daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (2) if such release (or any successor release) is not published or does not contain such prices on such business day, the Reference Treasury Dealer Quotation for such Redemption Date.
"Consolidated Net Tangible Assets" means, as of the date of any determination thereof, the total amount of all assets of MEHC determined on a consolidated basis in accordance with GAAP as of such date less the sum of (a) the consolidated current liabilities of MEHC determined in accordance with GAAP and (b) assets properly classified as Intangible Assets.
"Currency Protection Agreement" means, with respect to any person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement intended to protect such person against fluctuations in currency values to or under which such person is a party or a beneficiary on the date of the indenture or becomes a party or a beneficiary thereafter.
"Debt" means, with respect to any person, at any date of determination (without duplication):
For purposes of determining any particular amount of Debt that is or would be outstanding, Guarantees of, or obligations with respect to letters of credit or similar instruments supporting (to the extent the foregoing constitutes Debt), Debt otherwise included in the determination of such particular amount will not be included. For purposes of determining compliance with the indenture, in the event that an item of Debt meets the criteria of more than one of the types of Debt described in the above clauses, MEHC, in its sole discretion, will classify such item of Debt and only be required to include the amount and type of such Debt in one of such clauses.
"Guarantee" means any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any Debt of any other person and, without limiting the generality of the foregoing, any Debt obligation, direct or indirect, contingent or otherwise, of such person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other person (whether arising by virtue of partnership arrangements (other than solely by reason of being a general partner of a partnership), or by agreement to keep-well, to purchase assets, goods, securities or services or to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for
purposes of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term "Guarantee" will not include endorsements for collection or deposit in the ordinary course of business or the grant of a lien in connection with any Non-Recourse Debt. The term "Guarantee" used as a verb has a corresponding meaning.
"Independent Investment Banker" means an independent investment banking institution of international standing appointed by MEHC.
"Intangible Assets" means, as of the date of determination thereof, all assets of MEHC properly classified as intangible assets determined on a consolidated basis in accordance with GAAP. "Interest Rate Protection Agreement" means, with respect to any person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement intended to protect such person against fluctuations in interest rates to or under which such person or any of its Subsidiaries is a party or a beneficiary on the date of the indenture or becomes a party or a beneficiary thereafter.
"Investment Grade" means with respect to the notes, (1) in the case of S&P, a rating of at least BBB–, (2) in the case of Moody's, a rating of at least Baa3, and (3) in the case of a Rating Agency other than S&P or Moody's, the equivalent rating, or in each case, any successor, replacement or equivalent definition as promulgated by S&P, Moody's or other Rating Agency as the case may be.
"Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form.
"Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property, but will not include any partnership, joint venture, shareholder, voting trust or similar governance agreement with respect to Capital Stock in a Subsidiary or Joint Venture. For purposes of the indenture, MEHC will be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property.
"Non-Recourse" means any Debt or other obligation (or that portion of such Debt or other obligation) that is without recourse to MEHC or any property or assets directly owned by MEHC (other than a pledge of the equity interests in any Subsidiary of MEHC, to the extent recourse to MEHC under such pledge is limited to such equity interests).
"Property" of any person means all types of real, personal, tangible or mixed property owned by such person whether or not included in the most recent consolidated balance sheet of such person under GAAP.
"Rating Agencies" means (1) S&P and (2) Moody's or (3) if S&P or Moody's or both do not make a rating of the notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by MEHC, which will be substituted for S&P, Moody's or both, as the case may be.
"Rating Category" means (1) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories), (2) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (3) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories (+ and – for S&P, 1, 2 and 3 for Moody's or the equivalent gradations for another Rating Agency) will be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB– to B+, will constitute a decrease of one gradation).
"Rating Decline" means the occurrence of the following on, or within 90 days after, the earlier of (1) the occurrence of a Change of Control and (2) the date of public notice of the occurrence of a Change of Control or of the public notice of the intention of MEHC to effect a Change of Control
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(the "Rating Date"), which period will be extended so long as the rating of the notes is under publicly announced consideration for possible downgrading by any of the Rating Agencies: (a) in the event that any series of the notes are rated by either Rating Agency on the Rating Date as Investment Grade, the rating of such notes by both such Rating Agencies is reduced below Investment Grade, or (b) in the event the notes are rated below Investment Grade by both such Rating Agencies on the Rating Date, the rating of such notes by either Rating Agency is decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories).
"Redeemable Stock" means any class or series of Capital Stock of any person that by its terms or otherwise is (1) required to be redeemed prior to the stated maturity of any series of the notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the stated maturity of any series of the notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Debt having a scheduled maturity prior to the stated maturity of any series of the notes, provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require MEHC to purchase or redeem such Capital Stock upon the occurrence of a "change of control" occurring prior to the stated maturity of any series of the notes will not constitute Redeemable Stock if the "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the covenants described under "Purchase of Notes Upon a Change of Control" above.
"Redemption Date" means any date on which MEHC redeems all or any portion of the notes in accordance with the terms of the indenture.
"Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by MEHC.
"Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by MEHC, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to MEHC by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such Redemption Date).
"Significant Subsidiary" means a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act, substituting 20 percent for 10 percent each place it appears therein. Unless the context otherwise clearly requires, any reference to a "Significant Subsidiary" is a reference to a Significant Subsidiary of MEHC.
"Subsidiary" means, with respect to any person, including, without limitation, MEHC and its Subsidiaries, any corporation or other entity of which such person owns, directly or indirectly, a majority of the Capital Stock or other ownership interests and has ordinary voting power to elect a majority of the board of directors or other persons performing similar functions.
"Trade Payables" means, with respect to any person, any accounts payable or any other indebtedness or monetary obligation to trade creditors incurred, created, assumed or Guaranteed by such person or any of its Subsidiaries or Joint Ventures arising in the ordinary course of business.
"Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date.
"U.S. Government Obligations" means any securities that are (1) direct obligations of the United States for the payment of which its full faith and credit is pledged or (2) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, that, in either case are not callable or redeemable at the option of the issuer thereof, and will also include any depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S.
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Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" means, with respect to any person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors (or persons fulfilling similar responsibilities) of such person.
Global Notes; Book-Entry System
The original series D notes were, and the series D exchange notes will be, issued under a book-entry system in the form of one or more global notes (each, a "Global Note"). Each Global Note with respect to the original series D notes was, and each Global Note with respect to the series D exchange notes will be, deposited with, or on behalf of, a depositary, which is The Depository Trust Company, New York, New York (the "Depositary"). The Global Notes with respect to the original series D notes were, and the Global Notes with respect to the series D exchange notes will be, registered in the name of the Depositary or its nominee.
The original series D notes were not issued in certificated form and, except under the limited circumstances described below, owners of beneficial interests in the Global Notes are not entitled to physical delivery of the series D notes in certificated form. The Global Notes may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any nominee to a successor of the Depositary or a nominee of such successor.
The Depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds securities that its participants ("Direct Participants") deposit with the Depositary. The Depositary also facilitates the post-trade settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, including Euroclear Bank S.A./N.V. as operator of the Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). The Depositary is a wholly owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation and Emerging Markets Clearing Corporation, also subsidiaries of DTCC, as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to the Depositary system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to the Depositary and its Direct and Indirect Participants are on file with the SEC.
Purchases of the notes under the Depositary system must be made by or through Direct Participants, which will receive a credit for the notes on the Depositary's records. The ownership interest of each actual purchaser of each note ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from the Depositary of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the notes are to be accomplished by entries made on the books of Direct and
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Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in notes, except in the event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all series D notes deposited by Direct Participants with the Depositary are registered in the name of the Depositary's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of the Depositary. The deposit of series D notes with the Depositary and their registration in the name of Cede & Co. or such other nominee effect no change in beneficial ownership. The Depositary has no knowledge of the actual Beneficial Owners of the series D notes; the Depositary's records reflect only the identity of the Direct Participants to whose accounts such series D notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners are governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Neither the Depositary nor Cede & Co. (nor any other nominee of the Depositary) will consent or vote with respect to the series D notes unless authorized by a Direct Participant in accordance with the Depositary's procedures. Under its usual procedures, the Depositary mails an Omnibus Proxy to MEHC as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).
Principal (and premium, if any) and interest payments on the series D notes and any redemption payments are made to Cede & Co. (or such other nominee as may be requested by an authorized representative of the Depositary). The Depositary's practice is to credit Direct Participants' accounts upon the Depositary's receipt of funds and corresponding detail information from MEHC or the trustee on the payable date in accordance with their respective holdings shown on the Depositary's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of the Depositary, the trustee or MEHC, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal (and premium, if any), interest and any redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of the Depositary) is the responsibility of MEHC, disbursements of such payments to Direct Participants shall be the responsibility of the Depositary, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities depositary with respect to the series D notes at any time by giving reasonable notice to MEHC or the trustee. Under such circumstances, in the event that a successor securities depositary is not obtained, certificated series D notes are required to be printed and delivered. MEHC may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor securities depositary). In that event, certificated series D notes will be printed and delivered.
The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that MEHC believes to be reliable, but MEHC, the initial purchasers and the trustee take no responsibility for the accuracy thereof.
A Global Note of any series may not be transferred except as a whole by the Depositary to a nominee or successor of the Depositary or by a nominee of the Depositary to another nominee of the Depositary. A Global Note representing series D notes is exchangeable, in whole but not in part, for series D notes in definitive form of like tenor and terms if (1) the Depositary notifies MEHC that it is unwilling or unable to continue as depositary for such Global Note or if at any time the Depositary is no longer eligible to be or in good standing as a "clearing agency" registered under the Exchange Act,
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and in either case, a successor depositary is not appointed by MEHC within 120 days of receipt by MEHC of such notice or of MEHC becoming aware of such ineligibility, (2) while such Global Note is subject to the transfer restrictions described under "Transfer Restrictions," the book-entry interests in such Global Note cease to be eligible for Depositary services because such series D notes are neither (a) rated in one of the top four categories by a nationally recognized statistical rating organization nor (b) included within a Self-Regulatory Organization system approved by the SEC for the reporting of quotation and trade information of securities eligible for transfer pursuant to Rule 144A under the Securities Act, or (3) MEHC in its sole discretion at any time determines not to have such series D notes represented by a Global Note and notifies the trustee thereof. A Global Note exchangeable pursuant to the preceding sentence shall be exchangeable for series D notes registered in such names and in such authorized denominations as the Depositary shall direct.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The exchange of original series D notes for series D exchange notes pursuant to the exchange offer will not constitute a taxable event for U.S. federal income tax purposes. The series D exchange notes received by a holder of original series D notes should be treated as a continuation of such holder's investment in the original series D notes; thus there should be no material U.S. federal income tax consequences to holders exchanging original series D notes for series D exchange notes. As a result:
 | |
| • | a holder of original series D notes will not recognize taxable gain or loss as a result of the exchange of original series D notes for series D exchange notes pursuant to the exchange offer; |
| |
| • | the holding period of the series D exchange notes will include the holding period of the original series D notes surrendered in exchange therefor; and |
| |
| • | a holder's adjusted tax basis in the series D exchange notes will be the same as such holder's adjusted tax basis in the original series D notes surrendered in exchange therefor. |
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PLAN OF DISTRIBUTION
Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the series D exchange notes that will be issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by the holders thereof without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of series D notes who is an "affiliate" (within the meaning of the Securities Act) of ours or who intends to participate in the exchange offer for the purpose of distributing the series D exchange notes or a broker-dealer (within the meaning of the Securities Act) that acquired original series D notes in a transaction other than as part of its market-making or other trading activities and who has arranged or has an understanding with any person to participate in the distribution of the series D exchange notes: (1) will not be able to rely on the interpretations by the staff of the SEC set forth in the above-mentioned no-action letters; (2) will not be able to tender its original series D notes in the exchange offer; and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the series D notes unless such sale or transfer is made pursuant to an exemption from such requirements.
Each broker-dealer that receives series D exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such series D exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of series D exchange notes received in exchange for original series D notes where such original series D notes were acquired as a result of market-marketing activities or other trading activities. We have agreed that, for a period of 120 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until April 15, 2004, all dealers effecting transactions in the series D exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any such sale of series D exchange notes by broker-dealers. Series D exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the series D exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker/dealer and/or the purchasers of any such series D exchange notes. Any broker-dealer that resells series D exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such series D exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of series D exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letters of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after the expiration date we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the series D notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the series D notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
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NOTICE TO CANADIAN RESIDENTS
Any resale of the series D notes in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Note holders resident in Canada are advised to seek legal advice prior to any resale of the series D notes.
LEGAL MATTERS
Certain legal matters with respect to the series D exchange notes will be passed upon for us by Willkie Farr & Gallagher LLP, New York, New York.
EXPERTS
The consolidated financial statements of MidAmerican Energy Holdings Company and subsidiaries, as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003, included in this prospectus, and the related financial statement schedules included elsewhere in the registration statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to MidAmerican's changes in its accounting policy for asset retirement obligations and for variable interest entities in 2003, for goodwill and other intangible assets in 2002 and for major maintenance, overhaul and well workover costs in 2001), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file reports and information statements and other information with the SEC. Such reports, proxy and information statements and other information filed by us with the SEC can be inspected and copied at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at Woolworth Building, 233 Broadway, New York, New York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. This Web site can be accessed at http://www.sec.gov.
We make available free of charge through our internet website at http://www.midamerican.com our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file with, or furnish it to, the SEC. Any information available on or through our website is not part of this prospectus and our web address is included as an inactive textual reference only.
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FINANCIAL STATEMENTS
Index to Financial Statements
| | | | | | |
| Independent Auditors' Report | | | F-2 | |
| | | | | |
| Consolidated Balance Sheets as of December 31, 2003 and 2002 | | | F-3 | |
| | | | | |
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002
and 2001 | | | F-4 | |
| | | | | |
| Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001 | | | F-5 | |
| | | | | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002
and 2001 | | | F-6 | |
| | | | | |
| Notes to Consolidated Financial Statements | | | F-7 | |
|
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MidAmerican Energy Holdings Company
Des Moines, Iowa
We have audited the accompanying consolidated balance sheets of MidAmerican Energy Holdings Company and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its accounting policy for asset retirement obligations and for variable interest entities in 2003, for goodwill and other intangible assets in 2002, and for major maintenance, overhaul and well workover costs in 2001.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Des Moines, Iowa
February 9, 2004
(March 1, 2004 as to Notes 2, 5 and 20)
F-2
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
| | | | | | | | | | |
| | | As of December 31, |
| | | 2003 | | 2002 |
| ASSETS | |
| Current assets: | |
| Cash and cash equivalents | | $ | 660,213 | | | $ | 844,430 | |
| Restricted cash and short-term investments | | | 55,281 | | | | 50,808 | |
| Accounts receivable, net of allowance for doubtful accounts of $26,004 and $39,742 | | | 666,063 | | | | 707,731 | |
| Inventories | | | 123,301 | | | | 126,938 | |
| Other current assets | | | 371,855 | | | | 246,731 | |
| Total current assets | | | 1,876,713 | | | | 1,976,638 | |
| Properties, plants and equipment, net | | | 11,180,979 | | | | 10,284,487 | |
| Goodwill | | | 4,305,643 | | | | 4,258,132 | |
| Regulatory assets | | | 512,549 | | | | 415,804 | |
| Other investments | | | 228,896 | | | | 446,732 | |
| Equity investments | | | 234,370 | | | | 273,707 | |
| Deferred charges and other assets | | | 829,039 | | | | 779,420 | |
| Total assets | | $ | 19,168,189 | | | $ | 18,434,920 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | |
| Accounts payable | | $ | 345,237 | | | $ | 462,960 | |
| Accrued interest | | | 189,635 | | | | 192,015 | |
| Accrued taxes | | | 112,823 | | | | 108,940 | |
| Other accrued liabilities | | | 443,531 | | | | 457,058 | |
| Short-term debt | | | 48,036 | | | | 79,782 | |
| Current portion of long-term debt | | | 500,941 | | | | 470,213 | |
| Current portion of parent company subordinated debt | | | 100,000 | | | | — | |
| Total current liabilities | | | 1,740,203 | | | | 1,770,968 | |
| Other long-term accrued liabilities | | | 1,827,633 | | | | 1,486,608 | |
| Parent company senior debt | | | 2,777,878 | | | | 2,323,387 | |
| Parent company subordinated debt | | | 1,772,146 | | | | — | |
| Subsidiary and project debt | | | 6,674,640 | | | | 7,077,087 | |
| Deferred income taxes | | | 1,433,144 | | | | 1,238,421 | |
| Total liabilities | | | 16,225,644 | | | | 13,896,471 | |
| Deferred income | | | 69,201 | | | | 80,078 | |
| Minority interest | | | 9,754 | | | | 7,351 | |
| Preferred securities of subsidiaries | | | 92,145 | | | | 93,325 | |
| Company-obligated mandatorily redeemable preferred securities of subsidiary trusts | | | — | | | | 2,063,412 | |
| Commitments and contingencies (Note 19) | |
| Stockholders' equity: | | | | | | | | | |
| Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares outstanding at December 31, 2003 and 2002 | | | — | | | | — | |
| Common stock — authorized 60,000 shares, no par value; 9,281 shares issued and outstanding at December 31, 2003 and 2002 | | | — | | | | — | |
| Additional paid-in capital | | | 1,957,277 | | | | 1,956,509 | |
| Retained earnings | | | 999,627 | | | | 584,009 | |
| Accumulated other comprehensive loss, net | | | (185,459 | ) | | | (246,235 | ) |
| Total stockholders' equity | | | 2,771,445 | | | | 2,294,283 | |
| Total liabilities and stockholders' equity | | $ | 19,168,189 | | | $ | 18,434,920 | |
|
The accompanying notes are an integral part of these financial statements.
F-3
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2003 | | 2002 | | 2001 |
| Revenue: | | | | | | | | | | | | | |
| Operating revenue | | $ | 5,948,224 | | | $ | 4,794,010 | | | $ | 4,696,781 | |
| Income on equity investments | | | 38,224 | | | | 40,520 | | | | 39,565 | |
| Interest and dividend income | | | 47,911 | | | | 56,250 | | | | 24,552 | |
| Other income | | | 110,318 | | | | 77,359 | | | | 212,082 | |
| Total revenue | | | 6,144,677 | | | | 4,968,139 | | | | 4,972,980 | |
| Costs and expenses: | |
| Cost of sales | | | 2,416,132 | | | | 1,844,024 | | | | 2,341,178 | |
| Operating expense | | | 1,527,516 | | | | 1,345,205 | | | | 1,176,422 | |
| Depreciation and amortization | | | 609,889 | | | | 525,902 | | | | 538,702 | |
| Interest expense | | | 771,831 | | | | 647,379 | | | | 499,263 | |
| Less interest capitalized | | | (30,483 | ) | | | (37,469 | ) | | | (86,469 | ) |
| Total costs and expenses | | | 5,294,885 | | | | 4,325,041 | | | | 4,469,096 | |
| Income before provision for income taxes | | | 849,792 | | | | 643,098 | | | | 503,884 | |
| Provision for income taxes | | | 250,971 | | | | 99,588 | | | | 250,064 | |
| Income before minority interest and preferred dividends | | | 598,821 | | | | 543,510 | | | | 253,820 | |
| Minority interest and preferred dividends | | | 183,203 | | | | 163,467 | | | | 106,547 | |
| Income before cumulative effect of change in accounting principle | | | 415,618 | | | | 380,043 | | | | 147,273 | |
| Cumulative effect of change in accounting principle, net of tax (Note 2) | | | — | | | | — | | | | (4,604 | ) |
| Net income available to common and preferred stockholders | | $ | 415,618 | | | $ | 380,043 | | | $ | 142,669 | |
|
The accompanying notes are an integral part of these financial statements.
F-4
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding
Common
Shares | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total |
| Balance, January 1, 2001 | | | 9,281 | | | $ | — | | | $ | 1,553,073 | | | $ | 81,257 | | | $ | (57,929 | ) | | $ | 1,576,401 | |
| Net income | | | — | | | | — | | | | — | | | | 142,669 | | | | — | | | | 142,669 | |
| Other comprehensive income: | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | (22,103 | ) | | | (22,103 | ) |
| Fair value adjustment on cash flow hedges, net of tax of $8,143 | | | — | | | | — | | | | — | | | | — | | | | 18,490 | | | | 18,490 | |
| Minimum pension liability adjustment, net of tax of $(3,448) | | | — | | | | — | | | | — | | | | — | | | | (4,847 | ) | | | (4,847 | ) |
| Unrealized losses on securities, net of tax of $(1,315) | | | — | | | | — | | | | — | | | | — | | | | (2,443 | ) | | | (2,443 | ) |
| Total other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 131,766 | |
| Balance, December 31, 2001 | | | 9,281 | | | | — | | | | 1,553,073 | | | | 223,926 | | | | (68,832 | ) | | | 1,708,167 | |
| Net income | | | — | | | | — | | | | — | | | | 380,043 | | | | — | | | | 380,043 | |
| Other comprehensive income: | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 166,880 | | | | 166,880 | |
| Fair value adjustment on cash flow hedges, net of tax of $(10,106) | | | — | | | | — | | | | — | | | | — | | | | (27,623 | ) | | | (27,623 | ) |
| Minimum pension liability adjustment, net of tax of $(135,707) | | | — | | | | — | | | | — | | | | — | | | | (313,456 | ) | | | (313,456 | ) |
| Unrealized losses on securities, net of tax of $(1,813) | | | — | | | | — | | | | — | | | | — | | | | (3,204 | ) | | | (3,204 | ) |
| Total other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 202,640 | |
| Issuance of zero-coupon convertible preferred stock | | | — | | | | — | | | | 402,000 | | | | — | | | | — | | | | 402,000 | |
| Retirement of stock options | | | — | | | | — | | | | 815 | | | | (19,960 | ) | | | — | | | | (19,145 | ) |
| Other equity transactions | | | — | | | | — | | | | 621 | | | | — | | | | — | | | | 621 | |
| Balance, December 31, 2002 | | | 9,281 | | | | — | | | | 1,956,509 | | | | 584,009 | | | | (246,235 | ) | | | 2,294,283 | |
| Net income | | | — | | | | — | | | | — | | | | 415,618 | | | | — | | | | 415,618 | |
| Other comprehensive income: | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | 58,148 | | | | 58,148 | |
| Fair value adjustment on cash flow hedges, net of tax of $7,202 | | | — | | | | — | | | | — | | | | — | | | | 16,769 | | | | 16,769 | |
| Minimum pension liability adjustment, net of tax of $(6,425) | | | — | | | | — | | | | — | | | | — | | | | (14,989 | ) | | | (14,989 | ) |
| Unrealized losses on securities, net of tax of $566 | | | — | | | | — | | | | — | | | | — | | | | 848 | | | | 848 | |
| Total other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 476,394 | |
| Other equity transactions | | | — | | | | — | | | | 768 | | | | — | | | | — | | | | 768 | |
| Balance, December 31, 2003 | | | 9,281 | | | $ | — | | | $ | 1,957,277 | | | $ | 999,627 | | | $ | (185,459 | ) | | $ | 2,771,445 | |
|
The accompanying notes are an integral part of these financial statements.
