Iowa | 94-2213782 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
666 Grand Avenue, Des Moines, Iowa | 50309 | |
(Address of principal executive offices) | (Zip Code) | |
(515) 242-4300 | ||
(Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act: N/A | ||
Securities registered pursuant to Section 12(g) of the Act: N/A |
Item 1. | Financial Statements | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35 |
Item 4. | Controls and Procedures | 35 |
PART II - OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 36 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
Item 3. | Defaults Upon Senior Securities | 36 |
Item 4. | Submission of Matters to a Vote of Security Holders | 36 |
Item 5. | Other Information | 36 |
Item 6. | Exhibits | 36 |
Signatures | 37 | |
Exhibit Index | 38 |
2
As of | |||||||
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 975,762 | $ | 660,213 | |||
Restricted cash and short-term investments | 124,634 | 55,281 | |||||
Accounts receivable, net | 553,273 | 666,063 | |||||
Inventories | 135,426 | 123,301 | |||||
Other current assets | 264,829 | 371,855 | |||||
Total current assets | 2,053,924 | 1,876,713 | |||||
Properties, plants and equipment, net | 11,087,205 | 11,180,979 | |||||
Goodwill | 4,267,914 | 4,305,643 | |||||
Regulatory assets | 482,925 | 512,549 | |||||
Other investments | 235,481 | 228,896 | |||||
Equity investments | 243,176 | 234,370 | |||||
Deferred charges and other assets | 857,262 | 829,039 | |||||
Total assets | $ | 19,227,887 | $ | 19,168,189 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 321,340 | $ | 345,237 | |||
Accrued interest | 217,851 | 189,635 | |||||
Accrued property and other taxes | 141,623 | 112,823 | |||||
Other liabilities | 542,054 | 443,531 | |||||
Short-term debt | 7,691 | 48,036 | |||||
Current portion of long-term debt | 1,054,322 | 500,941 | |||||
Current portion of parent company subordinated debt | 121,533 | 100,000 | |||||
Total current liabilities | 2,406,414 | 1,740,203 | |||||
Other long-term accrued liabilities | 2,020,163 | 1,827,633 | |||||
Parent company senior debt | 2,770,842 | 2,777,878 | |||||
Parent company subordinated debt | 1,652,271 | 1,772,146 | |||||
Subsidiary and project debt | 6,115,117 | 6,674,640 | |||||
Deferred income taxes | 1,344,726 | 1,433,144 | |||||
Total liabilities | 16,309,533 | 16,225,644 | |||||
Deferred income | 67,845 | 69,201 | |||||
Minority interest | 12,893 | 9,754 | |||||
Preferred securities of subsidiaries | 89,834 | 92,145 | |||||
Commitments and contingencies (Note 8) | |||||||
Stockholders' equity: | |||||||
Zero-coupon convertible preferred stock - authorized 50,000 shares, no par value, 41,263 shares issued and outstanding | - | - | |||||
Common stock - authorized 60,000 shares, no par value, 9,081 and 9,281 shares issuedand outstanding at September 30, 2004, and December 31, 2003, respectively | - | - | |||||
Additional paid-in capital | 1,951,094 | 1,957,277 | |||||
Retained earnings | 970,657 | 999,627 | |||||
Accumulated other comprehensive loss, net | (173,969 | ) | (185,459 | ) | |||
Total stockholders' equity | 2,747,782 | 2,771,445 | |||||
Total liabilities and stockholders' equity | $ | 19,227,887 | $ | 19,168,189 |
Three Months | Nine Months | ||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
(Unaudited) | |||||||||||||
Revenues: | |||||||||||||
Operating revenue | $ | 1,534,057 | $ | 1,474,453 | $ | 4,858,826 | $ | 4,400,778 | |||||
Income on equity investments | 18,792 | 19,385 | 28,083 | 40,386 | |||||||||
Interest and dividend income | 11,066 | 6,746 | 25,528 | 39,930 | |||||||||
Other income | 13,217 | 6,378 | 44,514 | 53,302 | |||||||||
Total revenue | 1,577,132 | 1,506,962 | 4,956,951 | 4,534,396 | |||||||||
