the Company is investigating and developing new products to offer customers. The
impact of these activities and other nonregulated activities reduced Other, Net
by $1.1 million, $2.6 million and $4.3 million for the 1998 three, nine and
twelve months ended September 30, 1998, respectively, compared to the 1997
periods.
In the fourth quarter of 1996, MidAmerican recorded an initial pre-tax gain
of $3.2 million on its sale of certain storage gas supplies which is reflected
in the twelve months ended September 30, 1997. MidAmerican recorded an
additional $0.8 million gain in the second quarter of 1997, which is also
reflected in the twelve months ended September 30, 1997, after receiving
favorable treatment on the transaction from the IUB.
The twelve months ended September 30, 1997, also includes $2.2 million of
income from the reversal of a reserve after successful resolution of a dispute
with a vendor.
Fixed Charges -
Interest on long-term debt decreased for the nine months and twelve months
ended September 30, 1998, due to long-term debt reduction and refinancing
activities. Other interest expense increased due to short-term debt at Holdings,
which resulted in interest being allocated to MidAmerican. Preferred securities
of a subsidiary trust were issued in December 1996 resulting in the twelve
months ended September 30, 1997, including only a partial year of dividends.
MidAmerican preferred shares were reacquired at the same time, resulting in a
decrease in other preferred dividends. Preferred dividends include net gains or
losses on the reacquisition of MidAmerican preferred shares. Net losses on
reacquisitions totaled $1.4 million and 2.7 million for the nine-month and
twelve-month periods ended September 30, 1997, respectively.
-26-
<PAGE>
Holdings:
- - ---------
Dividend Income -
Dividend income decreased for each of the periods ended September 30, 1998,
compared to the respective 1997 periods due to MidAmerican Capital's reduced
holdings of preferred stock portfolios.
Realized Gains and Losses on Securities, Net -
Net realized gains on securities for twelve months ended September 30,
1998, includes an $8.0 million pre-tax gain on the sale of shares of McLeodUSA
common stock.
Other, Net -
The first nine months of 1998 includes $4.7 million from the divestment of
nonregulated assets in the first quarter, including the sale of the Company's
interest in a financial management company, the sale of a commercial office
building and liquidation of a partnership interest concurrent with the sale of
its commercial property. In addition, the Company recorded $2.1 million of
income from an equity investment in a venture capital fund.
In addition to the above items, the twelve months ended September 30
periods were affected by several additional factors. During the twelve months
ended September 30, 1998, 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 and
$15.6 million for the twelve-month periods ended September 30, 1998 and 1997,
respectively.
Interest Charges -
Interest on long-term debt of nonregulated subsidiaries decreased $3.7
million for the twelve-month comparison due primarily to the reduction in
MidAmerican Capital's 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.
-27-
<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 September 30, 1998, common equity represented 50.4% of the Company's
total capitalization compared to 51.7% and 51.6% as of December 31, 1997, and
September 30, 1997, respectively. A reduction in accumulated comprehensive
income, reflective of a decrease in the market value of an investment in
McLeodUSA common stock, and the Company's common stock repurchase program
reduced common equity since September 30, 1997.
As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $339 million for the first nine
months of 1998 compared to $334 million for the same period in 1997.
MidAmerican's net cash provided from operating activities was $343 million for
the first nine months of 1998 and $278 million for the first nine months of
1997.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- - ------------
Utility Construction Expenditures -
MidAmerican's primary need for capital is utility construction
expenditures. For the first nine months of 1998, utility construction
expenditures totaled $114 million, including allowance for funds used during
construction (AFUDC) and Quad Cities Station nuclear fuel purchases. All such
expenditures were met with cash generated from utility operations, net of
dividends.
Beginning with July 1997 expenditures, advances for Cooper capital
improvements are no longer included in utility construction expenditures but are
expensed when incurred in other operating expenses. Previously, MidAmerican
capitalized these expenses in accordance with then applicable rate regulation.
As part of the 1997 settlement of MidAmerican's electric pricing proposal,
MidAmerican is recovering on a current basis the Iowa portion of expenses for
Cooper capital improvements advances from its Iowa electric customers through a
tracking mechanism.
Forecasted utility construction expenditures, including AFUDC, for 1998 are
$201 million and $609 million for 1999 through 2002. 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.
Deferred Energy Efficiency Expenditures -
The Company stopped reflecting costs of its energy efficiency programs as
an investing activity on its Consolidated Statement of Cash Flows following the
IUB's approval in September 1997 of the current recovery of ongoing energy
efficiency program costs. Under prior energy efficiency regulations, program
costs were deferred for several years prior to beginning their recovery over a
four-year period, and accordingly, the Company reflected them as an investing
activity.
-28-
<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 $50 million during the period 1999 through 2003 to an
external trust established for the investment of funds for decommissioning the
Quad Cities Station. Approximately 55% of the trust's funds are now invested in
domestic corporate debt and common equity securities. The remainder is invested
in investment grade municipal and U.S. Treasury bonds.
In addition, 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
1999 through 2003. NPPD invests the funds predominately 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, Midwest Capital and
MidAmerican Realty totaled $20 million for the first nine months of 1998.
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 future. External financing may also be used to
provide for nonregulated capital expenditures.
As discussed in the Introduction section of MD&A, the Company has purchased
several residential real estate brokerage organizations in the second and third
quarters of 1998 for a total of approximately $105 million. The acquired
companies are now the subsidiaries of MidAmerican Realty. Total assets of
MidAmerican Realty as of September 30, 1998, were $123 million. The line items
significantly affected on the Company's Consolidated Balance Sheet as of
September 30, 1998, are as follows ($ in millions): Receivables ($18.2);
Nonutility Property and Investments ($19.0); Other Assets ($80.5); and Other
Current Liabilities ($13.7). For the nine months ended September 30, 1998, the
combined total closed buyer/seller transactions of all MidAmerican Realty
companies, including transactions prior to their acquisition, was approximately
52,800 transactions. Many factors affect the residential real estate market, and
there is no assurance that the same transaction volume, or the revenues thereon,
will be achieved in the future.
During the second quarter of 1998, the Company also acquired the assets of
two security services companies in the Midwest.
-29-
<PAGE>
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. prohibited 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 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. As of September 30, 1998, the cost and fair value of the McLeodUSA
investment were $45.2 million and $176.3 million, respectively. The unrealized
gain is recorded, net of income taxes, as accumulated comprehensive income in
common shareholders' equity. As of September 30, 1998, the unrealized gain and
deferred income taxes for this investment were $131.1 million and $45.9 million,
respectively.