F-5
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2003 | | 2002 | | 2001 |
| Cash flows from operating activities: | |
| Net income | | $ | 415,618 | | | $ | 380,043 | | | $ | 142,669 | |
| Adjustments to reconcile net cash flows from operating activities: | |
| Distributions less income on equity investments | | | 40,160 | | | | (11,383 | ) | | | (28,515 | ) |
| Gains on asset sales | | | (24,321 | ) | | | (25,329 | ) | | | (179,493 | ) |
| Depreciation and amortization | | | 609,889 | | | | 525,902 | | | | 442,284 | |
| Amortization of goodwill | | | — | | | | — | | | | 96,418 | |
| Amortization of regulatory assets and liabilities and other | | | (14,363 | ) | | | 8,709 | | | | 23,774 | |
| Amortization of deferred financing costs | | | 28,046 | | | | 28,615 | | | | 20,737 | |
| Provision for deferred income taxes | | | 237,322 | | | | (16,228 | ) | | | 152,920 | |
| Cumulative effect of change in accounting principle, net of tax | | | — | | | | — | | | | 4,604 | |
| Changes in other items: | |
| Accounts receivable and other current assets | | | (27,447 | ) | | | (201,147 | ) | | | 571,910 | |
| Accounts payable and other accrued liabilities | | | (46,138 | ) | | | 64,759 | | | | (420,434 | ) |
| Deferred income | | | (9,344 | ) | | | (4,839 | ) | | | 6,428 | |
| Other | | | 8,501 | | | | 8,624 | | | | 13,696 | |
| Net cash flows from operating activities | | | 1,217,923 | | | | 757,726 | | | | 846,998 | |
| Cash flows from investing activities: | |
| Acquisitions, net of cash acquired | | | (54,263 | ) | | | (1,416,937 | ) | | | (81,934 | ) |
| Sale (purchase) of convertible preferred securities | | | 288,750 | | | | (275,000 | ) | | | — | |
| Capital expenditures relating to operating projects | | | (677,256 | ) | | | (542,615 | ) | | | (398,165 | ) |
| Construction and other development costs | | | (513,771 | ) | | | (965,470 | ) | | | (178,587 | ) |
| Purchase of affiliates notes | | | (35,029 | ) | | | — | | | | (13,247 | ) |
| Proceeds from sale of assets | | | 13,113 | | | | 214,070 | | | | 377,396 | |
| Decrease in restricted cash and investments | | | 7,415 | | | | 16,351 | | | | 24,540 | |
| Other | | | (32,126 | ) | | | 61,790 | | | | 31,453 | |
| Net cash flows from investing activities | | | (1,003,167 | ) | | | (2,907,811 | ) | | | (238,544 | ) |
| Cash flows from financing activities: | |
| Proceeds from subsidiary and project debt | | | 1,157,649 | | | | 1,485,349 | | | | 200,000 | |
| Proceeds from parent company senior debt | | | 449,295 | | | | 700,000 | | | | — | |
| Repayments of subsidiary and project debt | | | (1,490,986 | ) | | | (395,370 | ) | | | (437,372 | ) |
| Repayment of parent company senior debt | | | (215,000 | ) | | | — | | | | — | |
| Repayment of parent company subordinated debt | | | (198,958 | ) | | | — | | | | — | |
| Net proceeds from (repayment of) parent company revolving credit facility | | | — | | | | (153,500 | ) | | | 68,500 | |
| Repayment of other obligations | | | — | | | | (94,297 | ) | | | — | |
| Net repayment of subsidiary short-term debt | | | (31,750 | ) | | | (472,835 | ) | | | (74,144 | ) |
| Proceeds from issuance of trust preferred securities | | | — | | | | 1,273,000 | | | | — | |
| Proceeds from issuance of preferred stock | | | — | | | | 402,000 | | | | — | |
| Redemption of preferred securities of subsidiaries | | | (1,176 | ) | | | (127,908 | ) | | | (24,910 | ) |
| Other | | | (95,411 | ) | | | (61,205 | ) | | | 9,459 | |
| Net cash flows from financing activities | | | (426,337 | ) | | | 2,555,234 | | | | (258,467 | ) |
| Effect of exchange rate changes | | | 27,364 | | | | 52,536 | | | | (1,394 | ) |
| Net change in cash and cash equivalents | | | (184,217 | ) | | | 457,685 | | | | 348,593 | |
| Cash and cash equivalents at beginning of period | | | 844,430 | | | | 386,745 | | | | 38,152 | |
| Cash and cash equivalents at end of period | | $ | 660,213 | | | $ | 844,430 | | | $ | 386,745 | |
| Supplemental Disclosure: | |
| Interest paid, net of interest capitalized | | $ | 706,039 | | | $ | 588,972 | | | $ | 389,953 | |
| Income taxes paid | | $ | 9,911 | | | $ | 101,225 | | | $ | 133,139 | |
| Non-cash transaction – ROP note received under NIA Arbitration Settlement | | $ | 97,000 | | | $ | — | | | $ | — | |
|
The accompanying notes are an integral part of these financial statements.
F-6
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization And Operations
MidAmerican Energy Holdings Company ("MEHC") and its subsidiaries (together with MEHC, the "Company") is a United States-based privately owned global energy company. The Company's operations are organized and managed on seven distinct platforms: MidAmerican Energy Company ("MidAmerican Energy"), Kern River Gas Transmission Company ("Kern River"), Northern Natural Gas Company ("Northern Natural Gas"), CE Electric UK Funding ("CE Electric UK") (which includes Northern Electric plc ("Northern Electric") and Yorkshire Electricity Group plc ("Yorkshire")), CalEnergy Generation–Domestic (interests in independent power projects and related operations), CalEnergy Generation–Foreign (the subsidiaries owning the Upper Mahiao, Malitbog and Mahanagdong Projects (collectively the "Leyte Projects") and the Casecnan project) and HomeServices of America, Inc. (collectively with its subsidiaries, "HomeServices"). Through these platforms, the Company owns and operates a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, a diversified portfolio of domestic and international independent power projects and the second largest residential real estate brokerage firm in the United States.
On March 14, 2000, MEHC and an investor group comprised of Berkshire Hathaway Inc. ("Berkshire Hathaway"), Walter Scott, Jr., a director of MEHC, David L. Sokol, Chairman and Chief Executive Officer of MEHC, and Gregory E. Abel, President and Chief Operating Officer of MEHC, closed on a definitive agreement and plan of merger whereby the investor group, together with certain of Mr. Scott's family members and family trusts and corporations, acquired all of the outstanding common stock of MEHC (the "Teton Transaction").
MEHC initially incorporated in 1971 under the laws of the State of Delaware and was reincorporated in 1999 in Iowa, at which time it changed its name from CalEnergy Company, Inc. to MidAmerican Energy Holdings Company.
In these notes to consolidated financial statements, references to "U.S. dollars," "dollars," "$" or "cents" are to the currency of the United States, references to "pounds sterling," " £," "sterling," "pence" or "p" are to the currency of the United Kingdom and references to "pesos" are to the currency of the Philippines. References to kW means kilowatts, MW means megawatts, GW means gigawatts, kWh means kilowatt hours, MWh means megawatt hours, GWh means gigawatts hours, kV means kilovolts, mmcf means million cubic feet, Bcf means billion cubic feet, Tcf means trillion cubic feet, MMBtus means million British thermal units and Dth means decatherms or MMBtus.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of MEHC and its wholly owned subsidiaries excluding entities for which adoption of FASB Interpretation No. 46R, "Consolidation of Variable Interest Entities" ("FIN 46R") was required at December 31, 2003. Subsidiaries which are less than 100% owned but greater than 50% owned are consolidated with a minority interest. Subsidiaries that are 50% owned or less, but where the Company has the ability to exercise significant influence, are accounted for under the equity method of accounting. Investments where the Company's ability to influence is limited are accounted for under the cost method of accounting. All inter-enterprise transactions and accounts have been eliminated. The results of operations of the Company include the Company's proportionate share of results of operations of entities acquired from the date of each acquisition for purchase business combinations.
For the Company's foreign operations whose functional currency is not the U.S. dollar, the assets and liabilities are translated into U.S. dollars at current exchange rates. Resulting translation adjustments are reflected as accumulated other comprehensive income (loss) in stockholders' equity. Revenue and expenses are translated at average exchange rates for the period. Transaction gains and
F-7
losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Reclassifications
Certain amounts in the fiscal 2002 and 2001 consolidated financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2003 presentation. Such reclassification did not impact previously reported net income or retained earnings.
The Company originally issued its 2003 consolidated financial statements on February 9, 2004. In accordance with accounting guidance issued subsequent to that date, the Company has adjusted the consolidated financial statements to reflect the reclassification of $385.7 million of 2002 regulatory liabilities and $367.9 million of 2001 regulatory liabilities for the cost of removal of utility plant previously recognized within accumulated depreciation as an other long-term accrued liability. Prior to this reclassification, 2002 properties, plants and equipment, net was $9.9 billion, total assets were $18.0 billion, other long-term accrued liabilities were $1.1 billion and total liabilities were $13.5 billion. Subsequent to this reclassification, 2002 properties, plants and equipment, net is $10.3 billion, total assets are $18.4 billion, other long-term accrued liabilities are $1.5 billion, and total liabilities are $13.9 billion.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Accounting for the Effects of Certain Types of Regulation
MidAmerican Energy, Kern River and Northern Natural Gas prepare their financial statements in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 71 ("SFAS 71"), which differs in certain respects from the application of generally accepted accounting principles by non-regulated businesses. In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the economic effects of regulation. As a result, a regulated utility is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, MidAmerican Energy, Kern River and Northern Natural Gas have deferred certain costs, which will be amortized over various future periods. To the extent that collection of such costs or payment of such obligations is no longer probable as a result of changes in regulation, the associated regulatory asset or liability is charged or credited to income.
A possible consequence of deregulation of the regulated energy industry is that SFAS 71 may no longer apply. If portions of the Company's regulated energy operations no longer meet the criteria of SFAS 71, the Company could be required to write off the related regulatory assets and liabilities from its balance sheet, and thus a material adjustment to earnings in that period could result if regulatory assets or liabilities are not recovered in transition provisions of any deregulation legislation.
The Company continues to evaluate the applicability of SFAS 71 to its regulated energy operations and the recoverability of these assets and liabilities through rates as there are on-going changes in the regulatory and economic environment.
Cash and Cash Equivalents
The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investments other than restricted cash are primarily commercial paper and money market securities. Restricted cash is not considered a cash equivalent.
Restricted Cash and Investments
The current restricted cash and short-term investments balance recorded separately in restricted cash and short term investments and in deferred charges and other assets, was $119.5 million and
F-8
$58.7 million at December 31, 2003 and 2002, respectively, and includes commercial paper and money market securities. The balance is mainly composed of amounts deposited in restricted accounts from which the Company will source its debt service reserve requirements relating to the projects and customer deposits held in escrow. The debt service funds are restricted by their respective project debt agreements to be used only for the related project.
The Company's nuclear decommissioning trust funds and other marketable securities are classified as available for sale and are accounted for at fair value.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company's assessment of the collectibility of payments from its customers. This assessment requires judgment regarding the outcome of pending disputes, arbitrations and the ability of customers to pay the amounts owed to the Company.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current transaction.
The methods and assumptions used to estimate fair value are as follows:
Short-term debt — Due to the short-term nature of the short-term debt, the fair value approximates the carrying value.
Debt instruments — The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The Company is unable to estimate a fair value for the Leyte debt as there are no quoted market prices available.
Other financial instruments — All other financial instruments of a material nature are short-term and the fair value approximates the carrying amount.
Properties, Plants and Equipment, Net
Properties, plants and equipment are recorded at historical cost. The cost of major additions and betterments are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed.
Capitalized costs for gas reserves, other than costs of unevaluated exploration projects and projects awaiting development consent, are depleted using the units of production method. Depletion is calculated based on hydrocarbon reserves of properties in the evaluated pool estimated to be commercially recoverable and include anticipated future development costs in respect of those reserves.
Impairment of Long-Lived Assets
The Company's long-lived assets consist primarily of properties, plants and equipment. Depreciation is computed using the straight-line method based on economic lives or regulatorily mandated recovery periods. The Company believes the useful lives assigned to the depreciable assets, which generally range from 3 to 87 years, are reasonable.
The Company periodically evaluates long-lived assets, including properties, plants and equipment, when events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Company expects to recover from
F-9
the future use of the asset, undiscounted and without interest, plus the asset's residual value on disposal. Where the recoverable amount of the long-lived asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value that is based on discounted estimated cash flows from the future use of the asset.
Goodwill
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, but will be tested for impairment on an annual basis. The Company's related amortization consisted primarily of goodwill amortization. Following is a reconciliation of net income available to common and preferred stockholders as originally reported for the years ended December 31, 2003, 2002 and 2001 to adjusted net income available to common and preferred stockholders (in thousands):
| | | | | | | | | | | | | | |
| | | Year Ended December |
| | | 2003 | | 2002 | | 2001 |
| Reported net income available to common and preferred stockholders | | $ | 415,618 | | | $ | 380,043 | | | $ | 142,669 | |
| Amortization of goodwill | | | — | | | | — | | | | 96,418 | |
| Tax effect of amortization | | | — | | | | — | | | | (2,018 | ) |
| Adjusted net income available to common and preferred stockholders | | $ | 415,618 | | | $ | 380,043 | | | $ | 237,069 | |
|
The Company completed its annual review pursuant to SFAS 142 for its reporting units during the fourth quarter of 2003 primarily using a discounted cash flow methodology. No impairment was indicated as a result of these assessments.
Capitalization of Interest and Allowance for Funds Used During Construction
Allowance for funds used during construction ("AFUDC") represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases both utility plant and earnings, it is realized in cash through depreciation provisions included in rates for subsidiaries that apply SFAS 71. Interest and AFUDC for subsidiaries that apply SFAS 71 are capitalized as a component of projects under construction and will be amortized over the assets' estimated useful lives.
Deferred Financing Cost
The Company capitalizes costs associated with financings, as deferred financing costs, and amortizes the amounts over the term of the related financing using the effective interest method.
Contingent Liabilities
The Company establishes reserves for estimated loss contingencies, such as environmental, legal and income taxes, when it is management's assessment that a loss is probable and the amount of the loss can be reasonably estimated.
Deferred Income Taxes
The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. The Company does not intend to repatriate earnings of foreign subsidiaries in the foreseeable future. As a result, deferred United States income taxes are not provided for currency translation adjustments, retained earnings of international subsidiaries or corporate joint ventures unless the earnings are intended to be remitted.
Revenue Recognition
Revenue is recorded based upon services rendered and electricity, gas and steam delivered, distributed or supplied to the end of the period. The Company records unbilled revenue representing
F-10
the estimated amounts customers will be billed for services rendered between the meter reading dates in a particular month and the end of that month. The unbilled revenue estimate is reversed in the following month.
Where billings result in an overrecovery of United Kingdom distribution business revenue against the maximum regulated amount, revenue is deferred in an amount equivalent to the over recovered amount. The deferred amount is deducted from revenue and included in other accrued liabilities. Where there is an under recovery, no anticipation of any potential future recovery is made.
Revenue from the transportation and storage of gas are recognized based on contractual terms and the related volumes. Kern River and Northern Natural Gas are subject to the Federal Energy Regulatory Commission's ("FERC") regulations and, accordingly, certain revenue collected may be subject to possible refunds upon final orders in pending rate cases. Kern River and Northern Natural Gas record rate refund liabilities, which are included in other accrued liabilities, considering their regulatory proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as well as collection and other risks.
Revenue from water delivery is recorded on the basis of the contractual minimum guaranteed water delivery threshold for the respective contract year. If and when cumulative deliveries within a contract year exceed the minimum threshold, additional revenue is recognized. Revenue from long-term electricity contracts is recorded at the lower of the amount billed or the average of the contract, subject to contractual provisions at each project.
Commission revenue from real estate brokerage transactions and related amounts due to agents are recognized when title has transferred from seller to buyer. Title fee revenue from real estate transactions and related amounts due to the title insurer are recognized at the closing, which is when consideration is received. Fees related to loan originations are recognized at the closing, which is when services have been provided and consideration is received.
Financial Instruments
The Company currently utilizes swap agreements and forward purchase agreements to manage market risks and reduce its exposure resulting from fluctuation in interest rates, foreign currency exchange rates and electric and gas prices. For interest rate swap agreements, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. Gains and losses related to gas forward contracts are deferred and included in the measurement of the related gas purchases. These instruments are either exchange traded or with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered to be negligible.
Accounting Principle Change
Effective January 1, 2001, the Company changed its accounting policy regarding major maintenance and repairs for non-regulated gas projects, non-regulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle was $4.6 million, net of taxes of $0.7 million.
New Accounting Pronouncements
On January 1, 2003, the Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement provides accounting and disclosure requirements for retirement obligations associated with long-lived assets. The cumulative effect of initially applying this statement by the Company was immaterial.
The Company identified legal retirement obligations for nuclear decommissioning, wet and dry ash landfills and offshore and minor lateral pipeline facilities. On January 1, 2003, the Company recorded $289.3 million of asset retirement obligation ("ARO") liabilities; $13.9 million of ARO assets, net of accumulated depreciation; $114.6 million of regulatory assets; and reclassified $1.0
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million of accumulated depreciation to the ARO liability. The initial ARO liability recognized includes $266.5 million that pertains to obligations associated with the decommissioning of the Quad Cities nuclear station. The $266.5 million includes a $159.8 million nuclear decommissioning liability that had been recorded at December 31, 2002. The adoption of this statement did not have a material impact on the operations of the regulated entities, as the effects were offset by the establishment of regulatory assets, totaling $114.6 million, pursuant to SFAS 71, "Accounting for the Effects of Certain Types of Regulation".
During the year ended December 31, 2003, the Company recorded, as a regulatory asset and as accretion expense, accretion related to the ARO liability of $16.5 million and $0.1 million, respectively. In addition, as the result of a decommissioning study, the Company reduced its ARO liability associated with the decommissioning of the Quad Cities nuclear station by $21.9 million. As a result, the ARO liability balance is $284.0 million at December 31, 2003.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends SFAS No. 133 for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 149 requires contracts with comparable characteristics to be accounted for similarly. In particular, SFAS 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS 149 is effective for the Company for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 did not have a material effect on the Company's financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The standard is effective for the Company for fiscal periods beginning after December 15, 2003. The adoption of SFAS 150 is not expected to have a material effect on the Company's financial position, results of operations or cash flows.
In December 2003, the FASB issued FASB Interpretation No. 46R which served to clarify guidance in Financial Interpretation No. 46 ("FIN 46"), and provided additional guidance surrounding the application of FIN 46. The Company adopted and applied the provisions of FIN 46R, related to certain finance subsidiaries, as of October 1, 2003. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts, in the amount of $1.9 billion, being reclassified to parent company subordinated debt in the accompanying consolidated balance sheet as of December 31, 2003. In addition, the associated amounts previously recorded in minority interest and preferred dividends are now recorded as interest expense in the accompanying consolidated statement of operations. For the period from October 1, 2003 to December 31, 2003 the Company has recorded $49.8 million of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption on October 1, 2003 have been reclassified. The Company will adopt the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004, in accordance with the provisions of FIN 46R. The Company is currently evaluating the impact of FIN 46R on several operating joint ventures that the Company currently does not consolidate.
3. Acquisitions
Kern River
On March 27, 2002, the Company acquired Kern River. At the date of acquisition, Kern River owned a 926-mile interstate pipeline transporting Rocky Mountain and Canadian natural gas to markets in California, Nevada and Utah.
The Company paid $419.7 million, net of cash acquired and a working capital adjustment, for Kern River's gas pipeline business. The acquisition has been accounted for as a purchase business
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combination. The Company completed the allocation of the purchase price to the assets and liabilities acquired during the first quarter of 2003. The results of operations for Kern River are included in the Company's results beginning March 27, 2002.
The recognition of goodwill resulted from various attributes of Kern River's operations and business in general. These attributes include, but are not limited to:
| |
| • | Opportunities for expansion; |
| |
| • | Generally high credit quality shippers contracting with Kern River; |
| |
| • | Kern River's strong competitive position; |
| |
| • | Exceptional operating track record and state-of-the-art technology; |
| |
| • | Strong demand for gas in the Western markets; and |
| |
| • | An ample supply of low-cost gas. |
There is no assurance that these attributes will continue to exist to the same degree as believed at the time of the acquisition.
In connection with the acquisition of Kern River, MEHC issued $323.0 million of 11% Company-obligated mandatorily redeemable preferred securities of a subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005 and $127.0 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway. Each share of preferred stock is convertible at the option of the holder into one share of the Company's common stock subject to certain adjustments as described in the MEHC's Amended and Restated Articles of Incorporation.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):
| | | | | | |
| Cash | | $ | 7.7 | |
| Properties, plants and equipment | | | 796.8 | |
| Goodwill | | | 33.9 | |
| Other assets | | | 171.7 | |
| Total assets acquired | | | 1,010.1 | |
| Current liabilities | | | (104.3 | ) |
| Long-term debt | | | (482.0 | ) |
| Other liabilities | | | (1.5 | ) |
| Total liabilities assumed | | | (587.8 | ) |
| Net assets acquired | | $ | 422.3 | |
|
Northern Natural Gas Company
On August 16, 2002, the Company acquired Northern Natural Gas from Dynegy Inc. Northern Natural Gas is a 16,500-mile interstate pipeline extending from southwest Texas to the upper Midwest region of the United States.
The Company paid $882.7 million for Northern Natural Gas, net of cash acquired and a working capital adjustment. The acquisition has been accounted for as a purchase business combination. The Company completed the allocation of the purchase price to the assets and liabilities acquired during the third quarter of 2003. The results of operations for Northern Natural Gas are included in the Company's results beginning August 16, 2002.
The recognition of goodwill resulted from various attributes of Northern Natural Gas' operations and business in general. These attributes include, but are not limited to:
| |
| • | Generally high credit quality shippers contracting with Northern Natural Gas; |
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| |
| • | Northern Natural Gas' strong competitive position; |
| |
| • | Strategic location in the high demand Upper Midwest markets; |
| |
| • | Flexible access to an ample supply of low-cost gas; |
| |
| • | Exceptional operating track record; and |
| |
| • | Opportunities for expansion. |
There is no assurance that these attributes will continue to exist to the same degree as believed at the time of the acquisition.