Costs and expenses: | |||||||||||||
Cost of sales | 591,370 | 558,869 | 2,020,132 | 1,761,686 | |||||||||
Operating expense | 409,048 | 399,118 | 1,216,493 | 1,123,249 | |||||||||
Depreciation and amortization | 165,058 | 133,835 | 496,354 | 433,859 | |||||||||
Interest expense | 225,021 | 174,238 | 677,825 | 538,685 | |||||||||
Less interest capitalized | (7,139 | ) | (2,921 | ) | (16,041 | ) | (26,080 | ) | |||||
Total costs and expenses | 1,383,358 | 1,263,139 | 4,394,763 | 3,831,399 | |||||||||
Income from continuing operations before provision for income taxes | 193,774 | 243,823 | 562,188 | 702,997 | |||||||||
Provision for income taxes | 63,840 | 70,074 | 202,127 | 184,195 | |||||||||
Income from continuing operations before minority interest and preferred dividends | 129,934 | 173,749 | 360,061 | 518,802 | |||||||||
Minority interest and preferred dividends | 3,837 | 57,962 | 9,865 | 179,868 | |||||||||
Income from continuing operations | 126,097 | 115,787 | 350,196 | 338,934 | |||||||||
Loss from discontinued operations, net of tax benefits (Note 3) | (346,723 | ) | (6,057 | ) | (366,176 | ) | (18,627 | ) | |||||
Net income (loss) available to common and preferred stockholders | $ | (220,626 | ) | $ | 109,730 | $ | (15,980 | ) | $ | 320,307 |
Nine Months | |||||||
Ended September 30, | |||||||
2004 | 2003 | ||||||
(Unaudited) | |||||||
Cash flows from operating activities: | |||||||
Income from continuing operations | $ | 350,196 | $ | 338,934 | |||
Adjustments to reconcile income from continuing operations to cash flows from continuing operations: | |||||||
Distributions less income on equity investments | (13,011 | ) | 9,214 | ||||
Gain on other items | (3,886 | ) | (12,981 | ) | |||
Depreciation and amortization | 496,354 | 433,859 | |||||
Amortization of regulatory assets and liabilities and other | (7,188 | ) | (8,781 | ) | |||
Amortization of deferred financing costs | 15,589 | 22,646 | |||||
Provision for deferred income taxes | 151,751 | 184,383 | |||||
Other | 30,798 | 32,967 | |||||
Changes in other items: | |||||||
Accounts receivable and other current assets | 101,675 | 126,222 | |||||
Accounts payable and other accrued liabilities | 129,328 | (82,499 | ) | ||||
Deferred income | (862 | ) | (7,775 | ) | |||
Net cash flows from continuing operations | 1,250,744 | 1,036,189 | |||||
Net cash flows from discontinued operations | (28,991 | ) | (22,916 | ) | |||
Net cash flows from operating activities | 1,221,753 | 1,013,273 | |||||
Cash flows from investing activities: | |||||||
Acquisitions, net of cash acquired | (37,283 | ) | (50,893 | ) | |||
Proceeds from note receivable | 97,000 | - | |||||
Proceeds from (purchase of) affiliate notes | 12,041 | (35,029 | ) | ||||
Capital expenditures relating to operating projects | (524,836 | ) | (440,841 | ) | |||
Construction and other development costs | (271,602 | ) | (435,413 | ) | |||
Liquidated damages received, net of amounts accrued | 18,900 | - | |||||
Sale of convertible preferred securities | - | 288,750 | |||||
Other | 65,924 | (38,173 | ) | ||||
Net cash flows from continuing operations | (639,856 | ) | (711,599 | ) | |||
Net cash flows from discontinued operations | 966 | (10,269 | ) | ||||
Net cash flows from investing activities | (638,890 | ) | (721,868 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from subsidiary and project debt | 21,002 | 1,148,719 | |||||
Proceeds from parent company senior debt | 249,765 | 449,295 | |||||
Repayments of subsidiary and project debt | (185,666 | ) | (1,389,872 | ) | |||
Repayments of parent company debt and preferred securities of subsidiary trusts | (100,000 | ) | (413,255 | ) | |||
Net repayment of subsidiary short-term debt | (45,347 | ) | (79,750 | ) | |||