FINANCING ACTIVITIES, PLANS AND AVAILABILITY
MidAmerican:
- - ------------
MidAmerican currently has authority from the FERC to issue short-term debt
in the form of commercial paper and bank notes aggregating $400 million. As of
September 30, 1998, MidAmerican had a $250 million revolving credit facility
agreement and a $5 million line of credit to provide short-term financing for
utility operations. MidAmerican's commercial paper borrowings, which totaled
$73.6 million at September 30, 1998, 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, as determined by Statement of
Financial Accounting Standards (SFAS) No. 125, under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors.
Therefore, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. As of September 30, 1998, $106.8
million, net of reserves, was sold under the agreement.
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<PAGE>
The following table displays the 1998 long-term debt retirements and
issuances of MidAmerican Energy. Repayment of the February and October
maturities was funded with short-term debt and cash from operations.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date Issue Principal Transaction
-------- ---------------------------------------- ------------ -----------
2-1-98 6.25% First Mortgage Bonds, due 2-1-98 $ 75,000,000 Matured
6-19-98 6.375% Medium Term Notes due 6-15-06 160,000,000 Issued
7-15-98 8.125% General Mortgage Bonds due 2-1-03 100,000,000 Called at 105.23
7-15-98 8% General Mortgage Bonds due 2-15-22 50,000,000 Called at 105.13
10-15-98 5.05% First Mortgage Bonds due 10-15-98 49,100,000 Matured
</TABLE>
As of October 31, 1998, MidAmerican had $379 million of long-term debt
maturities and sinking fund requirements for 1999 through 2003.
MidAmerican recently received authorization from the FERC to issue up to
$500 million in various forms of debt. MidAmerican will also need authorization
from the Illinois Commerce Commission (ICC) prior to issuing any securities. If
90% or more of the proceeds from a securities issuance are used for refinancing
purposes, MidAmerican need only provide the ICC with an "informational
statement" prior to the issuance which sets forth the type, amount and use of
the proceeds of the securities to be issued. If less than 90% of the proceeds
are used for refinancing, MidAmerican must file a comprehensive application
seeking authorization prior to issuance. The ICC is required to hold a hearing
before issuing its authorization.
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 October 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.
Moody's
Investors Standard
Service* & Poor's *
--------- ----------
Mortgage Bonds A2 AA-
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
*Following the announcement of the Company's merger with CalEnergy,
Moody's Investors Service placed its ratings of MidAmerican securities
under review for possible downgrade. Standard & Poor's placed its ratings
of MidAmerican on CreditWatch with negative implications pending further
analysis.
Holdings:
- - ---------
As of September 30, 1998, Holdings had lines of credit totaling $140
million to provide for short-term financing needs, $136.6 million of which was
outstanding.
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In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. As of September 30, 1998, the Company had
repurchased approximately 6.2 million shares for $114.8 million under the plan.
Repurchasing the common stock reduced total common dividend requirements and
aided 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 October 28, 1998, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable December 1, 1998. The
dividend represents an annual rate of $1.20 per share.
Nonregulated Subsidiaries -
As of September 30, 1998, MidAmerican Capital had unsecured revolving
credit facilities in the amount of $114 million, under which no debt was
outstanding. MidAmerican Capital has $115 million of long-term debt maturities
and sinking fund requirements for 1999 through 2003 related to debt outstanding
at September 30, 1998. In October 1998, MidAmerican Capital paid off $20 million
of its long-term debt which was reflected in current maturities of long-term
debt at September 30, 1998.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at September 30, 1998.
In November 1998, MidAmerican Realty obtained a $25 million revolving
credit facility and issued $35 million of 7.12% notes due 2010 through a private
placement.
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 and retail segments 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. Additionally, increased volatility in the energy marketplace
can be expected.
As evidence of this, in late June 1998, utility energy markets in the
Midwest experienced substantial price volatility due to a number of factors. The
market volatility did not have a material impact on MidAmerican's energy costs.
As the industry moves into a competitive utility environment, the Company
expects such volatility to continue. MidAmerican cannot predict the effect of
that volatility on its future revenues, energy costs or net income.
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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 is expected to put pressure on margins for traditional
electric services. In order to lessen the impact of reduced margins, MidAmerican
will focus on controlling the cost of traditional services. As part of an
electric pricing settlement approved by the IUB in 1997, MidAmerican reduced its
prices for most of its Iowa electric retail customers. In the IUB order
approving the settlement, MidAmerican was also authorized to enter into
long-term contracts with industrial and commercial electric customers. Refer to
"Rate Matters" later in this discussion for further information. 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. The Company anticipates its recently
purchased real estate brokerage organizations to benefit its utility operations
through the additional contact with customers and potential customers at times
when the Company can meet a variety of their needs.
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 Southern
District of Iowa (the Court) alleging various violations of federal antitrust
laws. The lawsuit stemmed from a claim that because the customer is not free to
choose its retail energy supplier, MidAmerican is engaging in illegal
monopolistic behavior. In addition to damages, the customer sought 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. The Court issued a judgment in favor of MidAmerican. An Appeal
filed by the customer is currently pending. A ruling in favor of the plaintiff
could have the effect of accelerating retail competition in MidAmerican's Iowa
service territory.
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. MidAmerican is presently
participating in proceedings which detail the new competitive environment and
continues to evaluate the impact of the law on its operations.
The law required 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
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approximately 13%, rate reductions implemented in Illinois in 1996 and 1997.
MidAmerican implemented an additional $0.9 million annual rate reduction for
Illinois residential customers effective August 1, 1998. 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 Bond
rates plus 5.50% for 1998 and 1999 and 6.50% for 2000 through 2004. If the
resulting average Treasury Bond rate approximated rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%. The law
allows for methods to mitigate the sharing of earnings above the threshold ROE
which would reduce MidAmerican's earnings. MidAmerican continues to evaluate its
strategy regarding the sharing mechanism.
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. Customer choice
will create opportunities for MidAmerican to add customers who are currently
served by other utilities. At the same time, it will introduce the risk of
losing current MidAmerican customers to other energy providers.
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.
MidAmerican's Iowa legislative priority for 1998 was utility property tax
reform, a condition it considers precedent to utility industry restructuring. A
bill to replace the current utility property tax system, which was supported by
MidAmerican, was approved by the Iowa legislature and signed into law by the
Governor. The legislation becomes effective on January 1, 1999.
Because energy costs are relatively low in Iowa, industry restructuring has
not been an issue aggressively pursued in the state to date. During the 1998
Iowa legislative session, a group of industrial customers introduced legislation
to allow retail service competition, but it did not develop further. With
resolution of the utility property tax issue, MidAmerican intends to pursue the
adoption of restructuring legislation in the 1999 Iowa legislative session.