In connection with the acquisition of Northern Natural Gas, MEHC issued $950.0 million of 11% Company-obligated mandatorily redeemable preferred securities of a subsidiary trust due August 31, 2011, with scheduled principal payments beginning in 2003, to Berkshire Hathaway.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):
| | | | | | |
| Cash | | $ | 1.4 | |
| Properties, plants and equipment | | | 1,294.3 | |
| Goodwill | | | 416.3 | |
| Other assets | | | 340.4 | |
| Total assets acquired | | | 2,052.4 | |
| Current portion of long-term debt | | | (450.0 | ) |
| Other current liabilities | | | (195.3 | ) |
| Long-term debt | | | (499.8 | ) |
| Other liabilities | | | (28.2 | ) |
| Total liabilities assumed | | | (1,173.3 | ) |
| Net assets acquired | | $ | 879.1 | |
|
The following pro forma financial information of the Company represents the unaudited pro forma results of operations as if the Kern River and Northern Natural Gas acquisitions, and the related financings, had occurred at the beginning of each period. These pro forma results have been prepared for comparative purposes only and do not profess to be indicative of the results of operations which would have been achieved had these transactions been completed at the beginning of each year, nor are the results indicative of the Company's future results of operations (in millions):
| | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2002 | | 2001 |
| Revenue | | $ | 5,299.4 | | | $ | 5,688.5 | |
Income before cumulative effect of change in
accounting principle | | | 285.5 | | | | 36.9 | |
| Net income available to common and preferred shareholders | | | 285.5 | | | | 32.3 | |
|
HomeServices' Acquisitions
In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of approximately $36.7 million net of cash plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of approximately $102.9 million on 16,000 closed sides representing $3.6 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $5.2 million based on 2004 and 2005 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows and revolving credit facility. In 2002, HomeServices separately acquired three
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real estate companies for an aggregate purchase price of approximately $106.1 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356.0 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally in 2003, HomeServices paid an earnout of $17.3 million based on 2002 financial performance measures. These purchases were financed using HomeServices' internally generated cash flows, revolving credit facility and $40.0 million from MEHC, which was contributed to HomeServices as equity.
Yorkshire Swap
On September 21, 2001, CE Electric UK Ltd, an indirect wholly owned subsidiary of MEHC, and Innogy Holdings plc ("Innogy") executed an agreement to exchange Northern Electric's electricity and gas supply and metering assets for Innogy's 94.75% interest in Yorkshire's electricity distribution business. Northern Electric's supply business was valued at approximately $391.0 million (£268.0 million), including working capital of approximately $14.0 million (£10.0 million). 94.75% of Yorkshire's distribution business was valued at approximately $405.0 million (£278.0 million), including working capital of approximately $58.0 million (£40.0 million). The net cash paid by Northern Electric for the exchange was approximately $14.0 million (£10.0 million).
The 2001 disposition of Northern Electric's supply business created a pre-tax non-recurring gain of $196.7 million and an after-tax gain of $10.8 million which included a write-off of non-deductible goodwill of $504.4 million.
The Company paid $57.4 million, net of cash acquired of $353.8 million and transaction costs, for 94.75% of the Yorkshire electricity distribution business and related indebtedness. The acquisition has been accounted for as a purchase business combination. The results of operations for Yorkshire are included in the Company's results beginning September 21, 2001.
4. Dispositions and Other Items
CE Gas Asset Sale
In May 2002, CE Gas, an indirect wholly owned subsidiary of the Company, executed the sale of several of its U.K. natural gas assets to Gaz de France for approximately $200.0 million (£137.0 million). CE Gas sold its interest in four natural gas-producing fields located in the southern basin of the U.K. North Sea (Anglia, Johnston, Schooner and Windermere). The transaction also included the sale of rights in four gas fields (in development/construction) and three exploration blocks owned by CE Gas. The Company recorded pre-tax and after-tax income of $54.3 million and $41.3 million, respectively, which includes a write off of non-deductible goodwill of $49.6 million.
Telephone Flat Sale
On October 16, 2001, the Company closed on a transaction that transferred all properties and rights of the Telephone Flat Project, a geothermal development project in northern California to Calpine Corp. The Company recorded a pre-tax gain of $20.7 million and an after-tax gain of $12.2 million on the sale of the Telephone Flat Project.
Western States Sale
On June 30, 2001, the Company closed on a transaction in which the Company sold Western States Geothermal, an indirect wholly owned subsidiary of the Company, to Ormat. The Company recorded a pre-tax gain of $9.8 million and an after-tax gain of $6.4 million on the sale of Western States Geothermal.
Teesside Power Limited ("TPL")
In December 2001, the Company recorded a charge of $20.7 million, net of tax, representing an asset valuation impairment charge under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") relating to the Company's 15.4% interest in TPL. TPL owns and operates a 1,875 MW combined cycle gas-fired power plant. Enron Corp. ("Enron"), through its subsidiaries, owned a 42.5% interest, operated the plant, and purchased 668 MW of capacity. Enron's
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subsidiary, which owns and operates TPL, is now in administration and administrators have been appointed to run its business and are attempting to find a buyer.
Shareholders in TPL had previously utilized TPL's taxable losses with an obligation to reimburse TPL later in the project's life. In May 2002, TPL executed a restructuring and stabilization agreement with its lenders. The contract included an agreement between TPL and its shareholders with respect to the waiver of these repayment obligations. In May 2002, TPL released $35.7 million due to the repayment obligation being waived which is reflected as a tax benefit in the provision for income taxes.
5. Properties, Plants and Equipment, Net
Properties, plants and equipment, net comprise the following at December 31 (in thousands):
| | | | | | | | | | | | | | |
| | | Depreciation
Life | | 2003 | | 2002 |
| Utility generation and distribution system | | | 10-50 | | | $ | 9,154,054 | | | $ | 8,165,140 | |
| Interstate pipelines' assets | | | 3-87 | | | | 3,483,672 | | | | 2,260,799 | |
| Independent power plants | | | 10-30 | | | | 1,395,782 | | | | 1,410,170 | |
| Mineral and gas reserves and exploration assets | | | 5-30 | | | | 554,780 | | | | 500,422 | |
| Utility non-operational assets | | | 3-30 | | | | 429,228 | | | | 370,811 | |
| Other assets | | | 3-10 | | | | 146,286 | | | | 131,577 | |
| Total operating assets | | | | | | | 15,163,802 | | | | 12,838,919 | |
| Accumulated depreciation and amortization | | | | | | | (4,260,643 | ) | | | (3,724,917 | ) |
| Net operating assets | | | | | | | 10,903,159 | | | | 9,114,002 | |
| Construction in progress | | | | | | | 277,820 | | | | 1,170,485 | |
| Properties, plants and equipment, net | | | | | | $ | 11,180,979 | | | $ | 10,284,487 | |
|
Construction in Progress
MidAmerican Energy is constructing two electric generating projects in Iowa. Upon completion, the projects will provide service to regulated retail electricity customers. MidAmerican Energy has obtained regulatory approval to include the actual costs of the generation projects in its Iowa rate base as long as the actual costs do not exceed an agreed upon cap that MidAmerican Energy has deemed to be reasonable. Wholesale sales may also be made from the projects to the extent the power is not needed for regulated retail service.
The first project is a natural gas-fired combined cycle unit with an estimated cost of $357 million, excluding allowance for funds used during construction. MidAmerican Energy will own and operate the plant. Commercial operation of the simple cycle mode began on May 5, 2003. The plant, which will continue to be operated in simple cycle mode during 2004, resulted in 327 MW of accredited capacity in the summer of 2003. The combined cycle operation is expected to commence in December 2004 and achieve an expected additional accredited capacity of 190 MW.
The second project is currently under construction and will be a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy's ownership interest is 60.67% equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project to be approximately $713 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On May 29, 2003, the Iowa Utilities Board ("IUB") issued an order that approves the ratemaking principles for the plant, and on June 27, 2003, MidAmerican Energy received a certificate from the IUB allowing MidAmerican Energy to construct the plant. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui & Co. Energy Development, Inc. for the
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engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. MidAmerican Energy is also seeking an order from the IUB approving construction of the associated transmission facilities.
Kern River completed the construction of its expansion for which it filed an application with the Federal Energy Regulatory Commission on August 1, 2001 (the "2003 Expansion Project") at a total cost of approximately $1.2 billion. The expansion, which was placed into operation on May 1, 2003, increased the design capacity of the existing Kern River pipeline by 885,626 Dth per day to 1,755,626 Dth per day.
6. Investment in CE Generation
Since the sale of 50% of its interests in CE Generation, LLC ("CE Generation") on March 3, 1999, the Company has accounted for CE Generation as an equity investment. The equity investment in CE Generation at December 31, 2003 and 2002 was approximately $209.3 million and $244.9 million, respectively. The following is summarized financial information for CE Generation as of and for the years ended December 31 (in thousands):
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Revenue | | $ | 487,422 | | | $ | 510,082 | | | $ | 565,838 | |
| Income before cumulative effect of change in accounting principle | | | 37,341 | | | | 58,314 | | | | 74,194 | |
| Net income | | | 34,874 | | | | 58,314 | | | | 58,808 | |
| Current assets | | | 124,168 | | | | 202,490 | | |
| Total assets | | | 1,708,742 | | | | 1,865,036 | | |
| Current liabilities | | | 253,240 | | | | 148,685 | | |
| Long-term debt, including current portion | | | 924,563 | | | | 1,011,220 | | |
|
7. Other Investments
The Williams Companies' Preferred Stock
On March 27, 2002, the Company invested $275.0 million in The Williams Companies, Inc. ("Williams") in exchange for shares of 9 7/8% cumulative convertible preferred stock of Williams. Dividends on Williams preferred stock were received quarterly, commencing July 1, 2002. On June 10, 2003, Williams repurchased, for approximately $288.8 million, plus accrued dividends, all of the shares of its 9 7/8% Cumulative Convertible Preferred Stock originally acquired by the Company in March 2002 for $275.0 million The Company recorded a pre-tax gain of $13.8 million on the transaction.
CE Casecnan NIA Arbitration Settlement
On October 15, 2003, CE Casecnan Water and Energy Company, Inc. ("CE Casecnan") closed a transaction settling the CE Casecnan NIA Arbitration, which arose from a Statement of Claim made by CE Casecnan, on August 19, 2002, against the Republic of the Philippines ("ROP") National Irrigation Administration ("NIA"). As a result of the agreement, CE Casecnan recorded $31.9 million of other income and $24.4 million of associated income taxes. Under the terms of the settlement, CE Casecnan entered into an agreement with NIA which provided for the dismissal with prejudice of all claims by CE Casecnan and counterclaims by NIA in the NIA Arbitration. In connection with the settlement, NIA delivered to CE Casecnan a ROP $97.0 million 8.375% Note due 2013 (the "ROP Note"), which contained a put provision granting CE Casecnan the right to put the ROP Note to the ROP for a price of par plus accrued interest for a 30-day period commencing on January 14, 2004. The ROP Note is included in the other current assets on the December 31, 2003 consolidated balance sheet.
On January 14, 2004, CE Casecnan exercised its right to put the ROP Note to the ROP and, in accordance with the terms of the put, CE Casecnan received $99.2 million (representing $97.0 million par value plus accrued interest) from the ROP on January 21, 2004.
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8. Short-Term Debt
Short-term debt comprises the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| MidAmerican Energy commercial paper | | $ | 48,000 | | | $ | 55,000 | |
| HomeServices revolving credit facilities | | | — | | | | 24,750 | |
| Other | | | 36 | | | | 32 | |
| Total short-term debt | | $ | 48,036 | | | $ | 79,782 | |
|
Parent Company Revolving Credit Facilities
In the second quarter of 2003, the Company terminated its $400 million credit facility. On June 6, 2003, the Company closed on a new $100 million revolving credit facility which expires on June 6, 2006. The facility supports letters of credit of which $73.6 million were outstanding at December 31, 2003. No borrowings were outstanding at December 31, 2003 or 2002. The facility carries a variable interest rate based on Libor and ranged from 2.02% to 2.255% in 2003 and the prior facility ranged from 2.625% to 2.8625% in 2002.
MidAmerican Energy Short-Term Debt
As of December 31, 2003, MidAmerican Energy had in place a $370.4 million revolving credit facility that supports its $250.0 million commercial paper program and its variable rate pollution control revenue obligations. In addition, MidAmerican Energy has a $5.0 million line of credit. As of December 31, 2003 and 2002, commercial paper totaled $48.0 million and $55.0 million, respectively, for MidAmerican Energy. MHC Inc., an indirect wholly owned subsidiary of the Company, has a $4.0 million line of credit under which no borrowings were outstanding at December 31, 2003 or 2002. The commercial paper, bank notes and outstanding line of credit had a weighted average interest rate of 0.98% and 1.29% at December 31, 2003 and 2002, respectively.
HomeServices Revolving Credit Facilities
Upon the expiration of its $65.0 million senior secured revolving credit facility in November 2002, HomeServices entered into a new $125.0 million senior secured revolving credit agreement. The new revolving credit agreement has a term of three years and is secured by a pledge of the capital stock of all of the existing and future subsidiaries of HomeServices. Amounts outstanding under this revolving credit facility bear interest, at HomeServices' option, at either the prime lending rate or LIBOR plus a fixed spread of 1.25% to 2.25%, which varies based on HomeServices' cash flow leverage ratio. The spread was 1.25% at December 31, 2003 and 2002. No borrowings were outstanding at December 31, 2003 and $24.8 million was outstanding with a weighted average interest rate of 2.6661% at December 31, 2002.
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9. Parent Company Senior Debt
Parent company senior debt is unsecured senior obligations of MEHC and comprises the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 6.96% Senior Notes, due 2003 | | $ | — | | | $ | 215,000 | |
| 7.23% Senior Notes, due 2005 | | | 260,000 | | | | 260,000 | |
| 4.625% Senior Notes, due 2007 | | | 199,225 | | | | 199,044 | |
| 7.63% Senior Notes, due 2007 | | | 350,000 | | | | 350,000 | |
| 3.50% Senior Notes, due 2008 | | | 449,373 | | | | — | |
| 7.52% Senior Notes, due 2008 | | | 450,000 | | | | 450,000 | |
| 7.52% Senior Notes, due 2008 (Series B) | | | 101,267 | | | | 101,481 | |
| 5.875% Senior Notes, due 2012 | | | 499,898 | | | | 499,887 | |
| 8.48% Senior Notes, due 2028 | | | 475,000 | | | | 475,000 | |
| Fair value adjustments and other | | | (6,885 | ) | | | (12,025 | ) |
| Total Parent Company Senior Debt | | | 2,777,878 | | | | 2,538,387 | |
| Less current portion | | | — | | | | (215,000 | ) |
| Total Long-Term Parent Company Senior Debt | | $ | 2,777,878 | | | $ | 2,323,387 | |
|
On May 16, 2003, MEHC issued $450.0 million, net of discount, of its 3.5% Senior Notes with a final maturity on May 15, 2008. The proceeds were used for general corporate purposes. On September 15, 2003, MEHC repaid its $215.0 million, 6.96% Senior Notes.
| |
| 10. | Parent Company Subordinated Debt/Company-Obligated Mandatorily Redeemable Preferred Securities Of Subsidiary Trusts |
Deconsolidation
In accordance with the provisions of FIN 46R, effective as of October 1, 2003, the Company has recorded its subordinated debt to certain subsidiary finance trusts as long-term debt as a result of the deconsolidation of those trusts pursuant to FIN 46R. In prior years, these amounts were recorded on the consolidated balance sheet as "Company-obligated mandatorily redeemable preferred securities of subsidiary trusts".
The financial terms of MEHC's various subordinated debentures held by such Trusts are essentially identical to the corresponding terms of the trust preferred securities issued by such trusts. The following summarizes the terms and balances of the mandatorily redeemable preferred securities of these unconsolidated trusts.
Finance Trust Subsidiaries
MEHC has organized special purpose Delaware business trusts (collectively, the "Trusts") pursuant to their respective amended and restated declarations of trusts (collectively, the "Declarations").
Pursuant to Preferred Securities Guarantee Agreements (collectively, the "Guarantees"), between MEHC and a trustee, MEHC has agreed irrevocably to pay to the holders of the Trust Securities, to the extent that the applicable Trust has funds available to make such payments, quarterly distributions, redemption payments and liquidation payments on the Trust Securities. Considered together, the undertakings contained in the Declarations, Junior Debentures, Indentures and Guarantees constitute full and unconditional guarantees on a subordinated basis by MEHC of the Trusts' obligations under the Trust Securities.
The balances presented for December 31, 2003 are recorded in the accompanying consolidated balance sheet as "Parent company subordinated debt".The balances presented for December 31, 2002
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are recorded in the accompanying consolidated balance sheet as "Company-obligated mandatorily redeemable preferred securities of subsidiary trusts". The following table presents the balances of such Parent company subordinated debt and Company-obligated mandatorily redeemable preferred securities of subsidiary trusts, respectively (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| CalEnergy Capital Trust II — 6.25% preferred securities, due 2012 | | $ | 104,645 | | | $ | 155,538 | |
| CalEnergy Capital Trust III — 6.5% preferred securities, due 2027 | | | 269,980 | | | | 269,980 | |
| MidAmerican Capital Trust I — 11% preferred securities, due 2010 | | | 454,772 | | | | 454,772 | |
| MidAmerican Capital Trust II — 11% preferred securities, due 2012 | | | 323,000 | | | | 323,000 | |
| MidAmerican Capital Trust III — 11% preferred securities, due 2012 | | | 800,000 | | | | 950,000 | |
| Fair value adjustment | | | (80,251 | ) | | | (89,878 | ) |
| Total Parent company subordinated debt (2003)/Company-obligated mandatorily redeemable preferred securities of subsidiary trusts (2002) | | | 1,872,146 | | | | 2,063,412 | |
| Less current portion | | | (100,000 | ) | | | — | |
Long-term Parent company subordinated debt (2003)/
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts (2002) | | $ | 1,772,146 | | | $ | 2,063,412 | |
|
Dividends related to the company-obligated mandatorily redeemable preferred securities of subsidiary trusts, which were included in minority interest and preferred dividends on the consolidated statements of operations, for the years ended December 31, 2003, 2002 and 2001 were $170.2 million, $147.7 million and $80.1 million, respectively. For the year ended December 31, 2003 an additional $49.8 million, representing the amount of interest on parent company subordinated debt since the adoption of FIN 46R, was recorded as interest expense in the accompanying consolidated statements of operations.
MEHC owns all of the common securities of the Trusts. The Trust Securities have a liquidation preference of $50 each (plus accrued and unpaid dividends thereon to the date of payment) and represent undivided beneficial ownership interests in each of the Trusts. The assets of the Trusts consist solely of Subordinated Debentures of MEHC (collectively, the "Junior Debentures") issued pursuant to their respective indentures. The indentures include agreements by MEHC to pay expenses and obligations incurred by the Trusts.
Prior to the Teton Transaction, each Trust Security issued by CalEnergy Capital Trust II and III with a par value of $50 was convertible at the option of the holder at any time into shares of MEHC's common stock based on a specified conversion rate. As a result of the Teton Transaction, in lieu of shares of MEHC's common stock, upon any conversion, holders of Trust Securities will receive $35.05 for each share of common stock it would have been entitled to receive on conversion.
Distributions on the Trust Securities (and Junior Debentures) are cumulative, accrue from the date of initial issuance and are payable quarterly in arrears. The Junior Debentures are subordinated in right of payment to all senior indebtedness of the Company and the Junior Debentures are subject to certain covenants, events of default and optional and mandatory redemption provisions, all as described in the Junior Debenture indentures.
The indentures relating to the CalEnergy Trusts II and III Trust Securities give MEHC the option to defer the interest payments due on the respective Junior Debentures for up to 20 consecutive quarters during which time the corresponding distributions on the respective Trust Securities are deferred (but continue to accumulate and accrue interest). Similarly, the indentures relating to the MidAmerican Capital Trust I, II and III Trust Securities give MEHC the option to defer the 11% interest payment on the respective Junior Debentures for up to 10 consecutive semi-annual periods during which time the corresponding 11% distributions on the respective Trust Securities are deferred (but continue to accumulate and accrue interest at the rate of 13% per annum). In addition, each declaration of trust establishing the MidAmerican Capital Trusts I, II and III Trust Securities and each
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of the related subscription agreements contains a provision prohibiting Berkshire Hathaway and its affiliates, who are the holders of all of the respective Trust Securities issued by such Trusts, from transferring such Trust Securities to a non-affiliated person absent an event of default.
11. Subsidiary and Project Debt
Each of MEHC's direct and indirect subsidiaries is organized as a legal entity separate and apart from MEHC and its other subsidiaries. Pursuant to separate project financing agreements, all or substantially all of the assets of each subsidiary are or may be pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any such subsidiary will be available to satisfy the obligations of MEHC or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MEHC or affiliates thereof.
The restrictions on distributions at these separate legal entities include various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios. As of December 31, 2003, the separate legal entities were in compliance with all applicable covenants. However, Cordova Energy's 537 MW gas-fired power plant in the Quad Cities, Illinois area (the "Cordova Project") is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.
Long-term debt of subsidiaries and projects comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| MidAmerican Funding | | $ | 700,000 | | | $ | 700,000 | |
| MidAmerican Energy | | | 1,128,647 | | | | 1,053,418 | |
| CE Electric UK | | | 2,467,214 | | | | 2,573,589 | |
| Kern River | | | 1,276,174 | | | | 1,277,916 | |
| Northern Natural Gas | | | 799,472 | | | | 799,406 | |
| Cordova Funding | | | 214,761 | | | | 223,762 | |
| Salton Sea Funding Corporation | | | 136,384 | | | | 137,789 | |
| CE Casecnan | | | 246,458 | | | | 287,926 | |
| Leyte Projects | | | 172,813 | | | | 244,961 | |
| HomeServices | | | 37,558 | | | | 39,031 | |
| Other, including fair value adjustments | | | (3,900 | ) | | | (5,498 | ) |
| Total Subsidiary and Project Debt | | | 7,175,581 | | | | 7,332,300 | |
| Less current portion | | | (500,941 | ) | | | (255,213 | ) |
| Total Long-Term Subsidiary and Project Debt | | $ | 6,674,640 | | | $ | 7,077,087 | |
|
MidAmerican Funding
The components of MidAmerican Funding, a wholly owned subsidiary of MEHC, Senior Notes and Bonds comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 6.339% Senior Notes, due 2009 | | $ | 175,000 | | | $ | 175,000 | |
| 6.75% Senior Notes, due 2011 | | | 200,000 | | | | 200,000 | |
| 6.927% Senior Bonds, due 2029 | | | 325,000 | | | | 325,000 | |
| Total MidAmerican Funding | | $ | 700,000 | | | $ | 700,000 | |
|
F-21
MidAmerican Funding may use distributions that it receives from its subsidiaries to make payments on the Notes and Bonds. These subsidiaries must make payments on their own indebtedness before making distributions to MidAmerican Funding. These distributions are also subject to utility regulatory restrictions agreed to by MidAmerican Energy in March 1999 whereby it committed to the Iowa Utilities Board ("IUB") to use commercially reasonable efforts to maintain an investment grade rating on its long-term debt and to maintain its common equity level above 42% of total capitalization unless circumstances beyond its control result in the common equity level decreasing to below 39% of total capitalization. MidAmerican Energy must seek the approval of the IUB of a reasonable utility capital structure if MidAmerican Energy's common equity level decreases below 42% of total capitalization, unless the decrease is beyond the control of MidAmerican Energy. MidAmerican Energy is also required to seek the approval of the IUB if MidAmerican Energy's equity level decreases to below 39%, even if the decrease is due to circumstances beyond the control of MidAmerican Energy.