Purchase and retirement of common stock | (20,000 | ) | - | ||||
Increase in restricted cash and investments | (43,849 | ) | (35,974 | ) | |||
Redemption of preferred securities of subsidiaries | (2,312 | ) | (882 | ) | |||
Other | (5,817 | ) | (72,537 | ) | |||
Net cash flows from continuing operations | (132,224 | ) | (394,256 | ) | |||
Net cash flows from discontinued operations | (136,505 | ) | (703 | ) | |||
Net cash flows from financing activities | (268,729 | ) | (394,959 | ) | |||
Effect of exchange rate changes | 1,415 | 13,540 | |||||
Net change in cash and cash equivalents | 315,549 | (90,014 | ) | ||||
Cash and cash equivalents at beginning of period | 660,213 | 844,430 | |||||
Cash and cash equivalents at end of period | $ | 975,762 | $ | 754,416 | |||
Supplemental Disclosure: | |||||||
Interest paid, net of interest capitalized | $ | 627,751 | $ | 489,051 | |||
Income taxes (refunded) paid | $ | (32,877 | ) | $ | 7,376 |
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Total revenue | $ | 564 | $ | 184 | $ | 2,509 | $ | 384 | |||||
Losses from discontinued operations | $ | (9,840 | ) | $ | (10,222 | ) | $ | (42,695 | ) | $ | (31,443 | ) | |
Costs of disposal activities | (1,019 | ) | - | (1,019 | ) | - | |||||||
Asset impairment charges, including goodwill | (532,009 | ) | - | (532,009 | ) | - | |||||||
Income tax benefits | 196,145 | 4,165 | 209,547 | 12,816 | |||||||||
Loss from discontinued operations, net of tax | $ | (346,723 | ) | $ | (6,057 | ) | $ | (366,176 | ) | $ | (18,627 | ) |
8
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
Utility generation and distribution systems | $ | 9,377,851 | $ | 8,987,158 | |||
Interstate pipelines’ assets | 3,517,526 | 3,470,117 | |||||
Independent power plants | 1,375,691 | 1,395,782 | |||||
Mineral and gas reserves and exploration assets | 98,559 | 554,780 | |||||
Utility non-operational assets | 424,443 | 429,228 | |||||
Other assets | 176,025 | 146,286 | |||||
Total operating assets | 14,970,095 | 14,983,351 | |||||
Accumulated depreciation and amortization | (4,639,107 | ) | (4,260,643 | ) | |||
Net operating assets | 10,330,988 | 10,722,708 | |||||
Construction in progress | 756,217 | 458,271 | |||||
Properties, plants and equipment, net | $ | 11,087,205 | $ | 11,180,979 |
· | the actual operating costs of each of the licensees; |
· | the operating costs which each of the licensees would incur if it were as efficient as, in Ofgem's judgment, the mostefficient licensee; |
· | the regulatory value to be ascribed to each of the licensees' distribution network assets; |
· | the allowance for depreciation of the distribution network assets of each of the licensees; |
· | the rate of return to be allowed on investment in the distribution network assets by all licensees; and |
· | the financial ratios of each of the licensees and the license requirement for each licensee to maintain an investment grade status. |
CalEnergy Generation-Foreign
Three Months | Nine Months | ||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Net income (loss) | $ | (220,626 | ) | $ | 109,730 | $ | (15,980 | ) | $ | 320,307 | |||
Other comprehensive income (loss): | |||||||||||||
Foreign currency translation | (2,427 | ) | 4,603 | 15,860 | (23,026 | ) | |||||||
Marketable securities, net of tax of $(161); $160; $(363) and $382, respectively | (242 | ) | 240 | (545 | ) | 565 | |||||||
Cash flow hedges, net of tax of $(802); $(1,367); $(2,224) and $5,048, respectively | (1,621 | ) | (3,245 | ) | (3,825 | ) | 11,414 | ||||||
Total comprehensive income (loss) | $ | (224,916 | ) | $ | 111,328 | $ | (4,490 | ) | $ | 309,260 |
Three Months | Nine Months | ||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Pension: | |||||||||||||