Small Volume Gas Transportation -
In October 1997, the IUB adopted rules to encourage gas transportation
service for small volume customers starting in 1999. MidAmerican filed its plan
to unbundle service for its small volume customers on October 30, 1998. Under
the plan, all of MidAmerican's small volume natural gas customers in Iowa,
including residential customers, would be allowed to choose their own natural
gas supplier/marketer, which may be MidAmerican's retail business unit,
beginning May 1, 2000. If a customer does not expressly choose a
supplier/marketer, then MidAmerican will provide the customer with market-priced
service. With implementation of customer choice, the PGA (refer to the Gas
Margin discussion of Results of Operations) would be modified to recover only
the costs incurred by MidAmerican, as the distribution system operator, to
balance the system and maintain system integrity.
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Residential and Commercial Pilot Project -
On August 21, 1998, the IUB issued an Order approving, subject to the
filing of appropriate compliance tariffs, MidAmerican's proposal to allow at
least 15,000 Iowa families and 2,000 small businesses
to have the opportunity to select among competing electricity providers. The
two-year program will allow participating retail customers in the selected test
area to choose among several electricity providers, including MidAmerican, and
to have that energy delivered by MidAmerican. MidAmerican expects customers will
begin choosing among electricity providers in the first half of 1999. Businesses
in the test area will be eligible for the program if their annual peak demand is
less than four megawatts. New suppliers participating in the program will have
to be certified by the IUB and meet specified requirements.
Accounting Effects of Industry Restructuring -
A possible consequence of competition in the utility industry is that SFAS
71 may no longer apply. SFAS 71 sets forth accounting principles for operations
that are regulated and meet certain criteria. For operations that meet the
criteria, SFAS 71 allows, among other things, the deferral of costs that would
otherwise be expensed when incurred. A majority of 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 could be required
to write off the related regulatory assets and liabilities from its balance
sheet, and thus, a material adjustment to earnings in that period could result.
As of September 30, 1998, MidAmerican had $308 million of regulatory assets in
its Consolidated Balance Sheet.
Energy Efficiency -
MidAmerican's regulatory assets as of September 30, 1998, included $79.3
million of deferred energy efficiency costs. Based on the current level of
recovery, MidAmerican expects to recover these costs by the end of 2001.
MidAmerican is also allowed to recover its ongoing energy efficiency costs on a
current basis. Recovery of these costs is being collected from customers based
on projected annual costs of $16.8 million, which may be adjusted annually.
Amortization of the deferred energy efficiency costs and current expenditures
for energy efficiency costs will be reflected in other operating expenses over
the related periods of recovery. The total of such costs for the years 1999,
2000 and 2001, is estimated to be $43 million, $40 million and $35 million,
respectively.
Rate Matters: Electric -
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 approved a March 1997 settlement agreement
between MidAmerican, the Iowa Office of Consumer Advocate (OCA) and other
parties. Six major components of the settlement and their status are as follows:
1) On an annualized basis, prices for residential customers were reduced
$8.5 million, $10.0 million and $5.0 million effective November 1, 1996, July
11, 1997, and June 1, 1998 respectively, for a total annual decrease of $23.5
million.
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2) Rates for industrial customers will be reduced by $6 million annually
and rates for commercial customers will be reduced by $4 million annually.
MidAmerican has been given permission to implement these reductions through a
retail access pilot project and through negotiated individual contracts. In the
event that these contracts in the aggregate do not reduce rates by $6 million
and $4 million, respectively, MidAmerican is required to apply any remaining
amount to across-the-board rate reductions to customers who do not enter into
contracts.
The effective date for these rate reductions was set for June 1, 1998, in
the IUB Order approving the settlement. However, the IUB approved a MidAmerican
request to extend the deadlines until September 1, 1998, for industrial
customers and December 31, 1998, for commercial customers. The delay in
deadlines includes an obligation to increase the amount of the reduction on a
one-time basis to reflect the time value of money between June 1, 1998, and the
new deadlines. MidAmerican estimates it will not have any interest obligation
with respect to the industrial contracts, and will not incur any material
interest obligation with respect to its commercial contracts.
The negotiated contracts have differing terms and conditions as well as
prices. The contracts range in length from five to ten years, and some have
price renegotiation and early termination provisions exercisable by either
party. The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts. Prices are set
as fixed prices; however, many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes, and transition costs. While the contract prices are fixed (except
for the potential adjustment elements), the costs MidAmerican incurs to fulfill
these contracts will vary. On an aggregate basis the annual revenues under
contract are approximately $155 million.
The IUB has recently considered the contracting process in two proceedings.
Its decisions in those proceedings allowed the contracting efforts to continue.
Contracts remain subject to IUB regulation.
3) A tracking mechanism (Cooper Tracker) is being used to currently recover
costs for capital improvements required by the Cooper Nuclear Station Power
Purchase Contract. Revenues from the Cooper Tracker will total approximately $6
million in 1998. Other operating expenses will include a comparable amount for
currently expensing the related costs.
4) Elimination of the Iowa energy adjustment clause (EAC). Prior to July
11, 1997, MidAmerican collected fuel costs from Iowa customers on a current
basis through the EAC, and thus, fuel costs had little impact on net income.
Since then, base rates for Iowa customers 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 are impacted. The fuel cost factor will be
reviewed in February 1999 and adjusted prospectively if actual 1998 fuel costs
vary by more than 15% above or below the factor included in base rates.
5) 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 IUB is reviewing MidAmerican's calculation of its 1997 return as a
result of an objection by the OCA. MidAmerican does not expect the ultimate
outcome of this issue to have a material impact on its financial condition or
results of operations.
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<PAGE>
6) MidAmerican has developed a pilot program for a market access service
which allows customers with at least 4 MW of load to choose energy suppliers.
The pilot program is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually 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, which has approved it, and the FERC. The Company anticipates
FERC acceptance by year end.
Rate Matters: Gas -
On October 27, 1998, MidAmerican made a filing with the IUB requesting a
rate increase for its Iowa retail gas customers. The 4.5 percent increase
represents approximately an $18.5 million increase in annual gas revenues. As
part of the filing, MidAmerican requested an interim rate increase of
approximately $16.3 million, annually. The IUB may adjust the requested interim
amount and delay its implementation for up to ninety days. MidAmerican expects
the final rates, which may differ from the requested amount, to be implemented
in the summer of 1999.