MidAmerican Energy
The components of MidAmerican Energy's Mortgage Bonds, Pollution Control Revenue Obligations and Notes comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| Mortgage bonds: | | | | | | | | |
| 7.125% Series, due 2003 | | $ | — | | | $ | 100,000 | |
| 7.7% Series, due 2004 | | | 55,630 | | | | 55,630 | |
| 7% Series, due 2005 | | | 90,500 | | | | 90,500 | |
| 7.375% Series, due 2008 | | | — | | | | 75,000 | |
| 7.45% Series, due 2023 | | | — | | | | 6,940 | |
| 6.95% Series, due 2025 | | | — | | | | 12,500 | |
| Pollution control revenue obligations: | | | | | | | | |
| 5.75% Series, due periodically through 2003 | | | — | | | | 4,320 | |
| 6.7% Series, due 2003 | | | — | | | | 1,000 | |
| 6.1% Series, due 2007 | | | 1,000 | | | | 1,000 | |
| 5.95% Series, due 2023 | | | 29,030 | | | | 29,030 | |
| Variable rate series: | | | | | | | | |
| Due 2016 and 2017, 1.26% and 1.64% | | | 37,600 | | | | 37,600 | |
| Due 2023 (secured by general mortgage bond, 1.26% and 1.64% | | | 28,295 | | | | 28,295 | |
| Due 2023, 1.26% and 1.64% | | | 6,850 | | | | 6,850 | |
| Due 2024, 1.26% and 1.64% | | | 34,900 | | | | 34,900 | |
| Due 2025, 1.26% and 1.64% | | | 12,750 | | | | 12,750 | |
| Notes: | | �� | | | | | | |
| 6.375% Series, due 2006 | | | 160,000 | | | | 160,000 | |
| 5.125% Series, due 2013 | | | 275,000 | | | | — | |
| 6.75% Series, due 2031 | | | 400,000 | | | | 400,000 | |
| Obligations under capital lease | | | 2,060 | | | | 2,161 | |
| Unamortized debt premium and discount, net | | | (4,968 | ) | | | (5,058 | ) |
| Total MidAmerican Energy | | $ | 1,128,647 | | | $ | 1,053,418 | |
|
On February 8, 2002, MidAmerican Energy issued $400 million of 6.75% notes due in 2031. The proceeds were used to refinance existing debt and preferred securities and for other corporate purposes. On March 11, 2002, MidAmerican Energy redeemed its MidAmerican Energy-obligated mandatorily redeemable preferred securities of subsidiary trust at 100% of the principal amount plus accrued interest.
F-22
On January 14, 2003, MidAmerican Energy issued $275 million of 5.125% medium-term notes due in 2013. The proceeds were used to refinance existing debt and for other corporate purposes.
On February 10, 2003, MidAmerican Energy redeemed all $75.0 million of its 7.375% series of mortgage bonds, and on March 17, 2003, it redeemed all $6.94 million of its 7.45% series of mortgage bonds. Additionally, MidAmerican Energy's 7.125% series of mortgage bonds totaling $100 million matured on February 3, 2003. On October 17, 2003, MidAmerican Energy redeemed all $12.5 million of its 6.95% series of mortgage bonds at 103.48% of the principal amount.
CE Electric UK
The components of CE Electric UK and its subsidiares' long-term debt comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 6.853% Senior Notes, due 2004 | | $ | 117,112 | | | $ | 124,732 | |
| 8.625% Bearer bonds, due 2005 | | | 178,877 | | | | 161,451 | |
| 6.995% Senior Notes, due 2007 | | | 236,174 | | | | 236,081 | |
| 6.496% Yankee Bonds, due 2008 | | | 281,149 | | | | 300,185 | |
Variable Rate Reset Trust Securities, due 2020 (4.39%
and 5.04%) | | | 287,539 | | | | 260,028 | |
| 8.875% Bearer bonds, due 2020 | | | 178,644 | | | | 161,360 | |
| 9.25% Eurobonds, due 2020 | | | 458,187 | | | | 419,145 | |
| 7.25% Sterling Bonds, due 2022 | | | 351,242 | | | | 316,829 | |
| 7.25% Eurobonds, due 2028 | | | 352,768 | | | | 344,082 | |
| 8.08% Trust Securities, due 2038 | | | — | | | | 249,696 | |
| CE Gas Credit Facility, 6.67% | | | 25,522 | | | | — | |
| Total CE Electric UK | | $ | 2,467,214 | | | $ | 2,573,589 | |
|
On February 15, 2005, the Variable Rate Reset Trust Securities may be remarketed at the option of the original underwriter at a fixed rate of interest through the maturity date or, CE Electric UK's subsidiary may elect a floating rate obligation for up to one year at which time the obligation would be remarketed at a fixed rate of interest through 2020, or redeemed by Yorkshire at a premium.
On June 9, 2003, Yorkshire Power Group Limited, an indirect wholly owned subsidiary of CE Electric UK, completed the redemption in full of the outstanding shares of the 8.08% Trust Securities, due June 30, 2038, and paid $243.4 million in principal amount plus accrued distributions. The redemption price was paid to holders of the trust security on the redemption date.
During 2003, CE Electric UK and its subsidiaries purchased and retired approximately $50.0 million of outstanding indebtedness.
Kern River
The components of Kern River's long-term debt comprised the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| Construction financing facility | | $ | — | | | $ | 789,916 | |
| 6.676% Senior Notes, due 2016 | | | 464,000 | | | | 488,000 | |
| 4.893% Senior Notes, due 2018 | | | 812,174 | | | | — | |
| Total Kern River | | $ | 1,276,174 | | | $ | 1,277,916 | |
|
F-23
On August 13, 2001, Kern River issued $510.0 million in debt securities. The offering was in the form of $510.0 million of 15-year amortizing Senior Notes bearing a fixed rate of interest of 6.676%. For the Senior Notes, $405.0 million will be amortized through June 2016, with a final payment of $105.0 million to be made on July 31, 2016.
On May 1, 2003, Kern River Funding Corporation, a wholly owned subsidiary of Kern River, issued $836 million of its 4.893% Senior Notes with a final maturity on April 30, 2018. The proceeds were used to repay all of the approximately $815 million of outstanding borrowings under Kern River's $875 million credit facility. Kern River entered into this credit facility in 2002 to finance the construction of the 2003 Expansion Project. The credit facility was canceled and a completion guarantee issued by MEHC was terminated.
Northern Natural Gas
The components of Northern Natural Gas' Senior Notes comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 6.875% Senior Notes, due 2005 | | $ | 100,000 | | | $ | 100,000 | |
| 6.75% Senior Notes, due 2008 | | | 150,000 | | | | 150,000 | |
| 7.00% Senior Notes, due 2011 | | | 250,000 | | | | 250,000 | |
| 5.375% Senior Notes, due 2012 | | | 300,000 | | | | 300,000 | |
| Unamortized debt discount | | | (528 | ) | | | (594 | ) |
| Total Northern Natural Gas | | $ | 799,472 | | | $ | 799,406 | |
|
Cordova Funding
On September 10, 1999, Cordova Funding Corporation ("Cordova Funding"), a wholly owned subsidiary of the Company, closed the $225.0 million aggregate principal amount financing for the construction of the Cordova Project. The proceeds were loaned to Cordova Energy and comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 8.48% Senior Secured Bonds, due 2019 | | $ | 12,175 | | | $ | 12,685 | |
| 8.64% Senior Secured Bonds, due 2019 | | | 89,260 | | | | 93,001 | |
| 8.79% Senior Secured Bonds, due 2019 | | | 29,885 | | | | 31,137 | |
| 8.82% Senior Secured Bonds, due 2019 | | | 55,476 | | | | 57,801 | |
| 9.07% Senior Secured Bonds, due 2019 | | | 27,965 | | | | 29,138 | |
| Total Cordova Funding | | $ | 214,761 | | | $ | 223,762 | |
|
MEHC has guaranteed a specified portion of the final scheduled principal payment on December 15, 2019 on the Cordova Funding Senior Secured Bonds in an amount up to a maximum of $37.0 million. MEHC also provides a debt service reserve guarantee in an amount equal to the principal, premium, if any, and interest payment due on the bonds on the next scheduled payment date which was equal to $13.5 million at December 31, 2003.
As of December 31, 2003, Cordova Funding is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.
Salton Sea Funding
Salton Sea Funding Corporation ("SSFC"), an indirect wholly owned subsidiary of CE Generation, had a debt balance of $463.6 million at December 31, 2003. CalEnergy Minerals LLC ("Minerals"), a wholly owned indirect subsidiary of MEHC, which owns a zinc facility, is one of several guarantors of the Salton Sea Funding Corporation's debt. As a result of a note allocation
F-24
agreement, Minerals is primarily responsible for approximately $136.4 million of the 7.475% Senior Secured Series F Bonds due November 30, 2018 ("Series F Bonds"). In 1999, MEHC guaranteed a specified portion of the scheduled debt service on the Series F Bonds equal to this current principal amount of approximately $136.4 million and associated interest.
On January 30, 2004, SSFC announced its election to redeem an aggregate principal amount of $136.4 million of the 7.475% Senior Secured Series F Bonds due November 30, 2018, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. The trustee delivered a redemption notice to the holders of the bonds on January 29, 2004. The record date for the redemption is February 15, 2004 and the redemption is expected to be completed on March 1, 2004. SSFC expects to make a demand on MEHC for the full amount remaining under MEHC's 1999 guarantee of the Series F Bonds in order to fund the redemption. Upon the expected demand and payment under MEHC's guarantee, MEHC will no longer have any liability with respect to its guarantee.
CE Casecnan
On November 27, 1995, CE Casecnan issued $371.5 million of notes and bonds to finance the construction of the CE Casecnan project. The CE Casecnan notes and bonds comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| 11.45% Senior Secured Series A Notes, due in 2005 | | $ | 91,250 | | | $ | 125,000 | |
| 11.95% Senior Secured Series B Bonds, due in 2010 | | | 155,208 | | | | 162,926 | |
| Total Casecnan | | $ | 246,458 | | | $ | 287,926 | |
|
The CE Casecnan Notes and Bonds are subject to redemption at the Company's option as provided in the Trust Indenture. The CE Casecnan Notes and Bonds are also subject to mandatory redemption based on certain conditions.
Leyte Projects
The Leyte Projects term loans comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| Mahanagdong Project 6.92% Term Loan, due 2007 | | $ | 72,151 | | | $ | 92,766 | |
| Mahanagdong Project 7.60% Term Loan, due 2007 | | | 16,000 | | | | 20,571 | |
| Malitbog Project 3.67% and 3.84%, due 2005 | | | 26,378 | | | | 40,890 | |
| Malitbog Project 9.176% Term Loan, due 2006 | | | 14,628 | | | | 22,677 | |
| Upper Mahiao Project 4.42%, due 2003 | | | — | | | | 5,000 | |
| Upper Mahiao Project 5.95% Term Loan, due 2006 | | | 43,656 | | | | 63,057 | |
| Total Leyte Projects | | $ | 172,813 | | | $ | 244,961 | |
|
MEHC provides debt service reserve letters of credit in amounts equal to the next semi-annual principal and interest payments due on the loans which was equal to $40.3 million and $47.7 million at December 31, 2003 and 2002, respectively.
HomeServices
In November 1998, HomeServices issued $35.0 million of 7.12% fixed-rate private placement senior notes due in annual increments of $5.0 million beginning in 2004. As of December 31, 2003 and 2002, the balance of the HomeServices Senior Notes was $35.0 million.
In addition to the senior notes, HomeServices' has outstanding notes, with varying interest rates, totaling $2.6 million and $4.0 million at December 31, 2003 and 2002, respectively.
F-25
Annual Repayments of Debt
The annual repayments of debt for the years beginning January 1, 2004 and thereafter are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2004 | | 2005 | | 2006 | | 2007 | | 2008 | | Thereafter | | Total |
| Parent, Subsidiary and Project loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company Senior Debt | | $ | — | | | $ | 260,000 | | | $ | — | | | $ | 550,000 | | | $ | 1,000,000 | | | $ | 967,878 | | | $ | 2,777,878 | |
| Parent Company Subordinated Debt | | | 100,000 | | | | 188,544 | | | | 234,021 | | | | 234,021 | | | | 234,021 | | | | 881,539 | | | | 1,872,146 | |
| MidAmerican Funding | | | — | | | | — | | | | — | | | | — | | | | — | | | | 700,000 | | | | 700,000 | |
| MidAmerican Energy | | | 56,151 | | | | 90,500 | | | | 160,000 | | | | 1,000 | | | | — | | | | 820,996 | | | | 1,128,647 | |
| CE Electric UK | | | 117,112 | | | | 178,877 | | | | — | | | | 236,174 | | | | 281,149 | | | | 1,653,902 | | | | 2,467,214 | |
| Kern River | | | 61,366 | | | | 62,784 | | | | 66,128 | | | | 69,472 | | | | 72,816 | | | | 943,608 | | | | 1,276,174 | |
| Northern Natural Gas | | | — | | | | 100,000 | | | | — | | | | — | | | | 150,000 | | | | 549,472 | | | | 799,472 | |
| Cordova Funding | | | 8,100 | | | | 7,875 | | | | 4,500 | | | | 4,163 | | | | 4,725 | | | | 185,398 | | | | 214,761 | |
| Salton Sea Funding Corporation | | | 136,384 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 136,384 | |
| CE Casecnan | | | 49,360 | | | | 54,752 | | | | 36,016 | | | | 37,730 | | | | 37,730 | | | | 30,870 | | | | 246,458 | |
| Leyte Projects | | | 67,148 | | | | 63,035 | | | | 30,037 | | | | 12,593 | | | | — | | | | — | | | | 172,813 | |
| HomeServices | | | 5,320 | | | | 5,000 | | | | 5,000 | | | | 5,000 | | | | 5,000 | | | | 12,238 | | | | 37,558 | |
| Other, including fair value adjustments | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,900 | ) | | | (3,900 | ) |
| Total Parent, Subsidiary and Project Loans | | $ | 600,941 | | | $ | 1,011,367 | | | $ | 535,702 | | | $ | 1,150,153 | | | $ | 1,785,441 | | | $ | 6,742,001 | | | $ | 11,825,605 | |
|
Fair Value
At December 31, 2003, the Company had fixed-rate long-term debt of $11,369.4 million in principal amount and having a fair value of $12,015.1 million. In addition, at December 31, 2003, the Company had floating-rate obligations of $459.8 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates.
12. Income Taxes
Provision for income taxes was comprised of the following (in thousands):
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2003 | | 2002 | | 2001 |
| Current: | |
| Federal | | $ | (78,066 | ) | | $ | 46,714 | | | $ | 51,025 | |
| State | | | 3,565 | | | | 14,516 | | | | 2,669 | |
| Foreign | | | 88,150 | | | | 54,586 | | | | 43,450 | |
| | | | 13,649 | | | | 115,816 | | | | 97,144 | |
| Deferred: | |
| Federal | | | 155,237 | | | | (7,073 | ) | | | (14,004 | ) |
| State | | | 14,577 | | | | (9,675 | ) | | | (342 | ) |
| Foreign | | | 67,508 | | | | 520 | | | | 167,266 | |
| | | | 237,322 | | | | (16,228 | ) | | | 152,920 | |
| Total | | $ | 250,971 | | | $ | 99,588 | | | $ | 250,064 | |
|
F-26
A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before provision for income taxes follows:
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Federal statutory rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| Investment and energy tax credits | | | (0.5 | ) | | | (0.7 | ) | | | (1.0 | ) |
| State taxes, net of federal tax effect | | | 1.4 | | | | 1.2 | | | | 3.2 | |
| Goodwill amortization | | | — | | | | — | | | | 5.9 | |
| Dividends on preferred securities of subsidiary trusts | | | (7.0 | ) | | | (8.1 | ) | | | (6.1 | ) |
| Tax effect of foreign income | | | 0.5 | | | | (4.8 | ) | | | (2.5 | ) |
| Non-recurring items on CE Electric UK, net of tax effect of foreign income | | | (0.5 | ) | | | (8.1 | ) | | | 19.2 | |
| Dividends received deduction | | | (1.2 | ) | | | (1.8 | ) | | | (2.6 | ) |
| Other items, net | | | 1.8 | | | | 2.8 | | | | (1.5 | ) |
| Effective tax rate | | | 29.5 | % | | | 15.5 | % | | | 49.6 | % |
|
The Internal Revenue Service ("IRS") regularly examines the Company's federal income tax returns and, in the course of which, may propose adjustments to the Company's federal income tax liability reported on such returns. Tax years 1995 through 2001 are currently under review. The Company's management does not expect that the outcome of any proposed adjustments presented to date by the IRS, individually or collectively, will have a material adverse effect on the Company's financial position, results of operations, or cash flows.
Deferred tax liabilities (assets) comprise the following at December 31 (in thousands):
| | | | | | | | | | |
| | | 2003 | | 2002 |
| Properties, plants and equipment, net | | $ | 1,721,842 | | | $ | 1,325,228 | |
| Income taxes recoverable through future rates | | | 142,597 | | | | 159,411 | |
| Employee benefits | | | 43,005 | | | | 65,537 | |
| Reacquired debt | | | 5,665 | | | | 4,914 | |
| Fuel cost recoveries | | | 12,864 | | | | — | |
| Other | | | — | | | | 121 | |
| | | | 1,925,973 | | | | 1,555,211 | |
| Minimum pension liability adjustment | | | (147,279 | ) | | | (140,854 | ) |
| Revenue sharing accruals | | | (64,192 | ) | | | (48,861 | ) |
| Accruals not currently deductible for tax purposes | | | (37,672 | ) | | | (59,083 | ) |
| Nuclear reserve and decommissioning | | | (35,955 | ) | | | (28,411 | ) |
| Deferred income | | | (37,819 | ) | | | (21,733 | ) |
| Fuel cost recoveries | | | — | | | | (9,558 | ) |
| NOL and credit carryforwards | | | (161,659 | ) | | | (8,290 | ) |
| Other | | | (8,253 | ) | | | — | |
| | | | (492,829 | ) | | | (316,790 | ) |
| Net deferred income taxes | | $ | 1,433,144 | | | $ | 1,238,421 | |
|
13. Preferred Securities of Subsidiaries
The total outstanding cumulative preferred securities of MidAmerican Energy not subject to mandatory redemption requirements may be redeemed at the option of MidAmerican Energy at prices which, in the aggregate, total $32.6 million. The aggregate total the holders of all preferred securities outstanding at December 31, 2003 and 2002, are entitled to upon involuntary bankruptcy is $31.8 million plus accrued dividends. Annual dividend requirements for all preferred securities outstanding at December 31, 2003, total $1.3 million.
F-27
The total outstanding 8.061% cumulative preferred securities of a subsidiary of CE Electric UK, which are redeemable in the event of the revocation by the Secretary of State of the Company's Public Electricity Supply License, was $56.0 million as of December 31, 2003 and 2002.
During 2002, MidAmerican Energy redeemed all $26.7 million of its $7.80 Series Preferred Shares.
14. Convertible Preferred Stock
In connection with the Kern River acquisition and the purchase of $275.0 million of Williams' preferred stock, MEHC issued 6.7 million shares of no par, zero-coupon convertible preferred stock valued at $402.0 million to Berkshire Hathaway. In connection with the Teton Transaction, MEHC issued 34.6 million shares of no par, zero coupon convertible preferred stock valued at $1,211.4 million. Each share of preferred stock is convertible at the option of the holder into one share of MEHC's common stock subject to certain adjustments as described in MEHC's Amended and Restated Articles of Incorporation.
While the convertible preferred stock does not vote generally with the common stock in the election of directors, the convertible preferred stock gives Berkshire Hathaway the right to elect 20% of MEHC's Board of Directors. The convertible preferred stock is convertible into common stock only upon the occurrence of specified events, including modification or elimination of the Public Utility Holding Company Act of 1935 so that holding company registration would not be triggered by conversion. Additionally, the prior approval of the holders of convertible preferred stock is required for certain fundamental transactions by MEHC. Such transactions include, among others: (a) significant asset sales or dispositions; (b) merger transactions; (c) significant business acquisitions or capital expenditures; (d) issuances or repurchases of equity securities; and (e) the removal or appointment of the Chief Executive Officer.
MEHC's Articles of Incorporation further provide that the convertible preferred shares: (a) are not mandatorily redeemable by MEHC or at the option of the holder; (b) participate in dividends and other distributions to common shareholders as if they were common shares and otherwise possess no dividend rights; (c) are convertible into common shares on a 1 for 1 basis, as adjusted for splits, combinations, reclassifications and other capital changes by MEHC; and (d) upon liquidation, except for a de minimus first priority distribution of $1 per share, share ratably with the shareholders of common stock. Further, the aforementioned dividend and distribution arrangements cannot be modified without the positive consent of the preferred shareholders.
15. Stock Transactions
As of December 31, 2003, there were 2,048,329 options outstanding which are exercisable until the end of the term on March 14, 2008 at exercise prices ranging from $15.94 to $35.05 per share.
On March 6, 2002, MEHC purchased 800,000 stock options held by Mr. David L. Sokol, its Chairman and Chief Executive Officer. The options purchased had exercise prices ranging from $18.50 to $29.01. MEHC paid Mr. Sokol an aggregate amount of $27.1 million, which is equal to the difference between the option exercise prices and an agreed upon per share value.
On January 6, 2004, the Company purchased a portion of the shares of common stock owned by Mr. Sokol for an aggregate purchase price of $20.0 million.