Service cost | $ | 6,312 | $ | 5,610 | $ | 19,256 | $ | 19,121 | |||||
Interest cost | 8,696 | 7,956 | 26,463 | 26,621 | |||||||||
Expected return on plan assets | (9,444 | ) | (8,707 | ) | (28,816 | ) | (29,749 | ) | |||||
Amortization of net transition balance | (196 | ) | (588 | ) | (597 | ) | (2,008 | ) | |||||
Amortization of prior service cost | 690 | 684 | 2,070 | 2,076 | |||||||||
Amortization of prior year loss | 392 | 374 | 1,177 | 1,112 | |||||||||
Regulatory expense | - | 753 | - | 2,573 | |||||||||
Net periodic cost | $ | 6,450 | $ | 6,082 | $ | 19,553 | $ | 19,746 |
Postretirement: | |||||||||||||
Service cost | $ | 1,992 | $ | 1,880 | $ | 6,057 | $ | 5,775 | |||||
Interest cost | 3,992 | 3,694 | 12,139 | 11,348 | |||||||||
Expected return on plan assets | (2,143 | ) | (1,382 | ) | (6,517 | ) | (4,244 | ) | |||||
Amortization of net transition balance | 834 | 945 | 2,536 | 2,904 | |||||||||
Amortization of prior service cost | 75 | 136 | 229 | 418 | |||||||||
Amortization of prior year loss | 838 | 855 | 2,547 | 2,625 | |||||||||
Net periodic cost | $ | 5,588 | $ | 6,128 | $ | 16,991 | $ | 18,826 |
Three Months | Nine Months | ||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Service cost | $ | 3,003 | $ | 2,589 | $ | 9,030 | $ | 7,767 | |||||
Interest cost | 18,247 | 17,095 | 54,864 | 51,285 | |||||||||
Expected return on plan assets | (24,436 | ) | (24,326 | ) | (73,472 | ) | (72,978 | ) | |||||
Amortization of prior service cost | 409 | 402 | 1,231 | 1,206 | |||||||||
Amortization of prior year loss | 4,186 | 491 | 12,587 | 1,473 | |||||||||
Net periodic (benefit) cost | $ | 1,409 | $ | (3,749 | ) | $ | 4,240 | $ | (11,247 | ) |
Three Months | Nine Months | ||||||||||||
Ended September 30, | Ended September 30, | ||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||
Operating revenue: | |||||||||||||
MidAmerican Energy | $ | 566,447 | $ | 577,281 | $ | 1,982,915 | $ | 1,929,637 | |||||
Kern River | 82,139 | 78,793 | 236,126 | 182,267 | |||||||||
Northern Natural Gas | 85,999 | 78,281 | 383,443 | 336,395 | |||||||||
CE Electric UK | 216,109 | 188,143 | 694,926 | 602,334 | |||||||||
CalEnergy Generation-Domestic | 9,414 | 12,098 | 31,132 | 34,118 | |||||||||
CalEnergy Generation-Foreign | 85,078 | 89,245 | 224,007 | 246,137 | |||||||||
HomeServices | 496,088 | 459,007 | 1,343,580 | 1,112,627 | |||||||||
Segment operating revenue | 1,541,274 | 1,482,848 | 4,896,129 | 4,443,515 | |||||||||
Corporate/other(1) | (7,217 | ) | (8,395 | ) | (37,303 | ) | (42,737 | ) | |||||
Total operating revenue | $ | 1,534,057 | $ | 1,474,453 | $ | 4,858,826 | $ | 4,400,778 | |||||
Interest expense: | |||||||||||||
MidAmerican Energy | $ | 30,384 | $ | 31,178 | $ | 92,488 | $ | 94,383 | |||||
Kern River | 19,074 | 19,959 | 57,830 | 59,569 | |||||||||
Northern Natural Gas | 13,306 | 13,049 | 39,676 | 43,297 | |||||||||
CE Electric UK | 50,776 | 37,362 | 149,198 | 134,036 | |||||||||
CalEnergy Generation-Domestic | 4,725 | 4,911 | 14,339 | 14,914 | |||||||||
CalEnergy Generation-Foreign | 10,703 | 15,067 | 33,318 | 46,432 | |||||||||
HomeServices | 822 | 1,048 | 2,456 | 3,340 | |||||||||
Segment interest expense | 129,790 | 122,574 | 389,305 | 395,971 | |||||||||
Corporate/other(1) | 46,026 | 51,664 | 139,027 | 142,714 | |||||||||
Parent company subordinated debt(2) | 49,205 | - | 149,493 | - | |||||||||
Total interest expense | $ | 225,021 | $ | 174,238 | $ | 677,825 | $ | 538,685 | |||||
Income (loss) from continuing operations before provision for income taxes: | |||||||||||||
MidAmerican Energy | $ | 95,429 | $ | 104,151 | $ | 219,039 | $ | 240,243 | |||||
Kern River | 35,182 | 36,234 | 111,439 | 98,367 | |||||||||