Environmental Matters -
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
The Company is evaluating 27 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether the Company has any responsibility for remedial action. The
Company's present estimate of probable remediation costs for these sites is $24
million. This estimate has been recorded as a liability and a regulatory asset
for future recovery through the regulatory process. Refer to Note B of Notes for
further discussion of the Company's environmental activities related to
manufactured gas plant sites and cost recovery.
Although the timing of potential incurred costs and recovery of such cost
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on the Company's financial position or results of operations.
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 the ozone standard in downwind states in the
eastern half of the United States. In September 1998, the EPA issued its final
rules in this proceeding. Iowa is not subject to the emissions reduction
requirements in the final rules, and, as such, MidAmerican's facilities are not
subject to additional emissions reductions as a result of this initiative.
On July 18, 1997, the EPA adopted revisions to the NAAQS 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
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through emission reductions or other means. In August 1998, the Iowa
Environmental Protection Commission adopted by reference the NAAQS for ozone and
fine particulate matter.
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. The attainment
status of areas in the state of Iowa will not be known for two to three years.
However, if MidAmerican's operations are determined to contribute to
nonattainment, the installation of additional control equipment, such as
scrubbers and/or selective catalytic reduction, on MidAmerican's units could be
required. The cost to install such equipment could be significant. MidAmerican
will continue to follow the attainment status of the areas in which it operates
and evaluate the potential impact of the status of these areas on MidAmerican
under the new regulations.
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 the
utility industry in general, and 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.
Quad Cities Nuclear Power Station-
Quad Cities Station, which is operated by and 75% owned by Commonwealth
Edison Company (ComEd), began 1998 with Unit 1 and Unit 2 out of service under a
Confirmatory Action Letter (CAL) addressing safety system concerns in the event
of certain postulated fires. Also, in January, ComEd was informed by the Nuclear
Regulatory Commission (NRC) that the performance of Quad Cities Station is
trending adversely. The NRC lifted the CAL in May, and Unit 2 returned to
service on May 26, 1998. On June 1, 1998, Unit 1 returned to service. During
discussions with the NRC, ComEd made numerous commitments to the NRC with
respect to additional long-term analysis and improvements related to those
safety systems. ComEd has made significant changes in senior management
positions in its nuclear program and at the Quad Cities Station since November
1997 in an effort to improve its nuclear operations.
A refueling outage is scheduled for Quad Cities Unit 1 in November 1998. No
refueling outage is scheduled for either unit in 1999.
Coal Inventories -
MidAmerican continues to manage its coal inventory levels, which are
significantly higher than those in early 1998. MidAmerican expects the coal
inventory at each generating plant to be at or near management's desired level
by year end.
Generating Capability -
In July, 1998, customer usage of electricity caused an hourly peak demand
of 3,643 megawatts (MW) on MidAmerican's energy system. MidAmerican's previous
record peak demand was 3,553 MW set in 1995. MidAmerican is interconnected with
certain Iowa and neighboring utilities and is involved in an electric power
pooling agreement known as Mid-Continent Area Power Pool (MAPP). Each MAPP
participant is
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required to maintain for emergency purposes a net generating capability reserve
of at least 15% above its system peak demand. MidAmerican's reserve margin for
1998 was approximately 20%.
MidAmerican believes it has adequate electric capacity reserve and
continues to manage its generating resources to ensure an adequate reserve in
the future. However, significantly higher-than-normal temperatures during the
cooling season could cause MidAmerican's reserve to fall below the 15% minimum.
If MidAmerican fails to maintain the appropriate reserve, significant penalties
could be contractually imposed by MAPP.
ACTIVITIES REGARDING YEAR 2000 DATE ISSUES
The Company's discussion of year 2000 issues addresses the Company's plans
to address technical problems relating to calculations, manipulations, storage
and other uses of date data which could cause some computer-controlled systems,
applications and processes (hereinafter referred to as "Systems") to incorrectly
process critical financial and operational information, or stop processing
altogether. The discussion contains by necessity many forward-looking
statements. The Company wishes to avail itself of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, and in order to do so
includes the following meaningful cautionary statements with regard to the
forward looking statements of its year 2000 plans. The Company's intentions,
expectations, and predictions relating to its year 2000 efforts are subject to
risks and uncertainties that could cause actual results to differ materially
from those expressed in, or implied by such statements. Such risks and
uncertainties include, among others, the effects of weather, competitive
factors, federal and state regulatory actions, and other matters, many of which
are beyond the Company's control.
Project Description -
The Company has undertaken an extensive ongoing project to address its
information technology (IT) and non-IT (including embedded technology) Systems
potentially affected by the year 2000 date change. The Company's approach is
based on a five-phase project methodology - inventory, assessment, planning,
resolution and implementation - designed to result in the identification,
evaluation of potential problems, and remediation of the Company's Systems. The
Company generally defines the five phases as follows:
1. Inventory Phase - The purpose of the inventory phase is to identify and
document Systems used by the Company that may have a date function.
2. Assessment Phase - The purpose of the assessment phase is to collect
information about inventoried Systems, including the business and technical
context in which individual Systems operate, to make an informed judgment
concerning an appropriate plan to mitigate year 2000 related risks.
3. Planning Phase - The purpose of the planning phase is to develop
strategic and tactical plans for Systems that require replacement, repairs,
upgrades or other appropriate resolutions (collectively referred to as "remedial
actions").
4. Resolution Phase - The purpose of the resolution phase is to execute the
plan developed during the preceding phases. Testing of Systems and/or components
of Systems is commenced during this phase.
5. Implementation Phase - The purpose of the implementation phase is to
perform integration testing and to verify that Systems will function properly in
a production environment.
The Company's preparedness goal is to ensure high- and medium-priority
Systems are suitable for continued use into the year 2000 and will perform
correctly all functions that require accurate processing of
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date data ("year 2000 ready" or "year 2000 readiness") by June 30, 1999. The
Company classifies all Systems ranging from low- to high-priority based on their
importance to carrying out the Company's business mission. System priority is
based on potential impacts resulting from year 2000 problems on public and
employee safety, prolonged and widespread service outages, long-term shareholder
value, and ability to comply with regulatory requirements. In the case of
low-priority Systems, year 2000 readiness may be delayed beyond January 1, 2000,
or perhaps indefinitely. The Company plans to use the last six months of 1999 to
perform post-implementation testing, address selected lower priority Systems and
conduct preparedness exercises.