16. Accounting for Derivatives
Currency Exchange Rate Risk
CE Electric UK entered into certain currency rate swap agreements for its Senior Notes with two large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $117.1 million of 6.853% Senior Notes outstanding at December 31, 2003, the agreements extend until maturity on December 30, 2004 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.744%. For the $236.2 million of
F-28
6.995% Senior Notes, the agreements extend until maturity on December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2003 is approximately $16.0 million based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.
A subsidiary of CE Electric UK entered into certain currency rate swap agreements for its Yankee Bonds with three large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $281.1 million of the 6.496% Yankee Bonds outstanding at December 31, 2003, the agreements extend until February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175% to 7.345%. The estimated fair value of these swap agreements at December 31, 2003 is approximately $62.6 million based on quotes from the counterparties to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.
17. Regulatory Matters
MidAmerican Energy
Under two settlement agreements approved by the IUB, MidAmerican Energy's Iowa retail electric rates in effect on December 31, 2000, are effectively frozen through December 31, 2010. The settlement agreements specifically allow the filing of electric rate design or cost of service rate changes that are intended to keep MidAmerican Energy's overall Iowa retail electric revenue unchanged, but could result in changes to individual tariffs. The settlement agreements also each provide that portions of revenues associated with Iowa retail electric returns on equity within specified ranges will be recorded as a regulatory liability to be used to offset a portion of the cost to Iowa customers of future generating plant investment.
Under the first settlement agreement, which was approved by the IUB on December 21, 2001, and is effective through December 31, 2005, an amount equal to 50% of revenues associated with returns on equity between 12% and 14%, and 83.33% of revenues associated with returns on equity above 14%, in each year is recorded as a regulatory liability. The second settlement agreement, which was filed in conjunction with MidAmerican Energy's application for ratemaking principles on a wind power project and was approved by the IUB on October 17, 2003, provides that during the period January 1, 2006 through December 31, 2010, an amount equal to 40% of revenues associated with returns on equity between 11.75% and 13%, 50% of revenues associated with returns on equity between 13% and 14%, and 83.3% of revenues associated with returns on equity above 14%, in each year will be recorded as a regulatory liability. An amount equal to the regulatory liability is recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Future depreciation will be reduced as a result of the credit applied to generating plant balances as the regulatory liability is reduced. The liability is being reduced as it is credited against plant in service in amounts equal to the allowance for funds used during construction associated with generating plant additions. Interest expense is accrued on the portion of the regulatory liability related to prior years.
The 2003 settlement agreement also provides that if Iowa retail electric returns on equity fall below 10% in any consecutive 12-month period after January 1, 2006, MidAmerican Energy may seek to file for a general increase in rates. However, prior to filing for a general increase in rates, MidAmerican Energy is required by the settlement agreement to conduct 30 days of good faith negotiations with all of the signatories to the settlement agreement to attempt to avoid a general increase in rates.
Illinois bundled electric rates are frozen until 2007, subject to certain exceptions allowing for increases, at which time bundled rates are subject to cost-based ratemaking. Illinois law provides for Illinois earnings above a computed level of return on common equity to be shared equally between regulated retail electric customers and MidAmerican Energy. MidAmerican Energy's computed level of return on common equity is based on a rolling two-year average of the Monthly Treasury Long-Term Average Rate, as published by the Federal Reserve System, plus a premium of 8.5% for 2000 through 2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which
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sharing must occur for 2003 was 13.73%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of electric assets.
On November 8, 2002, the IUB approved a gas rate settlement agreement previously filed with it by MidAmerican Energy and the Iowa Office of Consumer Advocate. The settlement agreement provided for an increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas customers and effectively froze base rates through November 2004. However, MidAmerican Energy will continue collecting fluctuating gas costs through its purchased gas adjustment clause. The new rates were implemented for usage beginning November 25, 2002.
CE Electric UK
Most revenue of each Distribution License Holder ("DLH") is controlled by a distribution price control formula. The current formula requires that regulated distribution income per unit is increased or decreased each year by RPI-Xd where the Retail Price Index ("RPI") reflects the average of the 12-month inflation rates recorded for each month in the previous July to December period. The distribution price control formula also reflects an adjustment factor ("Xd") which was established by the regulatory body, the Office of Gas and Electricity Markets ("Ofgem"), at the last price control review (and continues to be set) at 3%. The formula also takes account of the changes in system electrical losses, the number of customers connected and the voltage at which customers receive the units of electricity distributed. This formula determines the maximum average price per unit of electricity distributed (in pence per kWh) which a DLH is entitled to charge. The distribution price control formula permits DLHs to receive additional revenue due to increased distribution of units and a predetermined increase in end users. The price control does not seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH's costs. During the lifetime of the price control, cost savings or additional costs have a direct impact on profit.
Northern Natural Gas
Northern Natural Gas has implemented a straight fixed variable rate design which provides that all fixed costs assignable to firm capacity customers, including a return on equity, are to be recovered through fixed monthly demand or capacity reservation charges which are not a function of throughput volumes.
On May 1, 2003, Northern Natural Gas filed a request for increased rates with the FERC. The rate filing provides evidence in support of a $71 million increase to Northern Natural Gas' annual revenue requirement. However, Northern Natural Gas is requesting that only $55 million of this increase be effectuated. Northern Natural Gas' new rates went into effect November 1, 2003, subject to refund. Additionally, Northern Natural Gas filed on January 30, 2004 with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. Northern Natural Gas requested that the new rates be effective commencing August 1, 2004. Northern Natural Gas has filed to consolidate the two rate proceedings, but the FERC has not yet ruled on Northern Natural Gas' motion.
18. Pension Commitments
Domestic Operations
MidAmerican Energy sponsors a noncontributory defined benefit pension plan covering MEHC and its domestic energy subsidiaries. Benefit obligations under the plans are based on participants' compensation, years of service and age at retirement. Funding to an external trust is based upon the actuarially determined costs of the plans and the requirements of the Internal Revenue Code and the Employee Retirement Income Security Act. The Company also maintains noncontributory, nonqualified supplemental executive retirement plans for active and retired participants.
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MidAmerican Energy also currently sponsors certain postretirement health care and life insurance benefits covering all retired domestic employees of MEHC and its domestic energy subsidiaries. Under the plan, substantially all of MEHC's and its domestic energy subsidiaries' employees may become eligible for these benefits if they reach retirement age while working for the Company. However, the Company retains the right to change these benefits anytime at its discretion, subject to provisions in the union contract.
Net periodic pension, supplemental retirement and postretirement benefit costs included the following components for the Company and the aforementioned affiliates for the years ended December 31. For purposes of calculating the expected return on pension plan assets, a market-related value is used. Market-related value is equal to fair value except for gains and losses on equity investments which are amortized into market-related value on a straight-line basis over five years.
Components of net periodic benefit cost (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Cost | | Postretirement Cost |
| | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 |
| Service cost | | $ | 24,693 | | | $ | 20,235 | | | $ | 18,114 | | | $ | 8,175 | | | $ | 6,028 | | | $ | 4,357 | |
| Interest cost | | | 34,533 | | | | 34,177 | | | | 33,027 | | | | 16,065 | | | | 13,928 | | | | 10,418 | |
| Expected return on plan assets | | | (38,396 | ) | | | (38,213 | ) | | | (36,326 | ) | | | (6,008 | ) | | | (4,880 | ) | | | (4,032 | ) |
| Amortization of net transition obligation | | | (2,591 | ) | | | (2,591 | ) | | | (2,591 | ) | | | 4,110 | | | | 4,110 | | | | 4,110 | |
| Amortization of prior service cost | | | 2,761 | | | | 2,729 | | | | 2,729 | | | | 593 | | | | 425 | | | | 425 | |
| Amortization of prior year (gain) loss | | | 1,483 | | | | (2,482 | ) | | | (3,894 | ) | | | 3,716 | | | | 2,385 | | | | 332 | |
| Regulatory expense | | | 3,320 | | | | 6,639 | | | | — | | | | — | | | | — | | | | — | |
| Net periodic cost | | $ | 25,803 | | | $ | 20,494 | | | $ | 11,059 | | | $ | 26,651 | | | $ | 21,996 | | | $ | 15,610 | |
|
Weighted-average assumptions used to determine benefit obligations at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 |
| Discount rate | | | 5.75 | % | | | 5.75 | % | | | 6.50 | % | | | 5.75 | % | | | 5.75 | % | | | 6.50 | % |
| Rate of compensation increase | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % | | | | | | | | | |
|
Weighted-average assumptions used to determine net benefit cost for years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 | | 2003 | | 2002 | | 2001 |
| Discount rate | | | 5.75 | % | | | 6.50 | % | | | 7.00 | % | | | 5.75 | % | | | 6.50 | % | | | 7.00 | % |
| Expected return on plan assets | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % | | | 7.00 | % |
| Rate of compensation increase | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % | |
|
Assumed health care cost trend rates at December 31:
| | | | | | | | | | |
| | | 2003 | | 2002 |
| Health care cost trend rate assumed for next year | | | 11.00 | % | | | 9.75 | % |
| Rate that the cost trend rate gradually declines to | | | 5.00 | % | | | 5.25 | % |
| Year that the rate reaches the rate it is assumed to remain at | | | 2010 | | | | 2006 | |
|
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Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects in thousands:
| | | | | | | | | | |
| | | One Percentage-Point
Increase | | One Percentage-Point
Decrease |
| Effect on total service and interest cost | | $ | 5,484 | | | $ | (4,136 | ) |
| Effect on postretirement benefit obligation | | $ | 47,583 | | | $ | (37,761 | ) |
|
The following table presents a reconciliation of the beginning and ending balances of the benefit obligation, fair value of plan assets and the funded status of the aforementioned plans to the net amounts measured and recognized in the Consolidated Balance Sheets as of December 31 (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Postretirement Benefits |
| | | 2003 | | 2002 | | 2003 | | 2002 |
| Reconciliation of the fair value of plan assets: | |
| Fair value of plan assets at beginning of year | | $ | 467,773 | | | $ | 515,890 | | | $ | 122,655 | | | $ | 81,129 | |
| Employer contributions | | | 5,044 | | | | 4,681 | | | | 32,566 | | | | 24,034 | |
| Participant contributions | | | — | | | | — | | | | 6,371 | | | | 4,505 | |
| Actual return on plan assets | | | 105,438 | | | | (27,376 | ) | | | 15,853 | | | | (4,528 | ) |
| Acquisition | | | — | | | | — | | | | — | | | | 32,500 | |
| Benefits paid | | | (26,687 | ) | | | (25,422 | ) | | | (19,596 | ) | | | (14,985 | ) |
| Fair value of plan assets at end of year | | $ | 551,568 | | | $ | 467,773 | | | $ | 157,849 | | | $ | 122,655 | |
| Reconciliation of benefit obligation: | |
| Benefit obligation at beginning of year | | $ | 593,179 | | | $ | 518,208 | | | $ | 291,441 | | | $ | 194,917 | |
| Service cost | | | 24,693 | | | | 20,235 | | | | 8,175 | | | | 6,028 | |
| Interest cost | | | 34,533 | | | | 34,177 | | | | 16,065 | | | | 13,928 | |
| Participant contributions | | | — | | | | — | | | | 6,371 | | | | 4,505 | |
| Plan amendments | | | — | | | | 520 | | | | — | | | | 2,205 | |
| Actuarial (gain) loss | | | (5,670 | ) | | | 45,461 | | | | (5,023 | ) | | | 31,743 | |
| Acquisition | | | — | | | | — | | | | — | | | | 53,100 | |
| Benefits paid | | | (26,687 | ) | | | (25,422 | ) | | | (19,596 | ) | | | (14,985 | ) |
| Benefit obligation at end of year | | $ | 620,048 | | | $ | 593,179 | | | $ | 297,433 | | | $ | 291,441 | |
| Funded status | | $ | (68,480 | ) | | $ | (125,406 | ) | | $ | (139,584 | ) | | $ | (168,786 | ) |
| Amounts not recognized: | |
| Unrecognized net (gain) loss | | | (12,907 | ) | | | 61,289 | | | | 83,509 | | | | 102,095 | |
| Unrecognized prior service cost | | | 17,915 | | | | 20,676 | | | | 5,451 | | | | 6,043 | |
| Unrecognized net transition obligation (asset) | | | (792 | ) | | | (3,383 | ) | | | 36,992 | | | | 41,102 | |
Net amount recognized in the Consolidated
Balance Sheets | | $ | (64,264 | ) | | $ | (46,824 | ) | | $ | (13,632 | ) | | $ | (19,546 | ) |
Amounts recognized in the Consolidated
Balance Sheets consist of: | |
| Prepaid benefit cost | | $ | 39 | | | $ | 11,825 | | | $ | — | | | $ | 1,493 | |
| Accrued benefit liability | | | (100,490 | ) | | | (99,392 | ) | | | (13,632 | ) | | | (21,039 | ) |
| Intangible assets | | | 17,367 | | | | 20,082 | | | | — | | | | — | |
| Regulatory assets | | | 18,820 | | | | 20,661 | | | | — | | | | — | |
| Net amount recognized | | $ | (64,264 | ) | | $ | (46,824 | ) | | $ | (13,632 | ) | | $ | (19,546 | ) |
|
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The accumulated benefit obligation for all defined benefit pension plans was $554.6 million and $526.7 million at December 31, 2003 and 2002, respectively. The projected benefit obligation (included in the table above), accumulated benefit obligation and fair value of plan assets for the supplemental executive retirement plan which had an accumulated benefit obligation in excess of plan assets were $105.1 million, $100.5 million and $ — as of December 31, 2003 and $103.4 million, $99.1 million and $ — as of December 31, 2002, respectively. A minimum liability must be recognized for those plans whose accumulated benefit obligation exceeds plan assets.
Although the supplemental executive retirement plan had no assets as of December 31, 2003, the Company has Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements. Because this plan is nonqualified, the fair value of these assets is not included in the plan asset table below. The fair value of the Rabbi trust investments was $88.1 million and $76.2 million at December 31, 2003 and 2002, respectively.
Plan Assets
The Company's investment policy for its domestic pension and postretirement plans is to balance risk and return through a diversified portfolio of high-quality equity and fixed income securities. Equity targets for the pension and postretirement plans are as indicated in the tables below. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. The plans retain outside investment advisors to manage plan investments within the parameters outlined by the Company's Pension Benefits Committee. The weighted average return on assets assumption is based on historical performance for the types of assets in which the plans invest.
The Company's pension plan asset allocation at December 31, 2003 and 2002, are as follows:
| | | | | | | | | | | | | | |
| Asset Category | | Percentage of Plan Assets |
| at December 31 | | Target
Range | | |
| 2003 | | 2002 | |
| Equity securities | | | 70 | % | | | 60 | % | | | 65-75 | % |
| Debt securities | | | 23 | | | | 33 | | | | 20-30 | |
| Real estate | | | 7 | | | | 7 | | | | 0-10 | |
| Other | | | — | | | | — | | | | 0-5 | |
| Total | | | 100 | % | | | 100 | % | |
|
The Company's postretirement benefit plan asset allocation at December 31, 2003, and 2002, are as follows:
| | | | | | | | | | | | | | |
| Asset Category | | Percentage of Plan Assets |
| at December 31 | | Target
Range | | |
| 2003 | | 2002 | |
| Equity securities | | | 49 | % | | | 34 | % | | | 45-55 | % |
| Debt securities | | | 48 | | | | 48 | | | | 45-55 | |
| Real estate | | | 3 | | | | 18 | | | | 0-10 | |
| Total | | | 100 | % | | | 100 | % | |
|
Cash Flows
Employer contributions to the domestic pension and postretirement plans are currently expected to be $5.1 million and $27.6 million, respectively, for 2004 based on current regulations which are subject to change. The Company's policy is to contribute the minimum required amount to the pension plan and the amount expensed to its postretirement plans.
The Company sponsors defined contribution pension plans (401(k) plans) covering substantially all domestic employees. The Company's contributions vary depending on the plan but are based
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primarily on each participant's level of contribution and cannot exceed the maximum allowable for tax purposes. Total contributions were $12.4 million, $9.8 million and $8.6 million for 2003, 2002 and 2001, respectively.
In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("Medicare Act"). The Medicare Act introduces a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care plans that provide a benefit to participants that is at least actuarially equivalent to Medicare Part D. The Medicare Act is expected to ultimately reduce the Company's postretirement costs from what they would have been absent such changes. Detailed regulations pertaining to the Medicare Act have yet to be promulgated, and accordingly, the Company cannot determine precisely how it will implement the Medicare Act's provisions. Additionally, accounting guidance regarding the recognition of the impacts of the Medicare Act is pending. Accordingly, the Company continues to evaluate its options and cannot predict the magnitude or timing of any resulting costs savings. As permitted by FASB Staff Position 106-1, the Company has elected to defer recognizing the effects of the Medicare Act in its post-retirement plan accounting at December 31, 2003.
United Kingdom Operations
CE Electric UK, through a wholly-owned subsidiary, participates in the Electricity Supply Pension Scheme (the "UK Plan"), which provides pension and other related defined benefits, based on final pensionable pay, to substantially all employees throughout the electricity supply industry in the United Kingdom.
Net periodic pension costs included the following components for CE Electric UK for the years ended December 31. For purposes of calculating the expected return on pension plant assets, a market-related value is used. Market-related value is equal to fair value except for gains and losses on equity investments which are amortized into market-related value on a straight-line basis over five years.
Components of net periodic pension cost (in thousands):
| | | | | | | | | | | | | | |
| | | Pension Cost |
| | | 2003 | | 2002 | | 2001 |
| Service cost | | $ | 9,485 | | | $ | 8,718 | | | $ | 7,781 | |
| Interest cost | | | 62,632 | | | | 56,817 | | | | 51,440 | |
| Expected return on plan assets | | | (89,124 | ) | | | (85,927 | ) | | | (78,354 | ) |
| Amortization of prior service cost | | | 1,472 | | | | 1,202 | | | | — | |
| Curtailment loss and foreign exchange | | | 537 | | | | 6,463 | | | | 7,061 | |
| Net periodic benefit | | $ | (14,998 | ) | | $ | (12,727 | ) | | $ | (12,072 | ) |
|
As a result of the distribution price reviews in 1999, CE Electric UK implemented a review of staffing requirements primarily in its distribution business. Following discussions with the trade unions, CE Electric UK put in place a workforce reduction program. The pension curtailment related to this workforce reduction program was $ - million, $6.5 million and $7.1 million in 2003, 2002 and 2001, respectively.
Weighted-average assumptions used to determine benefit obligations at December 31:
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Discount rate | | | 5.5 | % | | | 5.75 | % | | | 5.75 | % |
| Rate of compensation increase | | | 2.75 | % | | | 2.5 | % | | | 2.5 | % |
|
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Weighted-average assumptions used to determine net benefit cost for years ended December 31:
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Discount rate | | | 5.5 | % | | | 5.75 | % | | | 5.75 | % |
| Expected return on plan assets | | | 7.00 | % | | | 7.00 | % | | | 7.7 | % |
| Rate of compensation increase | | | 2.75 | % | | | 2.5 | % | | | 2.5 | % |
|
The following table presents a reconciliation of the beginning and ending balances of the benefit obligation, fair value of plan assets and the funded status of the aforementioned plans to the net amounts measured and recognized in the Consolidated Balance Sheets as of December 31 (in thousands):
| | | | | | | | | | |
| | | Pension Benefits |
| | | 2003 | | 2002 |
| Reconciliation of the fair value of plan assets: | |
| Fair value of plan assets at beginning of year | | $ | 976,427 | | | $ | 1,070,657 | |
| Employer contributions | | | 14,391 | | | | 3,607 | |
| Participant contributions | | | 4,742 | | | | 3,006 | |
| Actual return on plan assets | | | 152,246 | | | | (144,298 | ) |
| Benefits paid | | | (57,726 | ) | | | (57,719 | ) |
| Foreign currency exchange rate changes | | | 116,136 | | | | 101,174 | |
| Fair value of plan assets at end of year | | $ | 1,206,216 | | | $ | 976,427 | |
| Reconciliation of benefit obligation: | |
| Benefit obligation at beginning of year | | $ | 1,102,730 | | | $ | 974,079 | |
| Service cost | | | 9,485 | | | | 8,718 | |
| Interest cost | | | 62,632 | | | | 56,817 | |
| Participant contributions | | | 4,742 | | | | 3,006 | |
| Benefits paid | | | (57,726 | ) | | | (57,719 | ) |
| SFAS 88 Curtailment | | | — | | | | 5,712 | |
| Prior service cost | | | — | | | | 17,286 | |
| Experience gain and change of assumptions | | | 83,890 | | | | (11,574 | ) |
| Foreign currency exchange rate changes | | | 128,834 | | | | 106,405 | |
| Benefit obligation at end of year | | $ | 1,334,587 | | | $ | 1,102,730 | |
| Funded status | | | (128,371 | ) | | $ | (126,303 | ) |
| Unrecognized net loss | | | 507,039 | | | | 465,211 | |
| Net amount recognized in the Consolidated Balance Sheets | | $ | 378,668 | | | $ | 338,908 | |
| Amounts recognized in the Consolidated Balance Sheets consist of: | |
| Prepaid benefit cost | | $ | 378,668 | | | $ | 338,908 | |
| Accrued benefit liability | | | (496,147 | ) | | | (457,317 | ) |
| Intangible assets | | | 16,604 | | | | 16,433 | |
| Accumulated other comprehensive income | | | 479,543 | | | | 440,884 | |
| Net amount recognized | | $ | 378,668 | | | $ | 338,908 | |
|
The accumulated benefit obligation for the defined benefit pension plan was $1.3 billion and $1.1 billion at December 31, 2003 and 2002, respectively.
The Company recorded a minimum pension liability as of December 31, 2003 and 2002 in the amount of $479.5 million and $440.9 million, respectively. The pension liability resulted from the declining market value of the pension plan assets during 2002 combined with a lower market interest rate used to value the plan's liabilities. As of December 31, 2003 and 2002, the minimum pension liability is measured as the amount of the plan's accumulated benefit obligation that is in excess of the plan's market value of assets at December 31, 2003 and 2002 plus the prepaid asset balance. A charge
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equal to the excess was recorded to the Company's stockholder's equity, net of income tax benefits, as a component of comprehensive loss in the amount of $27.1 million and $308.6 million in 2003 and 2002, respectively. This adjustment does not impact current year earnings, or the funding requirements of the plan.
Plan Assets
CE Electric UK's investment policy for its pension and postretirement plans is to balance risk and return through a diversified portfolio of high-quality equity and fixed income securities. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. The plans retain outside investment advisors to manage plan investments within the parameters outlined by the Benefits Committee of subsidiaries of CE Electric UK. The weighted average return on assets assumption is based on historical performance for the types of assets in which the plans invest.