Northern Natural Gas | 201 | (4,517 | ) | 86,396 | 69,308 | ||||||||
CE Electric UK | 63,757 | 59,134 | 231,132 | 203,820 | |||||||||
CalEnergy Generation-Domestic | 15,103 | 15,334 | 17,964 | 29,938 | |||||||||
CalEnergy Generation-Foreign | 49,565 | 37,738 | 117,396 | 107,813 | |||||||||
HomeServices | 44,666 | 44,409 | 106,298 | 90,896 | |||||||||
Segment income from continuing operations before provision for income taxes | 303,903 | 292,483 | 889,664 | 840,385 | |||||||||
Corporate/other(1) (2) | (110,129 | ) | (48,660 | ) | (327,476 | ) | (137,388 | ) | |||||
Total income from continuing operations before provision for income taxes | $ | 193,774 | $ | 243,823 | $ | 562,188 | $ | 702,997 |
September 30, | December 31, | ||||||
2004 | 2003 | ||||||
Identifiable assets: | |||||||
MidAmerican Energy | $ | 6,868,693 | $ | 6,596,849 | |||
Kern River | 2,185,365 | 2,200,201 | |||||
Northern Natural Gas | 2,191,539 | 2,167,621 | |||||
CE Electric UK | 5,466,818 | 5,003,922 | |||||
CalEnergy Generation-Domestic | 576,037 | 1,093,214 | |||||
CalEnergy Generation-Foreign | 799,040 | 951,155 | |||||
HomeServices | 745,043 | 567,736 | |||||
Segment identifiable assets | 18,832,535 | 18,580,698 | |||||
Corporate/other(1) | 395,352 | 587,491 | |||||
Total identifiable assets | $ | 19,227,887 | $ | 19,168,189 |
(1) | The remaining differences from the segment amounts to the consolidated amounts described as “Corporate/other” relate principally to the corporate functions including administrative costs, interest expense, corporate cash and related interest income and intersegment eliminations. |
(2) | The Company adopted and applied the provisions of FIN 46R related to certain finance subsidiaries as of October 1, 2003. The adoption required amounts previously recorded in minority interest and preferred dividends to be recorded as interest expense in the accompanying consolidated statements of operations. For the three-month and nine-month periods ended September 30, 2004, the Company has recorded $49.2 million and $149.5 million, respectively, of interest expense related to these finance subsidiaries. In accordance with the requirements of FIN 46R, no amounts prior to adoption on October 1, 2003 have been reclassified. The related amounts included in minority interest and preferred dividends for the three-month and nine-month periods ended September 30, 2003 were $54.1 million and $170.2 million, respectively . |
Northern | CE | CalEnergy | ||||||||||||||||||||
MidAmerican | Kern | Natural | Electric | Generation | Home- | |||||||||||||||||
Energy | River | Gas | UK | Domestic | Services | Total | ||||||||||||||||
Goodwill at January 1, 2004 | $ | 2,139,223 | $ | 33,900 | $ | 379,148 | $ | 1,261,583 | $ | 126,308 | $ | 365,481 | $ | 4,305,643 | ||||||||
Goodwill from acquisitions during the year | - | - | - | - | - | 31,656 | 31,656 | |||||||||||||||
Impairment losses(1) | - | - | - | - | (52,776 | ) | - | (52,776 | ) | |||||||||||||
Other goodwill adjustments(2) | (8,978 | ) | - | (17,754 | ) | 12,879 | (405 | ) | (2,351 | ) | (16,609 | ) | ||||||||||
Goodwill at September 30, 2004 | $ | 2,130,245 | $ | 33,900 | $ | 361,394 | $ | 1,274,462 | $ | 73,127 | $ | 394,786 | $ | 4,267,914 |
(1) | Impairment losses relate to ceasing operations of the Mineral Assets - see Note 3. |
(2) | Other goodwill adjustments include income tax, foreign currency translation and purchase price adjustments. |