Vendors, customers and other third parties may affect the Company's ability
to achieve year 2000 readiness. Because service reliability and financial
stability are dependent on the Company's supply chain, a concerted effort is
being made to investigate important third parties to assess their ability to
continue to supply products or services to, or purchase products or services
from, the Company. The investigation of third parties consists of documenting
the nature of business relationships in correspondence and surveys to third
parties and making determinations regarding their year 2000 readiness status
based on the responses received. Ongoing communications with some third parties
will be required for the Company to make such a determination.
State of Readiness -
Although it is difficult due to factors such as the overlapping nature of
the project phases and the varying degree of complexity of the Systems being
addressed to accurately determine the status of completion of a particular phase
at any given point in time, the Company estimates that it has completed the
process of inventorying over 90 percent of all Systems. The project is now
generally in the assessment and planning phases with a focus on high- and
medium-priority Systems. Detailed plans for remedial actions and testing for
high- and medium-priority Systems will generally be completed by December 31,
1998. In the case of certain high-priority Systems, vendors have been retained
to assist in the resolution phase, and certain high-priority Systems are
currently in the implementation phase. An estimate of the actions required to be
undertaken, a projected schedule regarding when those actions must be completed,
and an updated estimate of the cost of resolving the year 2000 problems,
including possible remedial actions with respect to such Systems, will be
determined by December 31, 1998.
By December 31, 1998, the Company intends to renovate several high priority
Systems (management information, materials management information, work
management information, and others). Certain other Systems (customer service,
electric outage management, meter control and inventory, and others) will be
replaced to gain enhanced functionalities prior to the end of the first quarter
of 1999. The requirement to develop and install a new customer service system
("CSS") and related applications was an outcome of the merger which created
MidAmerican in July of 1995. Although potential year 2000 problems existing in
the predecessor companies' CSS products were recognized, the decision to
implement the new CSS was primarily in response to technical difficulties
associated with application integration and the need for additional application
functionalities. The costs of the new CSS and related applications are not
reported herein as their development and installation was not driven by
potential year 2000 concerns.
To date, the Company's investigation of third parties has focused primarily
on vendors of Systems and System components. A large amount of valuable product
information has been received in direct responses to the Company's inquiries, as
well as indirectly through reference to Web sites hosted by vendors or
representative associations such as the Electric Power Research Institute.
However, information made available to the Company has not been uniform in terms
of quality and quantity; i.e., information about products in which the Company
has a specific interest has been definitive in some cases, while in other cases
such information has been inconclusive. The Company will continue to pursue
information about Systems and System components with the expectation of reaching
decisions regarding the year 2000 status of all high- and medium-priority
Systems by December 31, 1998, and to take appropriate corresponding actions.
During the
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fourth quarter of 1998, the Company will also focus substantial effort on the
investigation of other third parties such as fuel suppliers, joint owners of
generation and transmission facilities, rail transportation service providers,
telecommunications service providers, wholesale (bulk power) customers, major
retail customers, and companies that exchange electronic data with the Company,
among others.
Costs -
To date, approximately $5.1 million in operating expenses have been
incurred to carry out year 2000 activities. It is anticipated that an additional
$8.6 million in operating expenses and $1.4 million in capital costs will need
to be incurred to complete the project. Although additional unforeseen costs may
be incurred, at this time the Company has not become aware of any material costs
which may arise in order to achieve year 2000 readiness. Future progress toward
achievement of year 2000 readiness could change this outlook.
Contingency Plans -
A comprehensive contingency plan identifying credible worst-case scenarios
is being developed. The schedule for developing the plan is to complete the
first draft by December 31, 1998, complete the second draft on or before June
30, 1999, and to have an operational plan in place no later than September 1,
1999.
The contingency plan comprises both mitigation and recovery aspects.
Mitigation entails planning to reduce the impact of unresolved year 2000
problems and recovery entails planning to recover from problems that may occur.
The Company's approach to contingency planning includes the following steps:
identify year 2000 operating risks; perform scenario risk analysis; develop risk
management strategies; begin general preparations; implement power system
operation planning; and implementation of year 2000 system operating plan.
Risks -
Despite the comprehensive nature of the Company's year 2000 project and the
results the project is designed to produce, the Company may experience random,
widespread and simultaneous failures in its generation, distribution and Systems
during January 2000. Contingency plans for any known or reasonably anticipated
risk of interruption to the generation or distribution of energy are being
developed to plan for resources needed to be put in place to reduce the
potential outage period to a minimum. Although the impact on future operations
and revenues is unknown, failure of the Company's Systems to perform because of
year 2000 implications could result in operating problems and costs material to
the Company.
Although management believes the project will be completed sufficiently in
advance of January 1, 2000, unforeseen and other factors could cause delays in
the project, the results of which could likely have a material effect on the
Company's results of operations. In addition, there is no assurance that the
Company will not be affected by year 2000 problems experienced by third parties.
ACCOUNTING ISSUES
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" effective for
fiscal years beginning after June 15, 1999. SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. If
certain conditions are met, such instruments may be designated as hedges.
Changes in the value of hedge instruments would not impact earnings, except to
the extent that the instrument is not perfectly effective as a hedge. An entity
that elects to apply hedge accounting is required to establish at the inception
of the hedge the method it will use in assessing the effectiveness of the
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derivative. If the pronouncement was currently in effect, the Company
believes it would not have a material impact on its results of operations or
financial condition. The Company continues to analyze the pronouncement.
PART I. (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - ------ ----------------------------------------------------------
As of September 30, 1998, the Company's and MidAmerican's financial
positions related to financial instruments and assets that are sensitive to
changes in interest rates or commodity price changes have not changed materially
since December 31, 1997. Refer to the Company's 1997 Annual Report on Form 10-K
under Item 7A for the applicable information as of December 31, 1997.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - ------- -----------------
The Company and its subsidiaries have no material legal proceedings except
for the following:
Environmental Matters
- - ---------------------
For information relating to the Company's Environmental Matters, reference
is made to Part I, Note (B) of Holdings' Notes to Consolidated Financial
Statements.
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.
MidAmerican filed its answer and contingent counterclaims. The contingent
counterclaims filed by MidAmerican are generally as follows: (1) that
MidAmerican has no duty under the power purchase agreement to reimburse or pay
50% of the decommissioning costs unless certain conditions occur; (2) that NPPD
has the equitable duty to repay all amounts that MidAmerican has prefunded for
decommissioning in the event NPPD operates the plant after the term of the power
purchase agreement; (3) that NPPD is equitably estopped from continuing to
operate the plant after the term of the power purchase agreement; (4) that NPPD
has granted MidAmerican an option to continue taking 50% of the power from the
plant; (5) that the term "monthly power costs" as defined in the power purchase
agreement does not include costs and expenses associated with decommissioning
the plant; (6) that MidAmerican has no duty to pay for nuclear fuel, O&M
projects or capital improvements that have useful lives after the term of the
power purchase agreement; (7) that transition costs are not included in any
decommissioning costs and expenses; (8) that NPPD has breached its duty to
MidAmerican in making investments of certain funds; (9) that reserves in certain
accounts are
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excessive and should be refunded to MidAmerican; and (10) that NPPD must credit
MidAmerican for certain payments by MidAmerican for low-level radioactive waste
disposal.