CE Electric UK's pension plan asset allocation comprises the following at December 31:
| | | | | | | | | | |
| | | Percentage of Plan Assets
at December 31 |
| Asset Category | | 2003 | | 2002 |
| Equity securities | | | 64 | % | | | 62 | % |
| Debt securities | | | 26 | | | | 27 | |
| Real estate | | | 9 | | | | 10 | |
| Other | | | 1 | | | | 1 | |
| Total | | | 100 | % | | | 100 | % |
|
Cash Flows
Employer contributions to fund the ongoing liabilities of the UK Plan are expected to be approximately $14.0 million in 2004. The next valuation of the UK Plan will take place as of March 31, 2004 and the results will be known later in the year. This valuation will set a revised level of contributions for the next three years. If the valuation results in a deficit in the UK Plan then an appropriate level of funding to address the deficit will be agreed in accordance with the UK Plan rules. The overall level of contributions paid by the employer is expected to be one of the factors considered by the regulator in setting the revised allowed prices which will take effect from April 1, 2005.
19. Commitments and Contingencies
Fuel, Energy and Operating Lease Commitments
MidAmerican Energy has supply and related transportation contracts for its fossil fueled generating stations. As of December 31, 2003, the contracts, with expiration dates ranging from 2004 to 2010, require minimum payments of $83.3 million, $69.9 million, $54.5 million, $50.2 million and $16.1 million for the years 2004 through 2008, respectively, and $31.0 million for the total of the years thereafter. MidAmerican Energy expects to supplement these coal contracts with additional contracts and spot market purchases to fulfill its future fossil fuel needs. Additionally, MidAmerican Energy has a supply and transportation contact for a natural gas-fired generating plant. The contract, which expires in 2012, requires minimum payments of $0.8 million for 2004 and $6.2 million for each year thereafter.
MidAmerican Energy also has contracts with non-affiliated companies to purchase electric capacity. As of December 31, 2003, the contracts, with expiration dates ranging from 2004 to 2028, require minimum payments of $38.6 million, $3.6 million, $2.3 million, $2.2 million and $2.2 million for the years 2004 through 2008, respectively, and $40.1 million for the total of the years thereafter.
MidAmerican Energy has various natural gas supply and transportation contracts for its gas operations. As of December 31, 2003, the minimum commitments under these contracts were $56.3
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million, $43.8 million, $18.0 million, $13.9 million and $4.2 million for the years 2004 through 2008, respectively, and $12.5 million for the total of the years thereafter.
MidAmerican Energy is the lessee on operating leases for coal railcars that contain guarantees of the residual value of such equipment throughout the term of the leases. Events triggering the residual guarantees include termination of the lease, loss of the equipment or purchase of the equipment. Lease terms are for five years with provisions for extensions. As of December 31, 2003, the maximum amount of such guarantees specified in these leases totaled $31.0 million. These guarantees are not reflected on the Consolidated Balance Sheets.
MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation – Domestic and HomeServices have non-cancelable operating leases primarily for computer equipment, office space and rail cars. The minimum payments under these leases are $53.1 million, $46.9 million, $41.0 million, $37.1 million and $27.0 million for the years 2004 through 2008, respectively, and $85.0 million for the total of the years thereafter.
Manufactured Gas Plants
The United States Environmental Protection Agency ("EPA") and the state environmental agencies have determined that contaminated wastes remaining at decommissioned manufactured gas plant facilities may pose a threat to the public health or the environment if such contaminants are in sufficient quantities and at such concentrations as to warrant remedial action.
MidAmerican Energy has evaluated or is evaluating 27 properties that were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party. The purpose of these evaluations is to determine whether waste materials are present, whether the materials constitute a health or environmental risk, and whether MidAmerican Energy has any responsibility for remedial action. MidAmerican Energy is actively working with the regulatory agencies and has received regulatory closure on four sites. MidAmerican Energy is continuing to evaluate several of the sites to determine the future liability, if any, for conducting site investigations or other site activity.
MidAmerican Energy estimates the range of possible costs for investigation, remediation and monitoring for the sites discussed above to be approximately $11 million to $30 million. As of December 31, 2003, MidAmerican Energy has recorded a $14.0 million liability for these sites and a corresponding regulatory asset for future recovery through the regulatory process. MidAmerican Energy projects that these amounts will be incurred or paid over the next four years.
The estimated liability is determined through a site-specific cost evaluation process. The estimate includes incremental direct costs of remediation, site monitoring costs 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. Insurance recoveries have been received for some of the sites under investigation. Those recoveries are intended to be used principally for accelerated remediation, as specified by the IUB and are recorded as a regulatory liability.
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 Energy's financial position, results of operations or cash flows.
Air Quality
MidAmerican Energy's generating facilities are subject to applicable provisions of the Clean Air Act and related air quality standards promulgated by the United States Environmental Protection Agency ("EPA"). The Clean Air Act provides the framework for regulation of certain air emissions and permitting and monitoring associated with those emissions. MidAmerican Energy believes it is in material compliance with current air quality requirements.
The EPA has in recent years implemented more stringent standards for ozone and fine particulate matter. Designations regarding attainment of the eight-hour ozone standard have recently been
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reviewed by the EPA, and the EPA has concluded that the entire state of Iowa is in attainment of the standards. On December 4, 2003, the EPA announced the development of its Interstate Air Quality Rule, a proposal to require coal-burning power plants in 29 states and the District of Columbia to reduce emissions of sulfur dioxide ("SO2") and nitrogen oxides ("NOX") in an effort to reduce ozone and fine particulate matter in the Eastern United States. It is likely that MidAmerican Energy's coal-burning facilities will be impacted by this proposal.
In December 2000, the EPA concluded that mercury emissions from coal-fired generating stations should be regulated. The EPA is currently considering two regulatory alternatives for the regulation of mercury from coal-fired utilities as necessary to protect public health. One of these alternatives would require reductions of mercury from all coal-fired facilities greater than 25 MW through application of Maximum Achievable Control Technology with compliance assessed on a facility basis. The other alternative would regulate the mercury emissions of coal-fired facilities that pose a health hazard through a market based cap-and-trade mechanism similar to the SO2 allowance system. The EPA is currently under a deadline to finalize the mercury rule by December 2004. Any of these new or stricter standards could, in whole or in part, be superceded or made more stringent by one of a number of multi-pollutant emission reduction proposals currently under consideration at the federal level, including the "Clear Skies Initiative", and other pending legislative proposals that contemplate 70% to 90% reductions of SO2, NOX and mercury, as well as possible new federal regulation of carbon dioxide and other gasses that may affect global climate change.
Depending on the outcome of the final regulations, MidAmerican Energy may be required to install control equipment on its generating stations or decrease the number of hours during which its generating stations operate. However, until final regulations are issued, the impact of the regulations on MidAmerican Energy cannot be predicted.
While legislative action is necessary for the Clear Skies Initiative or other multi-pollutant emission reduction legislation to become effective, MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions required to meet emissions reductions of this nature. On April 1, 2002, in accordance with an Iowa law passed in 2001, MidAmerican Energy filed with the IUB its first multi-year plan and budget for managing SO2 and NOX from its generating facilities in a cost-effective manner. The plan provides specific actions to be taken at each coal-fired generating facility and the related costs and timing for each action. Mercury emissions reductions were not addressed in the plan. On July 17, 2003, the IUB issued an order that affirmed an administrative law judge's approval of the plan, as amended. Accordingly, the IUB order provides that the approved expenditures will not be subject to a subsequent prudence review in a future electric rate case, but it rejected the future application of a tracker mechanism to recover emission reduction costs. However, pursuant to an unrelated rate settlement agreement approved by the IUB on October 17, 2003, if prior to January 1, 2011, capital and operating expenditures to comply with environmental requirements cumulatively exceed $325 million, then MidAmerican Energy may seek to recover the additional expenditures from customers. At this time, MidAmerican Energy does not expect these capital expenditures to exceed such amount.
Under the New Source Review ("NSR") provisions of the Clean Air Act, a utility is required to obtain a permit from the EPA or a state regulatory agency prior to (1) beginning construction of a new major stationary source of an NSR-regulated pollutant or (2) making a physical or operational change (a "major modification") to an existing facility that potentially increases emissions, unless the changes are exempt under the regulations. In general, projects subject to NSR regulations are subject to pre-construction review and permitting under the Prevention of Significant Deterioration ("PSD") provisions of the Clean Air Act. Under the PSD program, a project that emits threshold levels of regulated pollutants must undergo a Best Available Control Technology analysis and evaluate the most effective emissions controls. These controls must be installed in order to receive a permit. Violations of NSR regulations, which may be alleged by the EPA, states and environmental groups, among others, potentially subject a utility to material expenses for fines or other sanctions and remedies including requiring installation of enhanced pollution controls and funding supplemental environmental projects.
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In recent years, the EPA has requested from several utilities information and support regarding their capital projects for various generating plants. The requests were issued as part of an industry-wide investigation to assess compliance with the NSR and the New Source Performance Standards of the Clean Air Act. In December 2002 and April 2003, MidAmerican Energy received requests from the EPA to provide documentation related to its capital projects from January 1, 1980, to the present for a number of its generating plants. MidAmerican Energy has submitted information to the EPA in responses to these requests, and there are currently no outstanding data requests pending from the EPA. MidAmerican Energy cannot predict the outcome of these requests at this time. However, on August 27, 2003, the EPA announced changes to its NSR rules that clarify what constitutes routine repair, maintenance and replacement for purposes of triggering NSR requirements. The EPA concluded equipment that is repaired, maintained or replaced with an expenditure not greater than 20 percent of the value of the source will not trigger the NSR provisions of the Clean Air Act. After the NSR changes were announced, the EPA's enforcement branch indicated it would apply the clarified routine repair, maintenance and replacement rules to its pending investigation. A number of states and local air districts have challenged the EPA's clarification of the rule and a panel of the U.S. Circuit Court of Appeals for the District of Columbia issued an order on December 24, 2003 staying the EPA's implementation of its clarification of the equipment replacement rule.
On August 29, 2003, the EPA finalized requirements to reduce toxic air emissions from stationary combustion turbines. These requirements apply to turbines used at pipeline compressor stations that are built after January 12, 2003. Kern River and Northern Natural Gas believe the existing turbines are exempt from the rule since the turbines were built and installed at compressor stations built prior to January 12, 2003. New turbine installations will likely require the installation of equipment to reduce formaldehyde emissions and other pollutants to meet the new requirements and could significantly increase the cost of new turbine installations.
On December 19, 2002, the EPA issued proposed emission standards for hazardous air pollutants for stationary reciprocating internal combustion engines, such as those used at pipeline compressor stations. The proposed standards would apply to all new and certain existing reciprocating internal combustion engines above 500 horsepower that are located at facilities characterized under the Clean Air Act as a "major source" of toxic air pollutants. While the emission standards have not yet been finalized, the impact of any new regulation of hazardous air pollutants from stationary reciprocating internal combustion engines could have a significant impact on existing and new facilities.
Decommissioning Costs
Expected decommissioning costs for Quad Cities Station have been developed based on a site-specific decommissioning study that includes decontamination, dismantling, site restoration, dry fuel storage cost and an assumed shutdown date. Quad Cities Station decommissioning costs are included in base rates in Iowa tariffs.
MidAmerican Energy's share of expected decommissioning costs for Quad Cities Station, in 2003 dollars, is $260 million and is the asset retirement obligation for Quad Cities Station. Refer to Note (1)(j) for a discussion of asset retirement obligations. MidAmerican Energy has established external trusts for the investment of funds for decommissioning the Quad Cities Station. The fair value of the assets held in the trusts is reflected in Investments and Nonregulated Property, Net.
MidAmerican Energy's depreciation and amortization expense included costs for Quad Cities Station nuclear decommissioning of $8.3 million for each of the years 2003, 2002 and 2001. The regulatory provision charged to expense is equal to the funding that is being collected in Iowa rates. Realized and unrealized gains and (losses) on the assets in the trust fund were $16.1 million, $(6.9) million and $(3.1) million for 2003, 2002 and 2001, respectively.
Nuclear Insurance
MidAmerican Energy maintains financial protection against catastrophic loss associated with its interest in Quad Cities Station through a combination of insurance purchased by Exelon Generation Company, LLC (the operator and joint owner of Quad Cities Station), insurance purchased directly by MidAmerican Energy, and the mandatory industry-wide loss funding mechanism afforded under the
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Price-Anderson Amendments Act of 1988. The general types of coverage are: nuclear liability, property coverage and nuclear worker liability.
Exelon Generation purchases nuclear liability insurance for Quad Cities Station in the maximum available amount of $300 million, which includes coverage for MidAmerican Energy's ownership. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above that amount is provided by a mandatory industry-wide Secondary Financial Protection program under which the licensees of nuclear generating facilities could be assessed for liability incurred due to a serious nuclear incident at any commercial nuclear reactor in the United States. Currently, MidAmerican Energy's aggregate maximum potential share of an assessment for Quad Cities Station is approximately $50.3 million per incident, payable in installments not to exceed $5 million annually.
The property insurance covers property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning arising out of a covered loss. For Quad Cities Station, Exelon Generation purchased primary and excess property insurance protection for the combined interests in Quad Cities Station, with coverage limits totaling $2.1 billion. MidAmerican Energy also directly purchased extra expense or business interruption coverage for its share of replacement power and other extra expenses in the event of a covered accidental outage at Quad Cities Station. The property and related coverages purchased directly by MidAmerican Energy and by Exelon Generation, which includes the interests of MidAmerican Energy, are underwritten by an industry mutual insurance company and contain provisions for retrospective premium assessments should two or more full policy-limit losses occur in one policy year. Currently, the maximum retrospective amounts that could be assessed against MidAmerican Energy from industry mutual policies for its obligations associated with Quad Cities Station total $7.6 million.
The master nuclear worker liability coverage, which is purchased by Exelon Generation for Quad Cities Station, is an industry-wide guaranteed-cost policy with an aggregate limit of $300 million for the nuclear industry as a whole, which is in effect to cover tort claims in nuclear-related industries.
The current Price-Anderson Act expired in August 2002 and is pending congressional action for reauthorization. Its contingent financial obligations still apply to reactors licensed by the Nuclear Regulatory Commission as of its expiration date. It is anticipated that the Price-Anderson Act will be renewed with increased third party financial protection requirements for nuclear incidents.
Natural Gas Commodity Litigation
MidAmerican Energy is one of dozens of companies named as defendants in a January 20, 2004 consolidated class action lawsuit filed in the U.S. District Court for the Southern District of New York. The suit alleges that the defendants have engaged in unlawful manipulation of the prices of natural gas futures and options contracts traded on the New York Mercantile Exchange ("NYMEX") during the period January 1, 2000 to December 31, 2002. MidAmerican Energy is mentioned as a company that has engaged in wash trades on Enron Online (an electronic trading platform) that had the effect of distorting prices for gas trades on the NYMEX. The plaintiffs to the class action do not specify the amount of alleged damages. At this time, MidAmerican Energy does not believe that it has any material exposure in this lawsuit.
The original complaint in this matter, Cornerstone Propane Partners, L.P. v. Reliant, et al. ("Cornerstone"), was filed on August 18, 2003 in the United States District Court, Southern District of New York naming MidAmerican Energy and the Company. On October 1, 2003, a second complaint, Roberto, E. Calle Gracey, et al. ("Calle Gracey"), was filed in the same court but did not name MidAmerican Energy or the Company. On November 14, 2003, a third complaint, Dominick Viola ("Viola"), et al., was filed in the same court and named MidAmerican Energy and MEHC as defendants. On November 19, 2003, an Order of Voluntary Dismissal Without Prejudice of MEHC was entered by the court dismissing MEHC from the Cornerstone and Viola complaints. On December 5, 2003, the court entered Pretrial Order No. 1, which among other procedural matters, ordered the consolidation of the Cornerstone, Calle Gracey and Viola complaints and permitted plaintiffs to file an amended complaint in this matter. On January 20, 2004, plaintiffs filed In Re: Natural Gas Commodity Litigation as the amended complaint reasserting their previous allegations. Unless extended by
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agreement of the parties or by court order, MidAmerican Energy's answer and/or responsive pleading in this matter is due February 19, 2004. MidAmerican Energy will coordinate with the other defendants and vigorously defend the allegations against it.
Philippines
CE Casecnan Construction Contract Arbitration
The Casecnan project was constructed pursuant to a fixed-price, date-certain, turnkey construction contract by a consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa. (collectively, the "Contractor"), working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd.
In 2001, the Contractor filed a Request for Arbitration (and two supplements) with the International Chamber of Commerce ("ICC") seeking schedule relief of up to 153 days, compensation for alleged additional costs of approximately $4 million (to the extent it is unable to recover from its insurer) and compensation for damages of approximately $62 million resulting from alleged force majeure events (and geologic conditions). The Contractor further alleged that the circumstances surrounding the placing of the Casecnan project into commercial operation in December 2001 amounted to a repudiation of the Replacement Contract resulting in a claim for unspecified quantum meruit damages, and that the delay liquidated damages clause which provides for payments of $125,000 per day to CE Casecnan for each day of delay in completion of the Casecnan project is unenforceable.
On November 7, 2002, the ICC issued the arbitration tribunal's partial award with respect to the Contractor's force majeure claims. The arbitration panel awarded the Contractor 18 days of schedule relief in the aggregate for all of the force majeure events and awarded the Contractor $3.8 million to the extent losses are not covered by insurance. All of the Contractor's other claims with respect to force majeure and geologic conditions were denied. If the Contractor were to prevail on the Contractor's claim that the delay liquidated damages clause is unenforceable, CE Casecnan would not be entitled to collect such delay damages for the period from March 31, 2001 through December 11, 2001. If the Contractor were to prevail in the Contractor's repudiation claim and prove quantum meruit damages in excess of amounts paid to the Contractor, CE Casecnan could be liable to make additional payments to the Contractor. CE Casecnan believes all of such allegations and claims are without merit and is vigorously contesting the Contractor's claims. CE Casecnan believes that an award will be issued by the ICC in 2004.
CE Casecnan Stockholder Litigation
Pursuant to the share ownership adjustment mechanism in the CE Casecnan stockholder agreement, which is based upon pro forma financial projections of the Casecnan project prepared following commencement of commercial operations, in February 2002, MEHC's indirect wholly owned subsidiary, CE Casecnan Ltd., advised the minority stockholder, LaPrairie Group Contractors (International) Ltd. ("LPG"), that MEHC's ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. In April 2002, CE Casecnan Ltd. and LPG entered into a status quo agreement pursuant to which CE Casecnan Ltd. agreed not to take any action to exercise control over or transfer LPG's shares in CE Casecnan. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, among others, CE Casecnan Ltd. and MEHC. In the complaint, LPG seeks compensatory and punitive damages for alleged breaches of the stockholder agreement and alleged breaches of fiduciary duties allegedly owed by CE Casecnan Ltd. and MEHC to LPG. The complaint also seeks injunctive relief against all defendants and a declaratory judgment that LPG is entitled to maintain a 15% interest in CE Casecnan. On January 21, 2004, CE Casecnan Ltd. and LPG entered into a second status quo agreement pursuant to which the parties agreed to set aside certain distributions related to the shares subject to the LPG dispute and not distribute such funds without at least 15 days prior notice to LPG. Accordingly, 15% of the dividend distribution declared on January 21, 2004 was set aside by CE Casecnan in an unsecured CE Casecnan account. The impact, if any, of this litigation on the Company cannot be determined at this time.
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20. Segment Information:
The Company has identified seven reportable segments principally based on management structure: MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation-Domestic, CalEnergy Generation-Foreign, and HomeServices. Information related to the Company's reportable operating segments is shown below (in thousands).