· | On September 10, 2004, management made the decision to cease operations of the facilities installed near the geothermal energy generation facilities located in the Imperial Valley of California designed to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process (the “Zinc Recovery Project”), effective immediately. The Zinc Recovery Project began limited production during December 2002. Based on this decision, MEHC has recorded a non-cash, after-tax impairment charge of $340.3 million to write-off the Zinc Recovery Project, rights to quantities of extractable minerals, and allocated goodwill (collectively, the “Mineral Assets”). |
· | HomeServices separately acquired a number of real estate companies throughout 2003 and 2004, with the two most significant being in July 2003 and April 2004. These acquisitions, along with the increase in activity at existing locations for the nine-month period ended September 30, 2004, and higher home prices overall, have spurred growth for this platform. |
· | Both Kern River and Northern Natural Gas have filed for rate increases with the Federal Energy Regulatory Commission (“FERC”) and have hearings scheduled in 2005. New rates for Northern Natural Gas’ May 2003 rate case went into effect on November 1, 2003, subject to refund. Northern Natural Gas has filed a motion with the FERC to place the January 2004 rate case increase into effect on November 1, 2004. The FERC has suspended Kern River’s rate increase until November 1, 2004. Additionally, the Office of Gas and Electricity Markets (“Ofgem”) is nearing completion of the process of reviewing the existing price control formula for NED and YED. It is expected that Ofgem will issue final proposals setting forth a new price control formula on November 29, 2004. NED and YED will have until December 22, 2004 to accept or rejec t the proposal, which if accepted, will be effective from April 1, 2005. |
· | In May 2003, Kern River completed a 717 mile expansion of its pipeline system (“Kern River 2003 Expansion Project”), which increased the design capacity of the system by 885,626 decatherms (“Dth”) per day to 1,755,626 Dth per day. As of September 30, 2004, Kern River had contracted1,665,575Dth per day of capacity under long-term firm gas transportation agreements. Mirant Americas Energy Marketing (“Mirant”), one of the shippers that entered into a 15-year firm gas transportation agreement related to the expansion, filed for bankruptcy in July 2003 and in December 2003 rejected the agreement pursuant to procedures under the bankruptcy code. In May 2004, Kern River was awarded $14.8 million, an amount equal to its cash collateral held, pursuant to the secured portion of its proof of claim. |
· | CalEnergy Generation-Foreign reached an arbitration settlement with the National Irrigation Administration (“NIA”) effective during the fourth quarter of 2003. As part of the settlement at CE Casecnan Water and Energy Company, Inc. (“CE Casecnan”), NIA paid the Company $17.7 million plus Philippines pesos of 39.9 million (approximately $0.7 million) and delivered a Republic of the Philippines (“ROP”) $97.0 million 8.375% Note due in 2013. In January 2004, the Company exercised its right to put the note and received $99.2 million (representing par plus accrued interest) from the ROP. In exchange, the Company agreed to modify certain provisions of the project agreement, the most significant being the elimination of the tax compensation portion of the water delivery fee and modification of the threshold volume of water used to calculate the guaranteed water delivery fee. |
· | MidAmerican Energy is currently constructing three electric generation projects in Iowa and expects to investapproximately $1.4 billion in the projects through 2007, of which approximately $541 million has been invested through September 30, 2004. On October 4, 2004, the President signed into law legislation that extends the Federal production tax credit to electricity produced by wind energy facilities placed into service prior to January 1, 2006. Accordingly, MidAmerican Energy has begun construction on its $323 million wind power project, one of the three projects in progress. |