MidAmerican and NPPD are currently involved in discovery. The trial in this
case is presently scheduled for November 1999. MidAmerican is vigorously
defending and pursuing its interest in this proceeding.
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 defendants. 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 sought to recover an unspecified level
of damages, and to require MidAmerican to provide retail wheeling service so
that NSS could obtain electricity from an unnamed supplier. On June 23, 1998,
the District Court issued an Order Granting Summary Judgment in favor of
MidAmerican. On July 20, 1998, NSS appealed that decision to the United States
Court of Appeals for the Eighth Circuit. That appeal is currently pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
At a special meeting held October 30, 1998, the holders of a majority of
the outstanding shares of Company common stock approved the merger between the
Company and CalEnergy. The results of the voting are as follows:
For - 69,069,250
Against - 6,045,636
Abstain - 1,097,608
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ------- --------------------------------
(A) EXHIBITS
Exhibits Filed Herewith
- - -----------------------
The exhibits filed herewith are attached to this combined Form 10-Q in
numerical order. They are listed below under the heading of the registrant or
registrants to whom they apply.
Holdings
Exhibit 12.1 - Computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
MidAmerican
Exhibit 3.3 - Restated Articles of Incorporation of MidAmerican Energy
Company, as amended October 27, 1998.
Exhibit 12.2 - Computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
Holdings and MidAmerican
Exhibit 27 - Financial Data Schedules (for electronic filing only).
(B) REPORTS ON FORM 8-K
On August 12, 1998, Holdings filed a report on Form 8-K, dated August 11,
1998. The report included an announcement stating that Holdings' entered into an
Agreement and Plan of Merger with CalEnergy Company, Inc. on August 11, 1998,
and a copy of the related press release.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
MIDAMERICAN ENERGY COMPANY
-----------------------------------
(Registrants)
Date November 12, 1998 /s/ A. L. Wells
- - ----------------------- -------------------------------------------------
A. L. Wells
Senior Vice President and Chief Financial Officer
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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.
<PAGE>
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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<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
(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
5
<PAGE>
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;
6
<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
7
<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
years prior 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;
8
<PAGE>
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
9
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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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<PAGE>
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 Security holders, 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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<PAGE>
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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<PAGE>
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.
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<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 be
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.
11
<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.
12
<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
<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 April 27, 1998, 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 4
$3.75 Series 5
$4.20 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 49,467
$3.75 Series 38,305
$4.20 Series 47,362
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
AMD0498
<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 July 27, 1998, 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 4
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 49,463
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
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD0798
<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 5, 1998, 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 49,458
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
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD0898
<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, 1998, 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 shares of Preferred Stock of
the Corporation:
Series Number of Shares Canceled
------ -------------------------
$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 49,451
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
-----------------------------------
P. J. Leighton, Vice President and
Corporate Secretary
AMD1098
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
SEPTEMBER 30, 1998 DECEMBER 31,1997
---------------------------- ----------------------------
Supplemental (a) Supplemental (a)
-------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $144,632 $ - $144,632 $139,332 $ - $139,332
Pre-tax (gain) loss of less than 50% owned persons .......... (1,301) - (1,301) 2,234 - 2,234
-------- ------ -------- -------- ------ --------
143,331 - 143,331 141,566 - 141,566
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 76,714 - 76,714 68,390 - 68,390
Interest on long-term debt .................................. 84,606 3,171 87,777 89,898 3,760 93,658
Other interest charges ...................................... 12,313 - 12,313 10,034 - 10,034
Preferred stock dividends of subsidiary...................... 4,953 - 4,953 6,488 - 6,488
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 7,980 - 7,980
Interest on leases .......................................... 222 - 222 268 - 268
-------- ------ -------- -------- ------ --------
186,788 3,171 189,959 183,058 3,760 186,818
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 330,119 3,171 333,290 324,624 3,760 328,384
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt .................................. 84,606 3,171 87,777 89,898 3,760 93,658
Other interest charges ...................................... 12,313 - 12,313 10,034 - 10,034
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 7,980 - 7,980
Interest on leases .......................................... 222 - 222 268 - 268
-------- ------ -------- -------- ------ --------
Total fixed charges ....................................... 105,121 3,171 108,292 108,180 3,760 111,940
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 3.14 - 3.08 3.00 - 2.93
======== ====== ======== ======== ====== ========
Preferred stock dividends of subsidiary ..................... $ 4,953 $ - $ 4,953 $ 6,488 $ - $ 6,488
Ratio of net income before income taxes to net income ....... 1.5128 - 1.5128 1.4690 - 1.4690
-------- ------ -------- -------- ------ --------
Preferred stock dividend requirements before income tax ..... 7,493 - 7,493 9,531 - 9,531
-------- ------ -------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .... 112,614 3,171 115,785 117,711 3,760 121,471
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.93 - 2.88 2.76 - 2.70
======== ====== ======== ======== ====== ========
</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 31,1996 DECEMBER 31,1995
------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $143,761 $ - $143,761 $119,705 $ - $119,705
Pre-tax (gain) loss of less than 50% owned persons .......... (698) - (698) 9,079 - 9,079
-------- ------ -------- -------- ------ --------
143,063 - 143,063 128,784 - 128,784
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 98,422 - 98,422 66,803 - 66,803
Interest on long-term debt .................................. 102,909 3,615 106,524 105,550 4,595 110,145
Other interest charges ...................................... 10,941 - 10,941 9,449 - 9,449
Preferred stock dividends of subsidiary...................... 10,401 - 10,401 8,059 - 8,059
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ --------
223,336 3,615 226,951 190,949 4,595 195,544
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 366,399 3,615 370,014 319,733 4,595 324,328
-------- ------ --------- -------- ------ --------
Fixed Charges:
Interest on long-term debt .................................. 102,909 3,615 106,524 105,550 4,595 110,145
Other interest charges ...................................... 10,941 - 10,941 9,449 - 9,449
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ --------- -------- ------ --------
Total fixed charges ....................................... 114,513 3,615 118,128 116,087 4,595 120,682
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 3.20 - 3.13 2.75 - 2.69
======== ====== ========= ======== ====== ========
Preferred stock dividends of subsidiary ..................... $ 10,401 $ - $ 10,401 $ 8,059 $ - $ 8,059
Ratio of net income before income taxes to net income ....... 1.6384 - 1.6384 1.5229 - 1.5229