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2003 | | 2002 | | 2001 |
| Operating revenue: | |
| MidAmerican Energy | | $ | 2,600,239 | | | $ | 2,240,879 | | | $ | 2,388,650 | |
| Kern River | | | 260,182 | | | | 127,254 | | | | — | |
| Northern Natural Gas | | | 482,156 | | | | 176,880 | | | | �� | |
| CE Electric UK | | | 829,993 | | | | 795,366 | | | | 1,443,997 | |
| CalEnergy Generation – Domestic | | | 45,750 | | | | 38,546 | | | | 37,299 | |
| CalEnergy Generation – Foreign | | | 326,454 | | | | 326,316 | | | | 203,482 | |
| HomeServices | | | 1,476,569 | | | | 1,138,332 | | | | 641,934 | |
| Segment operating revenue | | | 6,021,343 | | | | 4,843,573 | | | | 4,715,362 | |
| Corporate/other | | | (73,119 | ) | | | (49,563 | ) | | | (18,581 | ) |
| Total operating revenue | | $ | 5,948,224 | | | $ | 4,794,010 | | | $ | 4,696,781 | |
| Depreciation and amortization: | |
| MidAmerican Energy | | $ | 281,001 | | | $ | 269,412 | | | $ | 286,590 | |
| Kern River | | | 36,771 | | | | 17,165 | | | | — | |
| Northern Natural Gas | | | 52,716 | | | | 18,151 | | | | — | |
| CE Electric UK | | | 125,000 | | | | 116,792 | | | | 133,865 | |
| CalEnergy Generation – Domestic | | | 16,020 | | | | 8,714 | | | | 5,439 | |
| CalEnergy Generation – Foreign | | | 87,928 | | | | 88,036 | | | | 66,315 | |
| HomeServices | | | 17,560 | | | | 22,072 | | | | 17,201 | |
| Segment depreciation and amortization | | | 616,996 | | | | 540,342 | | | | 509,410 | |
| Corporate/other | | | (7,107 | ) | | | (14,440 | ) | | | 29,292 | |
| Total depreciation and amortization | | $ | 609,889 | | | $ | 525,902 | | | $ | 538,702 | |
| Interest expense, net: | |
| MidAmerican Energy | | $ | 118,809 | | | $ | 119,225 | | | $ | 113,980 | |
| Kern River | | | 61,979 | | | | 33,036 | | | | — | |
| Northern Natural Gas | | | 55,833 | | | | 22,987 | | | | — | |
| CE Electric UK | | | 171,767 | | | | 183,472 | | | | 112,308 | |
| CalEnergy Generation – Domestic | | | 30,333 | | | | 20,913 | | | | 10,835 | |
| CalEnergy Generation – Foreign | | | 59,603 | | | | 68,338 | | | | 30,875 | |
| HomeServices | | | 3,864 | | | | 4,256 | | | | 3,884 | |
| Segment interest expense, net | | | 502,188 | | | | 452,227 | | | | 271,882 | |
| Corporate/other | | | 239,160 | | | | 157,683 | | | | 140,912 | |
| Total interest expense, net | | $ | 741,348 | | | $ | 609,910 | | | $ | 412,794 | |
|
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| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2003 | | 2002 | | 2001 |
| Income before provisions for income taxes: | |
| MidAmerican Energy | | $ | 268,670 | | | $ | 241,005 | | | $ | 211,300 | |
| Kern River | | | 133,720 | | | | 60,700 | | | | — | |
| Northern Natural Gas | | | 127,307 | | | | 42,882 | | | | — | |
| CE Electric UK | | | 288,720 | | | | 266,755 | | | | 173,816 | |
| CalEnergy Generation – Domestic | | | (25,510 | ) | | | (4,963 | ) | | | 46,765 | |
| CalEnergy Generation – Foreign | | | 179,546 | | | | 149,915 | | | | 94,542 | |
| HomeServices | | | 113,537 | | | | 69,979 | | | | 42,945 | |
| Segment income before provision for income taxes | | | 1,085,990 | | | | 826,273 | | | | 569,368 | |
| Corporate/other | | | (236,198 | ) | | | (183,175 | ) | | | (65,484 | ) |
| Total income before provision for income taxes | | $ | 849,792 | | | $ | 643,098 | | | $ | 503,884 | |
| Provision for income taxes: | |
| MidAmerican Energy | | $ | 110,078 | | | $ | 99,782 | | | $ | 95,688 | |
| Kern River | | | 51,319 | | | | 23,014 | | | | — | |
| Northern Natural Gas | | | 50,599 | | | | 16,947 | | | | — | |
| CE Electric UK | | | 91,539 | | | | 25,245 | | | | 163,253 | |
| CalEnergy Generation – Domestic | | | (18,183 | ) | | | (15,203 | ) | | | 2,706 | |
| CalEnergy Generation – Foreign | | | 76,493 | | | | 37,577 | | | | 29,712 | |
| HomeServices | | | 43,587 | | | | 28,207 | | | | 15,953 | |
| Segment provision for income taxes | | | 405,432 | | | | 215,569 | | | | 307,312 | |
| Corporate/other | | | (154,461 | ) | | | (115,981 | ) | | | (57,248 | ) |
| Total provision for income taxes | | $ | 250,971 | | | $ | 99,588 | | | $ | 250,064 | |
| Capital expenditures: | |
| MidAmerican Energy | | $ | 378,530 | | | $ | 358,194 | | | $ | 252,615 | |
| Kern River | | | 361,477 | | | | 769,464 | | | | — | |
| Northern Natural Gas | | | 104,400 | | | | 62,409 | | | | — | |
| CE Electric UK | | | 301,896 | | | | 222,622 | | | | 176,464 | |
| CalEnergy Generation – Domestic | | | 17,845 | | | | 61,920 | | | | 52,940 | |
| CalEnergy Generation – Foreign | | | 8,497 | | | | 7,830 | | | | 83,954 | |
| HomeServices | | | 18,311 | | | | 18,273 | | | | 9,878 | |
| Segment capital expenditures | | | 1,190,956 | | | | 1,500,712 | | | | 575,851 | |
| Corporate/other | | | 71 | | | | 7,373 | | | | 901 | |
| Total capital expenditures | | $ | 1,191,027 | | | $ | 1,508,085 | | | $ | 576,752 | |
|
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| | | | | | | | | | | | | | |
| | | As of December 31, |
| | | 2003 | | 2002 | | 2001 |
| Identifiable assets: | |
| MidAmerican Energy | | $ | 6,596,849 | | | $ | 6,411,143 | | | $ | 6,215,968 | |
| Kern River | | | 2,200,201 | | | | 1,797,850 | | | | — | |
| Northern Natural Gas | | | 2,167,621 | | | | 2,162,367 | | | | — | |
| CE Electric UK | | | 5,038,880 | | | | 4,714,459 | | | | 4,340,147 | |
| CalEnergy Generation – Domestic | | | 865,223 | | | | 873,357 | | | | 870,664 | |
| CalEnergy Generation – Foreign | | | 949,237 | | | | 974,852 | | | | 950,035 | |
| HomeServices | | | 567,736 | | | | 488,324 | | | | 322,552 | |
| Segment identifiable assets | | | 18,385,747 | | | | 17,422,352 | | | | 12,699,366 | |
| Corporate/other | | | 782,442 | | | | 1,012,568 | | | | 295,219 | |
| Total identifiable assets | | $ | 19,168,189 | | | $ | 18,434,920 | | | $ | 12,994,585 | |
| Long-lived assets: | |
| MidAmerican Energy | | $ | 5,524,279 | | | $ | 5,385,328 | | | $ | 5,247,817 | |
| Kern River | | | 2,010,113 | | | | 1,682,934 | | | | — | |
| Northern Natural Gas | | | 1,809,623 | | | | 1,818,469 | | | | — | |
| CE Electric UK | | | 4,489,306 | | | | 3,936,598 | | | | 3,650,385 | |
| CalEnergy Generation – Domestic | | | 593,580 | | | | 594,282 | | | | 571,404 | |
| CalEnergy Generation – Foreign | | | 621,674 | | | | 724,908 | | | | 805,050 | |
| HomeServices | | | 418,999 | | | | 384,899 | | | | 262,175 | |
| Segment long-lived assets | | | 15,467,574 | | | | 14,527,418 | | | | 10,536,831 | |
| Corporate/other | | | 19,048 | | | | 15,201 | | | | 7,019 | |
| Total long-lived assets | | $ | 15,486,622 | | | $ | 14,542,619 | | | $ | 10,543,850 | |
|
The remaining differences from the segment amounts to the consolidated amounts described as "Corporate/Other" relate principally to the corporate functions including administrative costs, corporate cash and related interest income, corporate interest expenses, intersegment eliminations, and fair value adjustments relating to acquisitions.
The following table shows the change in the carrying amount of goodwill by reportable segment for the years ended December 31, 2003 and 2002 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | MidAmerican
Energy | | Kern
River | | Northern
Natural
Gas | | CE Electric
UK | | Cal Energy
Generation
Domestic | | Home - -
Services | | Total |
| Balance, January 1, 2002 | | $ | 2,160,004 | | | $ | — | | | $ | — | | | $ | 1,104,262 | | | $ | 142,726 | | | $ | 231,554 | | | $ | 3,638,546 | |
| Goodwill from acquisitions during the year | | | — | | | | 32,547 | | | | 414,721 | | | | 56,626 | | | | — | | | | 108,914 | | | | 612,808 | |
| Goodwill written off related to the sale of a business unit | | | — | | | | — | | | | — | | | | (49,587 | ) | | | — | | | | — | | | | (49,587 | ) |
| Other goodwill adjustments (1) | | | (10,722 | ) | | | — | | | | — | | | | 84,020 | | | | (16,286 | ) | | | (647 | ) | | | 56,365 | |
| Balance, December 31, 2002 | | | 2,149,282 | | | | 32,547 | | | | 414,721 | | | | 1,195,321 | | | | 126,440 | | | | 339,821 | | | | 4,258,132 | |
| Goodwill from acquisitions during the year | | | — | | | | — | | | | — | | | | — | | | | — | | | | 26,648 | | | | 26,648 | |
| Other goodwill adjustments (1) | | | (10,059 | ) | | | 1,353 | | | | (35,573 | ) | | | 66,262 | | | | (132 | ) | | | (988 | ) | | | 20,863 | |
| Balance, December 31, 2003 | | $ | 2,139,223 | | | $ | 33,900 | | | $ | 379,148 | | | $ | 1,261,583 | | | $ | 126,308 | | | $ | 365,481 | | | $ | 4,305,643 | |
|
| (1) | Other goodwill adjustments include deferred tax, foreign currency translation, stock options and purchase price adjustments. |
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DEALER PROSPECTUS DELIVERY OBLIGATION
Until April 15, 2004, all dealers that effect transactions in these securities, whether or not participating in the offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
All tendered original series D notes, executed letters of transmittal, and other related documents should be directed to the exchange agent. Requests for assistance and for additional copies of this prospectus, the letter of transmittal and other related documents should be directed to the exchange agent.
EXCHANGE AGENT:
THE BANK OF NEW YORK
By Facsimile:
(212) 298-1915
Confirm by telephone:
(212) 815-5098
By Mail, Hand or Courier:
The Bank of New York
Corporate Trust Department
Reorganization Unit
101 Barclay Street
Floor 7 East
New York, New York 10286
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to the Registrant's directors and officers pursuant to the following provisions or otherwise, the Registrant has been advised that, although the validity and scope of the governing statute have not been tested in court, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In addition, indemnification may be limited by state securities laws.
Sections 490.850-490.859 of the Iowa Business Corporation Act permit corporations organized thereunder to indemnify directors, officers, employees and agents against liability under certain circumstances. The Restated Articles of Incorporation, as amended, and the Restated Bylaws, as amended, of MidAmerican Energy Holdings Company provide for indemnification of directors, officers and employees to the full extent provided by the Iowa Business Corporation Act. The Articles of Incorporation and the Bylaws state that the indemnification provided therein shall not be deemed exclusive. MidAmerican Energy Holdings Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of MidAmerican Energy Holdings Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not MidAmerican Energy Holdings Company would have the power to indemnify such person against such expense, liability or loss under the Iowa Business Corporation Act. Pursuant to Section 490.857 of the Iowa Business Corporation Act, the Articles of Incorporation and the Bylaws, MidAmerican Energy Holdings Company, through MidAmerican Energy Holdings Company, maintains directors' and officers' liability insurance coverage. MidAmerican Energy Holdings Company has also entered into indemnification agreements with certain directors and officers, and expects to enter into similar agreements with future directors and officers, to further assure such persons indemnification as permitted by Iowa law.
As permitted by Section 490.202 of the Iowa Business Corporation Act and Article XI.B. of the Articles of Incorporation, the Articles of Incorporation are deemed to provide that no director shall be personally liable to MidAmerican Energy Holdings Company or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for any of the following: (1) the amount of a financial benefit received by a director to which the director is not entitled; (2) an intentional infliction of harm on the corporation or the shareholders; (3) a violation of section 490.833 (relating to certain unlawful distributions to shareholders); or (4) an intentional violation of criminal law.
The Registrant's Amended and Restated Articles of Incorporation and Bylaws provides that if the proceeding for which indemnification is sought is by or in the right of the Registrant, indemnification may be made only for reasonable expenses and may not be made in any proceeding in which the person is adjudged liable to the Registrant. Further, any such person may not be indemnified in any proceeding that charges improper personal benefit to the person in which the person is adjudged to be liable.
The Registrant's Amended and Restated Articles of Incorporation and Bylaws allow the Registrant to maintain liability insurance to protect itself and any director, officer, employee, or agent against any expense, liability or loss whether or not the Registrant would have the power to indemnify such person against such incurred expense, liability, or loss.
The Registrant has also entered into indemnification agreements with certain directors and officers, and expects to enter into similar agreements with future directors and officers, to further assure such persons' indemnification as permitted by Iowa law.
The rights to indemnification conferred on any person by the Registrant's Amended and Restated Articles of Incorporation and Bylaws are not exclusive of any right which any person may have or acquire under any statute, provision of the Registrant's Amended and Restated Articles of Incorporation, Bylaws, agreement, or vote of shareholders or disinterested directors.
II-1
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
| | | | | | |
| Exhibit No. | | |
| | | | | |
| | 3.1 | | | Amended and Restated Articles of Incorporation of MEHC effective March 6, 2002 (incorporated by reference to Exhibit 3.3 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 3.2 | | | Bylaws of MEHC (incorporated by reference to Exhibit 3.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 4.1 | | | Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York (incorporated by reference to Exhibit 4.1 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.2 | | | First Supplemental Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.2 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.3 | | | Second Supplemental Indenture, dated May 16, 2003, by and between MEHC and the Bank of New York relating to the 3.50% Senior Notes due 2008 (incorporated by reference to Exhibit 4.3 of MEHC's Registration Statement No. 333-105690 dated May 30, 2003). |
| | 4.4 | | | Third Supplemental Indenture, dated February 12, 2004, by and between MEHC and the Bank of New York relating to the 5.00% Senior Notes due 2013.* |
| | 4.5 | | | Registration Rights Agreement, dated as of February 9, 2004, by and among MEHC, and Credit Suisse First Boston and Lehman Brothers Inc.* |
| | 4.6 | | | Indenture for the 6 ¼% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between MEHC, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995). |
| | 4.7 | | | Indenture, dated as of October 15, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated October 23, 1997). |
| | 4.8 | | | Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to MEHC's Current Report on Form 8-K dated October 23, 1997). |
| | 4.9 | | | Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated September 17, 1998.) |
| | 4.10 | | | Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to MEHC's Current Report on Form 8-K dated November 10, 1998). |
| | 4.11 | | | Indenture, dated as of March 14, 2000, among MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
|
II-2
| | | | | | |
| Exhibit No. | | |
| | 4.12 | | | Subscription Agreement, dated as of March 14, 2000, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.10 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 4.13 | | | Indenture, dated as of March 12, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.14 | | | Subscription Agreement, dated as of March 7, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.12 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.15 | | | Subscription Agreement, dated as of March 12, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.13 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.16 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002 (incorporated by reference to Exhibit 4.14 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.17 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002 (incorporated by reference to Exhibit 4.15 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.18 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.16 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.19 | | | Indenture, dated as of August 16, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.17 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.20 | | | Subscription Agreement, dated as of August 16, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.18 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.21 | | | Shareholders Agreement, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.19 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 5.1 | | | Opinion of Willkie Farr & Gallagher LLP.** |
| | 8.1 | | | Opinion of Willkie Farr & Gallagher LLP with respect to certain tax matters.** |
| | 10.1 | | | Employment Agreement between MEHC and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.2 | | | Amendment No. 1 to the Amended and Restated Employment Agreement between MEHC and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.3 | | | Non-Qualified Stock Options Agreements of David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.3 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.4 | | | Amended and Restated Employment Agreement between MEHC and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.5 | | | Non-Qualified Stock Options Agreements of Gregory E. Abel, dated March 14, 2000 (incorporated by reference to Exhibit 10.5 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.6 | | | Employment Agreement between MEHC and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
|
II-3
| | | | | | |
| Exhibit No. | | |
| | 10.7 | | | MidAmerican Energy Holdings Company, Amended and Restated Long Term Incentive Partnership Plan dated as of January 1, 2003 (incorporated by reference to Exhibit 10.1 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003). |
| | 10.8 | | | 125 MW Power Plant-Upper Mahiao Agreement, dated September 6, 1993, between PNOC- Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement, dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.9 | | | Credit Agreement, dated April 8, 1994, among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.10 | | | Credit Agreement, dated as of April 8, 1994, between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.11 | | | Pledge Agreement, dated as of April 8, 1994, among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.98 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.12 | | | Overseas Private Investment Corporation Contract of Insurance, dated April 8, 1994, between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.13 | | | 180 MW Power Plant-Mahanagdong Agreement, dated September 18, 1993, between PNOC- Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement, dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement, dated March 3, 1995 (incorporated by reference to Exhibit 10.1 00 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.14 | | | Credit Agreement, dated as of June 30, 1994, among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.15 | | | Credit Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.16 | | | Finance Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
|
II-4
| | | | | | |
| Exhibit No. | | |
| | 10.17 | | | Pledge Agreement, dated as of June 30, 1994, among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.18 | | | Overseas Private Investment Corporation Contract of Insurance, dated July 29, 1994, between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1, dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.19 | | | 231 MW Power Plant-Malitbog Agreement, dated September 10, 1993, between PNOC- Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto, dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.20 | | | Credit Agreement, dated as of November 10, 1994, among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.107 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.21 | | | Finance Agreement, dated as of November 10, 1994, between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.22 | | | Pledge and Security Agreement, dated as of November 10, 1994, among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.109 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.23 | | | Overseas Private Investment Corporation Contract of Insurance, dated December 21, 1994, between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to MEHC's Annual Report on Form10-K for the year ended December 31, 1993). |
| | 10.24 | | | Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994, between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to MEHC's 1994 Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.25 | | | Trust Indenture, dated as of November 27, 1995, between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). |
| | 10.26 | | | Amended and Restated Casecnan Project Agreement, dated June 26, 1995, between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). |
| | 10.27 | | | Term Loan and Revolving Facility Agreement, dated as of October 28, 1996, among CE Electric UK Holdings, CE Electric UK plc and Credit Suisse (incorporated by reference to Exhibit 10.130 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995). |
|
II-5
| | | | | | |
| Exhibit No. | | |
| | 10.28 | | | Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to MEHC's Annual Report on Form 10-K for the year ended December 31, 1998). |
| | 10.29 | | | General Mortgage Indenture and Deed of Trust, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.30 | | | First Supplemental Indenture, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-2 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.31 | | | Second Supplemental Indenture, dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-3 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.32 | | | Third Supplemental Indenture, dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4.4 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). |
| | 10.33 | | | Fourth Supplemental Indenture, dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.5 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.34 | | | Fifth Supplemental Indenture, dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.6 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.35 | | | Sixth Supplemental Indenture, dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505). |
| | 10.36 | | | Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947 (incorporated by reference to Exhibit 7B filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-6922). |
| | 10.37 | | | Sixth Supplemental Indenture, dated as of July 1, 1967 (incorporated by reference to Exhibit 2.08 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-28806). |
| | 10.38 | | | Twentieth Supplemental Indenture, dated as of May 1, 1982 (incorporated by reference to Exhibit 4.B.23 to the Iowa-Illinois Gas and Electric Company Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573). |
| | 10.39 | | | Resignation and Appointment of successor Individual Trustee (incorporated by reference to Exhibit 4.B.30 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No.33-39211). |
|
II-6
| | | | | | |
| Exhibit No. | | |
| | 10.40 | | | Twenty-Eighth Supplemental Indenture, dated as of May 15, 1992 (incorporated by reference to Exhibit 4.31.B to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573). |
| | 10.41 | | | Supplemental Agreement between CE Casecnan Water and Energy Company, Inc. and the Philippines National Irrigation Administration dated as of September 29, 2003 (incorporated by reference to Exhibit 10.41 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.42 | | | Thirtieth Supplemental Indenture, dated as of October 1, 1993 (incorporated by reference to Exhibit 4.34.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K, dated October 7, 1993, Commission File No. 1-3573). |
| | 10.43 | | | Thirty-First Supplemental Indenture, dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.16 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended dated December 31, 1995, Commission File No. 1-11505). |
| | 10.44 | | | Sixth Amendment to 180 MW Power Plant-Mahanagdong Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.44 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.45 | | | Third Amendment to 231 MW Power Plant-Malitbog Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and Visayas Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.45 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.46 | | | Seventh Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.46 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.47 | | | Fiscal Agency Agreement, dated as of October 15, 2002, between Northern Natural Gas Company and J.P. Morgan Trust Company, National Association, Fiscal Agent, relating to the $300,000,000 in principal amount of the 5.375% Senior Notes due 2012. (incorporated by reference to Exhibit 10.47 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.48 | | | Trust Indenture, dated as of August 13, 2001, among Kern River Funding Corporation, Kern River Gas Transmission Company and the JP Morgan Chase Bank, as Trustee, relating to the $510,000,000 in principal amount of the 6.676% Senior Notes due 2016. (incorporated by reference to Exhibit 10.48 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.49 | | | Third Supplemental Indenture, dated as of May 1, 2003, among Kern River Funding Corporation, Kern River Gas Transmission Company and JPMorgan Chase Bank, as Trustee, relating to the $836,000,000 in principal amount of the 4.893% Senior Notes due 2018. (incorporated by reference to Exhibit 10.49 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.50 | | | CalEnergy Company, Inc. Voluntary Deferred Compensation Plan, effective December 1, 1997, First Amendment, dated as of August 17, 1999, and Second Amendment effective March 2000 (incorporated by reference to Exhibit 10.50 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.51 | | | MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit 10.51 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
|
II-7
| | | | | | |
| Exhibit No. | | |
| | 10.52 | | | MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999 (incorporated by reference to Exhibit 10.52 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.53 | | | MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.54 | | | MidAmerican Energy Holdings Company Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10 to MEHC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). |
| | 10.55 | | | MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10.63 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.56 | | | Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). |
| | 10.57 | | | Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.24 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.58 | | | Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan for Designated Officers, as amended as of July 28, 1994 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-3573). |
| | 10.59 | | | Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Designated Officers, as amended as of July 1, 1993 (incorporated by reference to Exhibit 10.K.2 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573). |
| | 10.60 | | | Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Key Employees, dated as of April 26, 1991 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-3573). |
| | 10.61 | | | Iowa-Illinois Gas and Electric Company Board of Directors' Compensation Deferral Plan (incorporated by reference to Exhibit 10.K.4 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573). |
| | 10.62 | | | Iowa Utilities Board Settlement Agreement among MidAmerican Energy Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company, Interstate Power Company and IES Utilities, Inc. (incorporated by reference to Exhibit 10.16 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Annual Reports on the combined Form 10-K for the year ended December 31, 2000, Commission File Nos. 333-90553 and 1-11505, respectively). |
| | 10.63 | | | Share Sale Agreement, dated as of August 6, 2001, among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc (incorporated by reference to Exhibit 10.63 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
|
II-8
| | | | | | |
| Exhibit No. | | |
| | 10.64 | | | Purchase Agreement, dated as of March 7, 2002, among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and MEHC, KR Holding, LLC, KR Acquisition 1, LLC and KR Acquisition 2, LLC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated March 28, 2002). |
| | 10.65 | | | MidAmerican Energy Holdings Company Executive Incremental Profit Sharing Plan (incorporated by reference to Exhibit 10.2 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.) |
| | 10.67 | | | Purchase and Sale Agreement, dated as of July 28, 2002, between Dynegy Inc., NNGC Holding Company, Inc. and MEHC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated July 30, 2002). |
| | 12.1 | | | Statement regarding computation of ratio of earnings to fixed charges.* |
| | 14.1 | | | MidAmerican Energy Holdings Company Code of Ethics for Chief Executive Officer, Chief Financial Officer and Other Covered Officers (incorporated by reference to Exhibit 14.1 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 21.1 | | | Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 23.1 | | | Consent of Willkie Farr & Gallagher LLP (included in their opinions filed as Exhibit 5.1 and 8.1).** |
| | 23.2 | | | Consent of Deloitte & Touche LLP.** |
| | 24.1 | | | Power of Attorney.* |
| | 25.1 | | | Statement on Form T-1 of Eligibility of Trustee relating to the 5.00% Senior Notes due 2014.* |
| | 99.1 | | | Form of Letter of Transmittal relating to the 5.00% Senior Notes due 2014.* |
| | 99.2 | | | Form of Notice of Guaranteed Delivery relating to the 5.00% Senior Notes due 2014.* |
| | 99.3 | | | Form of Letter to Clients relating to the 5.00% Senior Notes due 2014.* |
| | 99.4 | | | Form of Letter to Nominees relating to the 5.00% Senior Notes due 2014.* |
|
* Previously filed.