· | On October 1, 2004, MidAmerican Energy issued $350 million of 4.65% medium-term notes due October 1, 2014. The proceeds will be used by MidAmerican Energy for general corporate purposes. |
· | CE Electric UK operates mainly in Great Britain and the majority of its transactions are in Pounds Sterling. The weighted average ratio of U.S. Dollars to Pounds Sterling was 1.82 during each of the three-month and nine-month periods ended September 30, 2004, as compared to 1.61 during each of the three-month and nine-month periods ended September 30, 2003, which continues to produce positive revenue and profit comparisons on a year over year basis. |
· | In February 2004, the Company completed the sale of $250 million of its 5.00% Senior Notes due February 15, 2014. The proceeds were used to satisfy a demand made by its affiliate, Salton Sea Funding Corporation (“Funding Corporation”), for the amount remaining on the Company’s guarantee of Funding Corporation’s 7.475% Senior Secured Series F Bonds (“Series F Bonds”) and for other general corporate purposes. On March 1, 2004, Funding Corporation completed the redemption of an aggregate principal amount of approximately $136.4 million of its Series F Bonds. |
21
Three Months | ||||||||||
Ended September 30, | ||||||||||
2004 | 2003 | $ Change | ||||||||
Operating revenue: | ||||||||||
MidAmerican Energy | $ | 566.5 | $ | 577.3 | $ | (10.8 | ) | |||
Kern River | 82.1 | 78.8 | 3.3 | |||||||
Northern Natural Gas | 86.0 | 78.3 | 7.7 | |||||||
CE Electric UK | 216.1 | 188.1 | 28.0 | |||||||
CalEnergy Generation-Domestic | 9.4 | 12.1 | (2.7 | ) | ||||||
CalEnergy Generation-Foreign | 85.1 | 89.3 | (4.2 | ) | ||||||
HomeServices | 496.1 | 459.0 | 37.1 | |||||||
Segment operating revenue | 1,541.3 | 1,482.9 | 58.4 | |||||||
Corporate/other | (7.2 | ) | (8.4 | ) | 1.2 | |||||
Total operating revenue | $ | 1,534.1 | $ | 1,474.5 | $ | 59.6 |
Nine Months | ||||||||||
Ended September 30, | ||||||||||
2004 | 2003 | $ Change | ||||||||
Operating revenue: | ||||||||||
MidAmerican Energy | $ | 1,982.9 | $ | 1,929.6 | $ | 53.3 | ||||
Kern River | 236.1 | 182.3 | 53.8 | |||||||
Northern Natural Gas | 383.5 | 336.4 | 47.1 | |||||||
CE Electric UK | 694.9 | 602.4 | 92.5 | |||||||
CalEnergy Generation-Domestic | 31.1 | 34.1 | (3.0 | ) | ||||||
CalEnergy Generation-Foreign | 224.0 | 246.1 | (22.1 | ) | ||||||
HomeServices | 1,343.6 | 1,112.6 | 231.0 | |||||||
Segment operating revenue | 4,896.1 | 4,443.5 | 452.6 | |||||||
Corporate/other | (37.3 | ) | (42.7 | ) | 5.4 | |||||
Total operating revenue | $ | 4,858.8 | $ | 4,400.8 | $ | 458.0 |
Put of ROP Note and Receipt of Cash
Nine Months | |||||||
Ended September 30, | |||||||
2004 | 2003 | ||||||
MidAmerican Energy | $ | 425.7 | $ | 228.5 | |||
Kern River | 17.2 | 355.5 | |||||
Northern Natural Gas | 87.7 | 73.6 | |||||
CE Electric UK | 233.3 | 198.8 | |||||
CalEnergy Generation-Domestic | 1.2 | 4.2 | |||||
CalEnergy Generation-Foreign | 2.1 | 5.5 | |||||
HomeServices | 10.8 | 10.0 | |||||
Segment capital expenditures | 778.0 | 876.1 | |||||
Corporate/other | 18.4 | 0.2 | |||||
Total capital expenditures | $ | 796.4 | $ | 876.3 | |||
On February 12, 2004, MEHC completed the sale of $250 million in aggregate principal amount of its 5.00% senior notes due February 15, 2014. The proceeds were used to satisfy a demand made by its affiliate, Funding Corporation, for $136.4 million, the amount remaining on MEHC’s guarantee of Funding Corporation’s Series F Bonds, and for other general corporate purposes.