-------- ------ --------- -------- ------ --------
Preferred stock dividend requirements before income tax ..... 17,041 - 17,041 12,273 - 12,273
-------- ------ --------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .... 131,554 3,615 135,169 128,360 4,595 132,955
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.79 - 2.74 2.49 - 2.44
======== ====== ========= ======== ====== ========
</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 31,1994 DECEMBER 31,1993
------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations .......................... $123,098 $ - $123,098 $134,325 $ - $134,325
Pre-tax (gain) loss of less than 50% owned persons ......... (270) - (270) (597) - (597)
-------- ------ -------- -------- ------ --------
122,828 - 122,828 133,728 - 133,728
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes ......................................... 60,457 - 60,457 67,485 - 67,485
Interest on long-term debt ................................. 101,267 5,428 106,695 107,044 5,678 112,722
Other interest charges ..................................... 6,446 - 6,446 5,066 - 5,066
Preferred stock dividends of subsidiary..................... 10,551 - 10,551 8,367 - 8,367
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ --------
179,932 5,428 185,360 189,838 5,678 195,516
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ..................... 302,760 5,428 308,188 323,566 5,678 329,244
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt ................................. 101,267 5,428 106,695 107,044 5,678 112,722
Other interest charges ..................................... 6,446 - 6,446 5,066 - 5,066
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ --------- -------- ------ --------
Total fixed charges ...................................... 108,924 5,428 114,352 113,986 5,678 119,664
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges ......................... 2.78 - 2.70 2.84 - 2.75
======== ====== ========= ======== ====== ========
Preferred stock dividends of subsidiary .................... $ 10,551 $ - $ 10,551 $ 8,367 $ - $ 8,367
Ratio of net income before income taxes to net income ...... 1.4524 - 1.4524 1.4729 - 1.4729
-------- ------ --------- -------- ------ --------
Preferred stock dividend requirements before income tax .... 15,324 - 15,324 12,324 - 12,324
-------- ------ --------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements ... 124,248 5,428 129,676 126,310 5,678 131,988
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............. 2.44 - 2.38 2.56 - 2.49
======== ====== ========= ======== ====== ========
</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
SEPTEMBER 30,1998 DECEMBER 31,1997
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ......................... $119,743 $ - $119,743 $125,941 $ - $125,941
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes ........................................ 76,255 - 76,255 76,317 - 76,317
Interest on long-term debt ................................ 73,677 3,171 76,848 78,120 3,760 81,880
Other interest charges .................................... 12,066 - 12,066 10,027 - 10,027
Preferred stock dividends of subsidiary trust.............. 7,980 - 7,980 7,980 - 7,980
Interest on leases ........................................ 222 - 222 268 - 268
-------- ------ -------- -------- ------ --------
170,200 3,171 173,371 172,712 3,760 176,472
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges .................... 289,943 3,171 293,114 298,653 3,760 302,413
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt ................................ 73,677 3,171 76,848 78,120 3,760 81,880
Other interest charges .................................... 12,066 - 12,066 10,027 - 10,027
Preferred stock dividends of subsidiary trust.............. 7,980 - 7,980 7,980 - 7,980
Interest on leases ........................................ 222 - 222 268 - 268
-------- ------ -------- -------- ------ --------
Total fixed charges...................................... 93,945 3,171 97,116 96,395 3,760 100,155
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges ........................ 3.09 - 3.02 3.10 - 3.02
======== ====== ======== ======== ====== ========
Preferred stock dividends ................................. $ 4,953 $ - $ 4,953 $ 6,488 $ - $ 6,488
Ratio of net income before income taxes to net income ..... 1.6368 - 1.6368 1.6060 - 1.6060
-------- ------ -------- -------- ------ --------
Preferred stock dividend requirements before income tax ... 8,107 - 8,107 10,420 - 10,420
-------- ------ -------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .. 102,052 3,171 105,223 106,815 3,760 110,575
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............ 2.84 - 2.79 2.80 - 2.73
======== ====== ======== ======== ====== ========
</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 31,1996 DECEMBER 31,1995
------------------------------ --------------------------------
Supplemental (a) Supplemental (a)
-------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $165,132 $ - $165,132 $132,489 $ - $132,489
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 112,927 - 112,927 84,098 - 84,098
Interest on long-term debt .................................. 79,434 3,615 83,049 80,133 4,595 84,728
Other interest charges ...................................... 10,842 - 10,842 9,396 - 9,396
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ -------
203,866 3,615 207,481 174,715 4,595 179,310
-------- ------ -------- -------- ------ -------
Earnings available for fixed charges ...................... 368,998 3,615 372,613 307,204 4,595 311,799
-------- ------ -------- -------- ------ -------
Fixed Charges:
Interest on long-term debt .................................. 79,434 3,615 83,049 80,133 4,595 84,728
Other interest charges ...................................... 10,842 - 10,842 9,396 - 9,396
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ -------
Total fixed charges 90,939 3,615 94,554 90,617 4,595 95,212
-------- ------ ------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 4.06 - 3.94 3.39 - 3.27
======== ====== ======== ======== ====== =======
Preferred stock dividends ................................... $ 10,401 $ - $ 10,401 $ 8,059 $ - $ 8,059
Ratio of net income before income taxes to net income ....... 1.6839 - 1.6839 1.6348 - 1.6348
-------- ------ -------- -------- ------ -------
Preferred stock dividend requirements before income tax ..... 17,514 - 17,514 13,175 - 13,175
-------- ------ -------- -------- ------ -------
Fixed charges plus preferred stock dividend requirements .... 108,453 3,615 112,068 103,792 4,595 108,387
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 3.40 - 3.32 2.96 - 2.88
======== ====== ======== ======== ====== =======
</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 31,1994 DECEMBER 31,1993
------------------------------ --------------------------------
Supplemental (a) Supplemental (a)
-------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations .......................... $121,145 $ - $121,145 $133,888 $ - $133,888
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes ......................................... 66,759 - 66,759 75,917 - 75,917
Interest on long-term debt ................................. 73,922 5,428 79,350 80,642 5,678 86,320
Other interest charges ..................................... 6,639 - 6,639 5,068 - 5,068
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ -------
148,531 5,428 153,959 163,503 5,678 169,181
-------- ------ -------- -------- ------ -------
Earnings available for fixed charges ..................... 269,676 5,428 275,104 297,391 5,678 303,069
-------- ------ -------- -------- ------ -------
Fixed Charges:
Interest on long-term debt ................................. 73,922 5,428 79,350 80,642 5,678 86,320
Other interest charges ..................................... 6,639 - 6,639 5,068 - 5,068
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ -------
Total fixed charges 81,772 5,428 87,200 87,586 5,678 93,264
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges ......................... 3.30 - 3.15 3.40 - 3.25
======== ====== ======== ======== ====== =======
Preferred stock dividends .................................. $ 10,551 $ - $ 10,551 $ 8,367 $ - $ 8,367
Ratio of net income before income taxes to net income ...... 1.5511 - 1.5511 1.5670 - 1.5670
-------- ------ -------- -------- ------ -------
Preferred stock dividend requirements before income tax .... 16,366 - 16,366 13,111 - 13,111
-------- ------ -------- -------- ------ -------
Fixed charges plus preferred stock dividend requirements ... 98,138 5,428 103,566 100,697 5,678 106,375
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............. 2.75 - 2.66 2.95 - 2.85
======== ====== ======== ======== ====== =======
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public
Power District under a long-term purchase agreement for one-half of the
plant capacity from Cooper Nuclear Station
-3-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Holdings Company as of
September 30, 1997, and the related consolidated statements of income and cash
flows for the nine months ended September 30, 1997, and is qualified in its
entirety by reference to such financial statemens.
</LEGEND>
<RESTATED>
<CIK> 0001009526
<NAME> MIDAMERICAN ENERGY HOLDINGS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,611,150
<OTHER-PROPERTY-AND-INVEST> 889,841
<TOTAL-CURRENT-ASSETS> 333,890
<TOTAL-DEFERRED-CHARGES> 376,814
<OTHER-ASSETS> 188,860
<TOTAL-ASSETS> 4,400,555
<COMMON> 762,443
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 421,059
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,368,299
150,000
31,765
<LONG-TERM-DEBT-NET> 1,103,551
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 141,354
<LONG-TERM-DEBT-CURRENT-PORT> 77,727
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,527,859
<TOT-CAPITALIZATION-AND-LIAB> 4,400,555
<GROSS-OPERATING-REVENUE> 1,400,667
<INCOME-TAX-EXPENSE> 66,297<F1>
<OTHER-OPERATING-EXPENSES> 1,170,091
<TOTAL-OPERATING-EXPENSES> 1,170,091
<OPERATING-INCOME-LOSS> 230,576
<OTHER-INCOME-NET> 25,199<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 255,775
<TOTAL-INTEREST-EXPENSE> 84,042
<NET-INCOME> 105,436
0
<EARNINGS-AVAILABLE-FOR-COMM> 105,436
<COMMON-STOCK-DIVIDENDS> 88,845
<TOTAL-INTEREST-ON-BONDS> 57,868
<CASH-FLOW-OPERATIONS> 334,289
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<FN>
<F1> Tag 37 includes operating and nonoperating income taxes and is excluded
from operating expenses in Tag 39 and on the Consolidated Statement of Income.
<F2> Tag 41 includes $2,619,000 of loss from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Company as of September 30,
1998, and the related consolidated statements of income and cash flows for the
nine months ended September 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000928576
<NAME> MIDAMERICAN ENERGY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,607,812
<OTHER-PROPERTY-AND-INVEST> 164,360
<TOTAL-CURRENT-ASSETS> 259,762
<TOTAL-DEFERRED-CHARGES> 312,874
<OTHER-ASSETS> 166,345
<TOTAL-ASSETS> 3,511,153
<COMMON> 560,595
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 431,870
<TOTAL-COMMON-STOCKHOLDERS-EQ> 992,465
150,000
31,759
<LONG-TERM-DEBT-NET> 930,497
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 73,600
<LONG-TERM-DEBT-CURRENT-PORT> 49,628
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,283,204
<TOT-CAPITALIZATION-AND-LIAB> 3,511,153
<GROSS-OPERATING-REVENUE> 1,211,084
<INCOME-TAX-EXPENSE> 74,323
<OTHER-OPERATING-EXPENSES> 971,310
<TOTAL-OPERATING-EXPENSES> 1,045,633
<OPERATING-INCOME-LOSS> 165,451
<OTHER-INCOME-NET> 2,176
<INCOME-BEFORE-INTEREST-EXPEN> 167,627
<TOTAL-INTEREST-EXPENSE> 66,524
<NET-INCOME> 101,103
3,714
<EARNINGS-AVAILABLE-FOR-COMM> 97,389
<COMMON-STOCK-DIVIDENDS> 90,700
<TOTAL-INTEREST-ON-BONDS> 53,425
<CASH-FLOW-OPERATIONS> 343,300
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Holdings Company as of
September 30, 1998, and the related consolidated statements of income and cash
flows for the nine months ended September 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001009526
<NAME> MIDAMERICAN ENERGY HOLDINGS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,607,104
<OTHER-PROPERTY-AND-INVEST> 738,836
<TOTAL-CURRENT-ASSETS> 302,044
<TOTAL-DEFERRED-CHARGES> 408,611
<OTHER-ASSETS> 166,345
<TOTAL-ASSETS> 4,222,940
<COMMON> 741,447
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 421,619
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,245,883
150,000
31,759
<LONG-TERM-DEBT-NET> 1,044,981
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 212,499
<LONG-TERM-DEBT-CURRENT-PORT> 69,631
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,468,187
<TOT-CAPITALIZATION-AND-LIAB> 4,222,940
<GROSS-OPERATING-REVENUE> 1,377,661
<INCOME-TAX-EXPENSE> 74,621<F1>
<OTHER-OPERATING-EXPENSES> 1,131,936
<TOTAL-OPERATING-EXPENSES> 1,131,936
<OPERATING-INCOME-LOSS> 245,725
<OTHER-INCOME-NET> 20,928
<INCOME-BEFORE-INTEREST-EXPEN> 266,653
<TOTAL-INTEREST-EXPENSE> 78,677
<NET-INCOME> 113,355
0
<EARNINGS-AVAILABLE-FOR-COMM> 113,355
<COMMON-STOCK-DIVIDENDS> 85,029
<TOTAL-INTEREST-ON-BONDS> 53,425
<CASH-FLOW-OPERATIONS> 339,208
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<FN>
<F1> Tag 37, Income Tax Expense, includes operating and nonoperating income
taxes and is excluded from total operating expenses in Tag 39 and on the
Consolidated Statement of Income.
</FN>
</TABLE>