** Filed herewith.
II-9
Item 22. Undertakings
The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by any such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
| |
| (1) | For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective |
| |
| (2) | For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Des Moines, State of Iowa, on the 5th day of March, 2004.
MIDAMERICAN ENERGY HOLDINGS COMPANY
By: /s/ Douglas L. Anderson
| Douglas L. Anderson
Senior Vice President and General Counsel |
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons, in the capacities and on the dates indicated.
| | | | |
| Signature | | Title | | Date |
|
| * | | Chairman of the Board of Directors,
Chief Executive Officer and Director
(principal executive officer) | | March 5, 2004 |
|
| David L. Sokol |
|
| * | | President, Chief Operating Officer and Director | | March 5, 2004 |
|
| Gregory E. Abel |
|
| * | | Senior Vice President and Chief
Financial Officer (principal financial
officer) | | March 5, 2004 |
|
| Patrick J. Goodman |
|
| * | | Director | | March 5, 2004 |
|
| Edgar D. Aronson |
|
| * | | Director | | March 5, 2004 |
|
| Stanley J. Bright |
|
| * | | Director | | March 5, 2004 |
|
| Walter Scott, Jr. |
|
| * | | Director | | March 5, 2004 |
|
| Marc D. Hamburg |
|
| * | | Director | | March 5, 2004 |
|
| Warren E. Buffett |
|
| * | | Director | | March 5, 2004 |
|
| John K. Boyer |
|
| * | | Director | | March 5, 2004 |
|
| W. David Scott |
|
| * | | Director | | March 5, 2004 |
|
| Richard R. Jaros |
|
II-11
Douglas L. Anderson, by signing his name below, signs this document on behalf of each of the above-named persons specified by an asterisk(*) pursuant to a power of attorney duly executed by such persons filed with the Securities and Exchange Commission in the Registrant's Registration Statement on Form S-4 on February 23, 2004.
/s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
II-12
| MidAmerican Energy Holdings Company | SCHEDULE I |
| Parent Company Only |
| Condensed Balance Sheets |
As of December 31, 2003 and 2002
(Amounts in thousands)
| | | | | | | | | | |
| | | 2003 | | 2002 |
| ASSETS | |
| Current assets — | |
| Cash and cash equivalents | | $ | 328,750 | | | $ | 320,629 | |
| Investments in and advances to subsidiaries and joint ventures | | | 5,728,125 | | | | 5,264,786 | |
| Equipment, net | | | 15,388 | | | | 15,984 | |
| Goodwill | | | 1,370,241 | | | | 1,381,009 | |
| Deferred charges and other assets | | | 180,331 | | | | 150,056 | |
| Total assets | | $ | 7,622,835 | | | $ | 7,132,464 | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| Current liabilities: | |
| Accounts payable and other accrued liabilities | | $ | 49,144 | | | $ | 94,389 | |
| Current portion of long-term debt | | | — | | | | 215,000 | |
| Current portion of subordinated debt | | | 100,000 | | | | — | |
| Total current liabilities | | | 149,144 | | | | 309,389 | |
| Non-current liabilities | | | 31,298 | | | | 11,885 | |
| Notes payable — affiliate | | | 86,045 | | | | 94,795 | |
| Senior debt | | | 2,777,878 | | | | 2,323,387 | |
| Subordinated debt | | | 1,772,146 | | | | — | |
| Total liabilities | | | 4,816,511 | | | | 2,739,456 | |
| Deferred income | | | 32,916 | | | | 35,313 | |
| Minority interest | | | 1,963 | | | | — | |
| Company-obligated mandatorily redeemable preferred securities of subsidiary trusts | | | — | | | | 2,063,412 | |
| Stockholders' equity: | |
| Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares outstanding at December 31, 2003 and 2002 | | | — | | | | — | |
| Common stock — authorized 60,000 shares, no par value; 9,281 shares outstanding at December 31, 2003 and 2002 | | | — | | | | — | |
| Additional paid in capital | | | 1,957,277 | | | | 1,956,509 | |
| Retained earnings | | | 999,627 | | | | 584,009 | |
| Accumulated other comprehensive loss, net | | | (185,459 | ) | | | (246,235 | ) |
| Total stockholders' equity | | | 2,771,445 | | | | 2,294,283 | |
| Total liabilities and stockholders' equity | | $ | 7,622,835 | | | $ | 7,132,464 | |
|
The notes to the consolidated financial statements are an integral part of this
financial statement schedule.
S-1
| MidAmerican Energy Holdings Company | SCHEDULE I |
| Parent Company Only (continued) |
| Condensed Statements of Operations |
For the three years ended December 31, 2003
(Amounts in thousands)
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Revenue: | |
| Equity in undistributed earnings of subsidiary companies and joint ventures | | $ | 785,072 | | | $ | 477,588 | | | $ | 608,896 | |
| Dividends and distributions from subsidiary companies and joint ventures | | | 318,665 | | | | 351,847 | | | | 87,625 | |
| Interest and other income | | | 19,808 | | | | 1,286 | | | | 2,248 | |
| Total revenue | | | 1,123,545 | | | | 830,721 | | | | 698,769 | |
| | |
| Costs and expenses: | |
| General and administration | | | 34,517 | | | | 29,368 | | | | 41,078 | |
| Depreciation and amortization | | | 710 | | | | 815 | | | | 31,537 | |
| Interest, net of capitalized interest | | | 251,578 | | | | 173,240 | | | | 148,680 | |
| Total costs and expenses | | | 286,805 | | | | 203,423 | | | | 221,295 | |
| Income before provision for income taxes | | | 836,740 | | | | 627,298 | | | | 477,474 | |
| Provision for income taxes | | | 250,971 | | | | 99,588 | | | | 250,064 | |
| Income before minority interest | | | 585,769 | | | | 527,710 | | | | 227,410 | |
| Minority interest and preferred dividends | | | 170,151 | | | | 147,667 | | | | 80,137 | |
| Income before and cumulative effect of change in accounting principle | | | 415,618 | | | | 380,043 | | | | 147,273 | |
| Cumulative effect of change in accounting principle, net of tax | | | — | | | | — | | | | (4,604 | ) |
| Net income available to common stockholders | | $ | 415,618 | | | $ | 380,043 | | | $ | 142,669 | |
|
The notes to the consolidated financial statements are an integral part of this
financial statement schedule.
S-2
| MidAmerican Energy Holdings Company | SCHEDULE I |
| Parent Company Only (continued) |
| Condensed Statements of Cash Flows |
For the three years ended December 31, 2003
(Amounts in thousands)
| | | | | | | | | | | | | | |
| | | 2003 | | 2002 | | 2001 |
| Cash flows from operating activities | | $ | (260,271 | ) | | $ | (188,300 | ) | | $ | (272,906 | ) |
| | |
| Cash flows from investing activities: | |
| Decrease (increase) in advances to and investments in subsidiaries and joint ventures | | | 205,206 | | | | (1,692,742 | ) | | | 204,118 | |
| Other, net | | | 30,995 | | | | 10,307 | | | | (5,297 | ) |
| Net cash flows from investing activities | | | 236,201 | | | | (1,682,435 | ) | | | 198,821 | |
| Cash flows from financing activities: | |
| Proceeds from issuance of common and preferred stock | | | — | | | | 402,000 | | | | — | |
| Proceeds from issuance of trust preferred securities | | | — | | | | 1,273,000 | | | | — | |
| Repayment of subordinated debt | | | (198,958 | ) | | | — | | | | — | |
| Proceeds from issuances of senior debt | | | 449,295 | | | | 700,000 | | | | — | |
| Repayments of senior debt | | | (215,000 | ) | | | — | | | | (32 | ) |
| Net (repayment of) proceeds from corporate revolving credit facility | | | — | | | | (153,500 | ) | | | 68,500 | |
| Other | | | (3,146 | ) | | | (32,660 | ) | | | (82 | ) |
| Net cash flows from financing activities | | | 32,191 | | | | 2,188,840 | | | | 68,386 | |
| Net change in cash and cash equivalents | | | 8,121 | | | | 318,105 | | | | (5,699 | ) |
| Cash and cash equivalents at beginning of year | | | 320,629 | | | | 2,524 | | | | 8,223 | |
| Cash and cash equivalents at end of year | | $ | 328,750 | | | $ | 320,629 | | | $ | 2,524 | |
| Supplemental disclosures: | |
| Interest paid, net of interest capitalized | | $ | 219,910 | | | $ | 164,267 | | | $ | 148,999 | |
| Income taxes paid | | $ | 9,911 | | | $ | 101,225 | | | $ | 133,139 | |
|
The notes to the consolidated financial statements are an integral part of this
financial statement schedule.
S-3
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2003
(Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C | | Column D | | Column E |
| Description | | Balance at
Beginning
of Year | | Additions | | Deductions | | Balance at
End
of Year |
Charged
to Income | | Other
Accounts | | Acquisition
Reserves(2) | |
Reserves Deducted From Assets
To Which They Apply: | |
| Reserve for uncollectible accounts receivable: | |
| Year ended 2003 | | $ | 39,742 | | | $ | 13,620 | | | $ | — | | | $ | — | | | $ | (27,358 | ) | | $ | 26,004 | |
| Year ended 2002 | | $ | 7,319 | | | $ | 27,782 | | | $ | — | | | $ | 10,142 | | | $ | (5,501 | ) | | $ | 39,742 | |
| Year ended 2001 | | $ | 32,685 | | | $ | 17,061 | | | $ | — | | | $ | — | | | $ | (42,427 | ) | | $ | 7,319 | |
| Reserves Not Deducted From Assets(1): | |
| Year ended 2003 | | $ | 10,981 | | | $ | 10,527 | | | $ | — | | | $ | — | | | $ | (4,091 | ) | | $ | 17,417 | |
| Year ended 2002 | | $ | 13,631 | | | $ | 2,798 | | | $ | 247 | | | $ | — | | | $ | (5,695 | ) | | $ | 10,981 | |
| Year ended 2001 | | $ | 25,063 | | | $ | 5,046 | | | $ | — | | | $ | — | | | $ | (16,478 | ) | | $ | 13,631 | |
|
| (1) | Reserves not deducted from assets include estimated liabilities for losses retained by MEHC for workers compensation, public liability and property damage claims. |
| (2) | Acquisition reserves represent the reserves recorded at Kern River and Northern Natural Gas at the date of acquisition. |
The notes to the consolidated financial statements are an integral part of this financial
statement schedule.
S-4
EXHIBIT INDEX
| | | | | | |
| Exhibit No. | | |
| | 3.1 | | | Amended and Restated Articles of Incorporation of MEHC effective March 6, 2002 (incorporated by reference to Exhibit 3.3 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 3.2 | | | Bylaws of MEHC (incorporated by reference to Exhibit 3.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 4.1 | | | Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.1 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.2 | | | First Supplemental Indenture, dated as of October 4, 2002, by and between MEHC and The Bank of New York (incorporated by reference to Exhibit 4.2 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.3 | | | Second Supplemental Indenture, dated May 16, 2003, by and between MEHC and the Bank of New York relating to the 3.50% Senior Notes due 2008 (incorporated by reference to Exhibit 4.3 of MEHC's Registration Statement No. 333-105690 dated May 30, 2003). |
| | 4.4 | | | Third Supplemental Indenture, dated February 12, 2004, by and between MEHC and the Bank of New York relating to the 5.00% Senior Notes due 2013. |
| | 4.5 | | | Registration Rights Agreement, dated as of February 9, 2004, by and among MEHC, and Credit Suisse First Boston and Lehman Brothers, Inc. |
| | 4.6 | | | Indenture for the 6 ¼% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between MEHC, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995). |
| | 4.7 | | | Indenture, dated as of October 15, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated October 23, 1997). |
| | 4.8 | | | Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to MEHC's Current Report on Form 8-K dated October 23, 1997). |
| | 4.9 | | | Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MEHC's Current Report on Form 8-K dated September 17, 1998.) |
| | 4.10 | | | Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between MEHC and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to MEHC's Current Report on Form 8-K dated November 10, 1998). |
| | 4.11 | | | Indenture, dated as of March 14, 2000, among MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
|
| | | | | | |
| Exhibit No. | | |
| | 4.12 | | | Subscription Agreement, dated as of March 14, 2000, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.10 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 4.13 | | | Indenture, dated as of March 12, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.14 | | | Subscription Agreement, dated as of March 7, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.12 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.15 | | | Subscription Agreement, dated as of March 12, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.13 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2001). |
| | 4.16 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002 (incorporated by reference to Exhibit 4.14 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.17 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002 (incorporated by reference to Exhibit 4.15 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.18 | | | Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.16 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.19 | | | Indenture, dated as of August 16, 2002, between MEHC and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.17 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.20 | | | Subscription Agreement, dated as of August 16, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.18 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 4.21 | | | Shareholders Agreement, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.19 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 5.1 | | | Opinion of Willkie Farr & Gallagher LLP.** |
| | 8.1 | | | Opinion of Willkie Farr & Gallagher LLP with respect to certain tax matters.** |
| | 10.1 | | | Employment Agreement between MEHC and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.2 | | | Amendment No. 1 to the Amended and Restated Employment Agreement between MEHC and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.3 | | | Non-Qualified Stock Options Agreements of David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.3 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.4 | | | Amended and Restated Employment Agreement between MEHC and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.5 | | | Non-Qualified Stock Options Agreements of Gregory E. Abel, dated March 14, 2000 (incorporated by reference to Exhibit 10.5 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
|
| | | | | | |
| Exhibit No. | | |
| | 10.6 | | | Employment Agreement between MEHC and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.7 | | | MidAmerican Energy Holdings Company, Amended and Restated Long Term Incentive Partnership Plan dated as of January 1, 2003 (incorporated by reference to Exhibit 10.1 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003). |
| | 10.8 | | | 125 MW Power Plant-Upper Mahiao Agreement, dated September 6, 1993, between PNOC-Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement, dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.9 | | | Credit Agreement, dated April 8, 1994, among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.10 | | | Credit Agreement, dated as of April 8, 1994, between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.11 | | | Pledge Agreement, dated as of April 8, 1994, among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.98 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.12 | | | Overseas Private Investment Corporation Contract of Insurance, dated April 8, 1994, between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.13 | | | 180 MW Power Plant-Mahanagdong Agreement, dated September 18, 1993, between PNOC- Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement, dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement, dated March 3, 1995 (incorporated by reference to Exhibit 10.1 00 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.14 | | | Credit Agreement, dated as of June 30, 1994, among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.15 | | | Credit Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.16 | | | Finance Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
|
| | | | | | |
| Exhibit No. | | |
| | 10.17 | | | Pledge Agreement, dated as of June 30, 1994, among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.18 | | | Overseas Private Investment Corporation Contract of Insurance, dated July 29, 1994, between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1, dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.19 | | | 231 MW Power Plant-Malitbog Agreement, dated September 10, 1993, between PNOC- Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto, dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.20 | | | Credit Agreement, dated as of November 10, 1994, among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.107 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.21 | | | Finance Agreement, dated as of November 10, 1994, between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.22 | | | Pledge and Security Agreement, dated as of November 10, 1994, among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.109 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.23 | | | Overseas Private Investment Corporation Contract of Insurance, dated December 21, 1994, between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to MEHC's Annual Report on Form10-K for the year ended December 31, 1993). |
| | 10.24 | | | Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994, between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to MEHC's 1994 Annual Report on Form 10-K for the year ended December 31, 1993). |
| | 10.25 | | | Trust Indenture, dated as of November 27, 1995, between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). |
| | 10.26 | | | Amended and Restated Casecnan Project Agreement, dated June 26, 1995, between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). |
| | 10.27 | | | Term Loan and Revolving Facility Agreement, dated as of October 28, 1996, among CE Electric UK Holdings, CE Electric UK plc and Credit Suisse (incorporated by reference to Exhibit 10.130 to MEHC's Annual Report on Form 10-K for the year ended December 31, 1995). |
|
| | | | | | |
| Exhibit No. | | |
| | 10.28 | | | Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to MEHC's Annual Report on Form 10-K for the year ended December 31, 1998). |
| | 10.29 | | | General Mortgage Indenture and Deed of Trust, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.30 | | | First Supplemental Indenture, dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-2 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.31 | | | Second Supplemental Indenture, dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-3 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). |
| | 10.32 | | | Third Supplemental Indenture, dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4.4 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). |
| | 10.33 | | | Fourth Supplemental Indenture, dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.5 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.34 | | | Fifth Supplemental Indenture, dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.6 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.35 | | | Sixth Supplemental Indenture, dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505). |
| | 10.36 | | | Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947 (incorporated by reference to Exhibit 7B filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-6922). |
| | 10.37 | | | Sixth Supplemental Indenture, dated as of July 1, 1967 (incorporated by reference to Exhibit 2.08 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-28806). |
| | 10.38 | | | Twentieth Supplemental Indenture, dated as of May 1, 1982 (incorporated by reference to Exhibit 4.B.23 to the Iowa-Illinois Gas and Electric Company Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573). |
| | 10.39 | | | Resignation and Appointment of successor Individual Trustee (incorporated by reference to Exhibit 4.B.30 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 33-39211). |
| | 10.40 | | | Twenty-Eighth Supplemental Indenture, dated as of May 15, 1992 (incorporated by reference to Exhibit 4.31.B to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573). |
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| Exhibit No. | | |
| | 10.41 | | | Supplemental Agreement between CE Casecnan Water and Energy Company, Inc. and the Philippines National Irrigation Administration dated as of September 29, 2003 (incorporated by reference to Exhibit 10.41 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.42 | | | Thirtieth Supplemental Indenture, dated as of October 1, 1993 (incorporated by reference to Exhibit 4.34.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K, dated October 7, 1993, Commission File No. 1-3573). |
| | 10.43 | | | Thirty-First Supplemental Indenture, dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.16 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended dated December 31, 1995, Commission File No. 1-11505). |
| | 10.44 | | | Sixth Amendment to 180 MW Power Plant-Mahanagdong Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.44 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.45 | | | Third Amendment to 231 MW Power Plant-Malitbog Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and Visayas Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.45 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.46 | | | Seventh Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.46 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.47 | | | Fiscal Agency Agreement, dated as of October 15, 2002, between Northern Natural Gas Company and J.P. Morgan Trust Company, National Association, Fiscal Agent, relating to the $300,000,000 in principal amount of the 5.375% Senior Notes due 2012. (incorporated by reference to Exhibit 10.47 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.48 | | | Trust Indenture, dated as of August 13, 2001, among Kern River Funding Corporation, Kern River Gas Transmission Company and the JP Morgan Chase Bank, as Trustee, relating to the $510,000,000 in principal amount of the 6.676% Senior Notes due 2016. (incorporated by reference to Exhibit 10.48 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.49 | | | Third Supplemental Indenture, dated as of May 1, 2003, among Kern River Funding Corporation, Kern River Gas Transmission Company and JPMorgan Chase Bank, as Trustee, relating to the $836,000,000 in principal amount of the 4.893% Senior Notes due 2018. (incorporated by reference to Exhibit 10.49 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 10.50 | | | CalEnergy Company, Inc. Voluntary Deferred Compensation Plan, effective December 1, 1997, First Amendment, dated as of August 17, 1999, and Second Amendment effective March 2000 (incorporated by reference to Exhibit 10.50 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.51 | | | MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit 10.51 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.52 | | | MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999 (incorporated by reference to Exhibit 10.52 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
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| Exhibit No. | | |
| | 10.53 | | | MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.54 | | | MidAmerican Energy Holdings Company Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10 to MEHC's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). |
| | 10.55 | | | MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10.63 to MEHC's Annual Report on Form 10-K/A for the year ended December 31, 1999). |
| | 10.56 | | | Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). |
| | 10.57 | | | Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.24 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). |
| | 10.58 | | | Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan for Designated Officers, as amended as of July 28, 1994 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-3573). |
| | 10.59 | | | Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Designated Officers, as amended as of July 1, 1993 (incorporated by reference to Exhibit 10.K.2 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573). |
| | 10.60 | | | Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Key Employees, dated as of April 26, 1991 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-3573). |
| | 10.61 | | | Iowa-Illinois Gas and Electric Company Board of Directors' Compensation Deferral Plan (incorporated by reference to Exhibit 10.K.4 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573). |
| | 10.62 | | | Iowa Utilities Board Settlement Agreement among MidAmerican Energy Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company, Interstate Power Company and IES Utilities, Inc. (incorporated by reference to Exhibit 10.16 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Annual Reports on the combined Form 10-K for the year ended December 31, 2000, Commission File Nos. 333-90553 and 1-11505, respectively). |
| | 10.63 | | | Share Sale Agreement, dated as of August 6, 2001, among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc (incorporated by reference to Exhibit 10.63 of MEHC's Registration Statement No. 333-101699 dated December 6, 2002). |
| | 10.64 | | | Purchase Agreement, dated as of March 7, 2002, among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and MEHC, KR Holding, LLC, KR Acquisition 1, LLC and KR Acquisition 2, LLC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated March 28, 2002). |
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| Exhibit No. | | |
| | 10.65 | | | MidAmerican Energy Holdings Company Executive Incremental Profit Sharing Plan (incorporated by reference to Exhibit 10.2 of MEHC's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.) |
| | 10.67 | | | Purchase and Sale Agreement, dated as of July 28, 2002, between Dynegy Inc., NNGC Holding Company, Inc. and MEHC (incorporated by reference to Exhibit 99.2 to MEHC's Current Report on Form 8-K dated July 30, 2002). |
| | 12.1 | | | Statement regarding computation of ratio of earnings to fixed charges.* |
| | 14.1 | | | MidAmerican Energy Holdings Company Code of Ethics for Chief Executive Officer, Chief Financial Officer and Other Covered Officers (incorporated by reference to Exhibit 14.1 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 21.1 | | | Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to MEHC's Annual Report on Form 10-K for the year ended December 31, 2003). |
| | 23.1 | | | Consent of Willkie Farr & Gallagher LLP (included in their opinions filed as Exhibit 5.1 and 8.1).** |
| | 23.2 | | | Consent of Deloitte & Touche LLP.** |
| | 24.1 | | | Power of Attorney.* |
| | 25.1 | | | Statement on Form T-1 of Eligibility of Trustee relating to the 5.00% Senior Notes due 2014.* |
| | 99.1 | | | Form of Letter of Transmittal relating to the 5.00% Senior Notes due 2014.* |
| | 99.2 | | | Form of Notice of Guaranteed Delivery relating to the 5.00% Senior Notes due 2014.* |
| | 99.3 | | | Form of Letter to Clients relating to the 5.00% Senior Notes due 2014.* |
| | 99.4 | | | Form of Letter to Nominees relating to the 5.00% Senior Notes due 2014.* |
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