Regulatory Matters
If implemented, the FERC’s July 2002 proposed rule for SMD would require sweeping changes to the use and expansion of the interstate transmission and wholesale bulk power systems in the United States. However, it is unclear when or even whether the FERC will issue a final rule and what form the final rule would ultimately take. In response to significant criticism of its proposed rule, the FERC subsequently indicated that it had changed its proposal and would adopt a flexible approach to SMD that would accommodate regional differences. Any final rule on SMD or similar FERC action may impact the costs of MidAmerican Energy’s electricity and transmission products. Such FERC action could directly or indirectly influence how transmission services are priced, the availability of transmission services, and how transmission services are obtained. In addition, the FERC could affect how wholesale electricity is bou ght and sold, as well as the geographic scope of the wholesale marketplace in which MidAmerican Energy buys and sells electricity. MidAmerican Energy recognizes there is considerable uncertainty as to the timing and outcome of these transmission policy issues and will continue to evaluate evolving FERC policies. Transferring the operations and control of MidAmerican Energy’s transmission assets to other entities could increase costs for MidAmerican Energy; however, the actual effect of any such transaction on MidAmerican Energy’s future transmission costs, or alternate RTO strategies, is not yet known.
Additionally, on January 30, 2004, Northern Natural Gas filed with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. The increased rates are primarily attributable to ongoing pipeline integrity initiative costs that Northern Natural Gas has undertaken since the May 1, 2003 rate filing. The FERC suspended the rate increase until August 1, 2004 and consolidated the 2003 and 2004 rate cases due to the similarity of issues in both cases and the updated costs. On July 29, 2004, Northern Natural Gas notified the FERC that, in furtherance of settlement negotiations, Northern Natural Gas was not moving the rate increase into effect on August 1, 2004, but reserved its statutory right to move the suspended rates into effect at a later date. On October 8, 2004, Northern Natural Gas filed a motion to place the rate incr ease into effect on November 1, 2004, subject to refund. A hearing on the consolidated cases is scheduled for March 2005.
· | the actual operating costs of each of the licensees; |
· | the operating costs which each of the licensees would incur if it were as efficient as, in Ofgem'sjudgment, the most efficient licensee; |
· | the regulatory value to be ascribed to each of the licensees' distribution network assets; |
· | the allowance for depreciation of the distribution network assets of each of the licensees; |
· | the rate of return to be allowed on investment in the distribution network assets by all licensees; and |
· | the financial ratios of each of the licensees and the license requirement for each licensee to maintainan investment grade status. |
In May 2004, the FASB issued FASB Staff Position No. 106-2 ("FSP 106-2"), "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the "Act"). The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of postretirement health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. When adopted, FSP 106-2 will supersede FSP 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," which was issued in January 2004 and permitted a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act until more authoritative guidance on the accounting for the federal subsidy was issued, which the Company so elected. FSP 106-2 provides authoritative guidance on the accounting for the federal subsidy and specifies the disclosure requirements for employers who have adopted FSP 106-2, including those who are unable to determine whether benefits provided under its plan are actuarially equivalent to Medicare Part D. The Company has determined that the effects of the Act are not significant to is postretirement plan and therefore do not constitute a significant event, as that term is defined in Statement of Financial Accounting Standard No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. As such, the Company will adopt FSP 106-2 at its next measurement date, January 1, 2005.
MIDAMERICAN ENERGY HOLDINGS COMPANY | |
(Registrant) | |
/s/ Patrick J. Goodman | |
Date: November 4, 2004 | Patrick J. Goodman Senior Vice President and Chief Financial Officer |
37
Exhibit No. | |
31.1 | Chief Executive Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Chief Financial Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Chief Executive Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Chief Financial Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |