UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to___________.
Commission File No. 0-25551
MIDAMERICAN ENERGY HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)
Iowa 94-2213782
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
666 Grand Avenue, Des Moines, IA 50309
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (515) 242-4300
----------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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All of the shares of MidAmerican Energy Holdings Company are held by a limited
group of private investors. As of May 10, 2002, 9,281,087 shares of common stock
were outstanding.
MIDAMERICAN ENERGY HOLDINGS COMPANY
FORM 10-Q
TABLE OF CONTENTS
Part I: Financial Information
Page No.
ITEM 1. Financial Statements
Independent Accountants' Report.......................... 3
Consolidated Balance Sheets.............................. 4
Consolidated Statements of Operations.................... 5
Consolidated Statements of Cash Flows.................... 6
Notes to Consolidated Financial Statements............... 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 16
Part II: Other Information
ITEM 1. Legal Proceedings........................................ 27
ITEM 2. Changes in Securities and Use of Proceeds................ 27
ITEM 3. Defaults on Senior Securities............................ 27
ITEM 4. Submission of Matters to a Vote of Security Holders...... 27
ITEM 5. Other Information........................................ 27
ITEM 6. Exhibits and Reports on Form 8-K......................... 27
Signatures ......................................................... 28
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
MidAmerican Energy Holdings Company
Des Moines, Iowa
We have reviewed the accompanying consolidated balance sheet of MidAmerican
Energy Holdings Company and subsidiaries (the Company) as of March 31, 2002, and
the related consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2002 and 2001. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2001,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated January 17, 2002 (March 27, 2002 as to Notes 20.A. and 21), we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2001 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Des Moines, Iowa
April 26, 2002
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of
-------------------------------
March 31, December 31,
2002 2001
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 705,479 $ 386,745
Restricted cash and short-term
investments 53,577 30,565
Accounts receivable 463,712 310,030
Inventories 77,671 103,078
Other current assets 129,526 131,968
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Total current assets 1,429,965 962,386
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Property, plant, contracts and
equipment, net 7,311,175 6,555,971
Excess of cost over fair value
of net assets acquired, net 3,768,868 3,639,088
Regulatory assets 345,782 221,120
Long-term restricted cash and
investments 18,784 24,207
Other investments 455,846 174,185
Equity investments 263,888 259,619
Deferred charges and other assets 793,115 778,757
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Total Assets $14,387,423 $12,615,333
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable $ 316,001 $ 266,027
Accrued interest 133,282 130,569
Accrued taxes 79,020 88,973
Other accrued liabilities 450,003 308,924
Short-term debt 330,292 256,012
Current portion of long-term debt 438,797 317,180
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Total current liabilities 1,747,395 1,367,685
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Other long-term accrued liabilities 535,593 526,176
Parent company debt 1,835,701 1,834,498
Subsidiary and project debt 5,491,882 4,754,811
Deferred income taxes 1,282,588 1,284,268
----------- -----------
Total Liabilities 10,893,159 9,767,438
Deferred income 84,425 85,917
Minority interest 42,349 44,477
Preferred securities of subsidiaries 120,888 121,183
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts 1,111,685 788,151
Subsidiary-obligated mandatorily redeemable
preferred securities of subsidiary trusts - 100,000
Shareholders' Equity:
Zero coupon convertible preferred stock -
authorized 50,000 shares, no par value,
41,263 and 34,563 shares issued and
outstanding at March 31, 2002 and
December 31, 2001, respectively - -
Common stock - authorized 60,000 shares,
no par value, 9,281 shares issued
and outstanding - -
Additional paid-in capital 1,955,888 1,553,073
Retained earnings 268,715 223,926
Accumulated other comprehensive income (89,686) (68,832)
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Total Shareholders' Equity 2,134,917 1,708,167
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Total Liabilities and Shareholders' Equity $14,387,423 $12,615,333
=========== ===========
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
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Revenues:
Operating revenue.......................... $ 1,079,894 $ 1,698,864
Income on equity investments............... 14,120 7,107
Interest and other income.................. 13,705 10,578
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Total revenues............................. 1,107,719 1,716,549
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Costs and expenses:
Cost of sales.............................. 447,425 1,109,568
Operating expense.......................... 279,667 266,503
Depreciation and amortization.............. 126,244 140,316
Interest expense........................... 141,300 121,678
Less interest capitalized.................. (6,647) (28,487)
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Total costs and expenses...................... 987,989 1,609,578
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Income before provision for income taxes... 119,730 106,971
Provision for income taxes.................... 29,130 34,345
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Income before minority interest............... 90,600 72,626
Minority interest............................. 25,851 24,711
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Income before cumulative effect of change in
accounting principle.......................... 64,749 47,915
Cumulative effect of change in accounting
principle, net of tax......................... - (4,604)
----------- ----------
Net income available to common
shareholders............................... $ 64,749 $ 43,311
=========== ==========
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
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Cash flows from operating activities:
Net income........................................................... $ 64,749 $ 43,311
Adjustments to reconcile to net cash flows from
operating activities:
Cumulative effect of change in accounting principle, net of tax...... - 4,604
Depreciation and amortization........................................ 126,244 115,362
Amortization of excess of cost over fair value of
net assets acquired............................................... - 24,954
Amortization of deferred financing costs and other costs............. 7,349 6,035
Provision for deferred income taxes.................................. 4,797 6,221
Undistributed earnings on equity investments......................... (11,745) (7,107)
Changes in other items:
Accounts receivable and other current assets...................... (83,136) 111,668
Accounts payable, accrued liabilities, deferred income
and other......................................................... 74,364 (122,450)
------------ -----------
Net cash flows from operating activities............................. 182,622 182,598
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Cash flows from investing activities:
Acquisition of Kern River, net of cash acquired...................... (422,636) -
Purchase of convertible preferred securities......................... (275,000) -
Capital expenditures relating to operating projects.................. (95,673) (70,395)
Construction and other development costs............................. (22,372) (17,720)
Philippine construction in progress.................................. - (17,491)
Acquisition of realty companies, net of cash acquired................ (71,060) -
Change in restricted investments..................................... 5,423 1,373
Change in other assets............................................... (5,372) (7,726)
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Net cash flows from investing activities............................. (886,690) (111,959)
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Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock................ 402,000 -
Proceeds from issuance of trust preferred securities................. 323,000 -
Net repayment of short-term subsidiary debt.......................... (46,195) (5,067)
Net proceeds from parent company debt................................ 120,500 65,000
Repayment of subsidiary and project debt............................. (11,092) (228,210)
Proceeds from subsidiary and project debt............................ 395,428 200,000
Redemption of preferred securities of subsidiaries................... (100,320) (301)
Change in restricted investments-debt service........................ (23,012) 22,592
Other................................................................ (31,113) (1,869)
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Net cash flows from financing activities............................. 1,029,196 52,145
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Effect of exchange rate changes on cash.............................. (6,394) (966)
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Net increase in cash and cash equivalents............................ 318,734 121,818
Cash and cash equivalents at beginning of period..................... 386,745 38,152
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Cash and cash equivalents at end of period........................... $ 705,479 $ 159,970
============ ===========
Interest paid, net of amount capitalized............................. $ 146,222 $ 93,387
============ ===========
Income taxes paid.................................................... $ 20,167 $ 15,802
============ ===========
The accompanying notes are an integral part of these financial statements.
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
In the opinion of management of MidAmerican Energy Holdings Company and
subsidiaries (the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position as of March 31, 2002 and the
results of operations for the three months ended March 31, 2002 and 2001 and the
related consolidated statements of cash flows for the three months ended March
31, 2002 and 2001. The results of operations for the three months ended March
31, 2002 and 2001 are not necessarily indicative of the results to be expected
for the full year.
The consolidated financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries. Other investments and corporate
joint ventures, where the Company has the ability to exercise significant
influence, are accounted for under the equity method. Investments where the
Company's ability to influence is limited are accounted for under the cost
method of accounting.
Certain amounts in the 2001 financial statements and supporting note disclosures
have been reclassified to conform to the 2002 presentation. Such
reclassification did not impact previously reported net income or retained
earnings.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K.
2. Kern River Acquisition
On March 27, 2002, the Company closed on a definitive agreement with The
Williams Companies, Inc. ("Williams") to acquire Williams' Kern River Gas
Transmission Company ("Kern River"), an interstate pipeline transporting Rocky
Mountain and Canadian natural gas to markets in California, Nevada and Utah. The
purchase price was $955 million, including $505 million of assumed debt.
The Kern River pipeline is an important route for the transmission of natural
gas from the vast reserves in the Rocky Mountain states to the rapidly growing
markets in Utah, Nevada and California. Constructed in 1992, the Kern River
pipeline extends 926 miles from Opal, Wyoming, to the San Joaquin Valley near
Bakersfield, California, and has a design capacity of 845 million cubic feet per
day.
In August 2001, Williams filed an application with the Federal Energy Regulatory
Commission to more than double the capacity on the Kern River system by adding
approximately 900 million cubic feet per day of additional capacity from Wyoming
to California and markets in between. Upon completion of the expansion project
in May 2003, Kern River expects to be capable of transporting 1.7 billion cubic
feet of natural gas per day. When converted to electricity, that is enough
energy to power approximately 10 million homes. The expansion project has
expected capital expenditures of approximately $1.2 billion.
In connection with the acquisition of Kern River, the Company issued $323
million of 11% Company-obligated mandatorily redeemable preferred securities of
subsidiary trust due March 12, 2012 and $127 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 Company's
Amended and Restated Articles of Incorporation.
The allocation of the Kern River purchase price has not been finalized. The
initial determination of goodwill related to this acquisition was approximately
$57 million. 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:
o High credit quality shippers contracting with Kern River;
o Kern River's strong competitive position;
o Exceptional operating track record and state-of-the-art technology;
o Strong demand for gas in the Western markets;
o An ample supply of low-cost gas; and
o Opportunities for expansion.
The results of operations for Kern River are included in the Company's results
beginning March 27, 2002.
Unaudited pro forma combined revenue, income before cumulative effect of change
in accounting principle and net income of the Company for the three months ended
March 31, 2002 and 2001 as if the Kern River acquisition and the Yorkshire Swap,
as described in Note 3 of Notes to Consolidated Financial Statements in the
Annual Report on Form 10-K for the year ended December 31, 2001, had occurred at
the beginning of each year after giving effect to pro forma adjustments related
to the acquisition and the swap were $1,147.5 million, $68.9 million and $68.9
million, respectively, compared to $1,386.6 million, $38.5 million and $33.9
million, respectively.
3. Property, Plant, Contracts and Equipment, Net
Property, plant, contracts and equipment, net comprise the following (in
thousands):
March 31, December 31,
2002 2001
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Operating assets:
Utility generation and distribution
system.................................... $8,385,353 $7,574,339
Independent power plants .................... 1,420,188 1,420,702
Utility non-operational assets............... 344,082 354,366
Power sales agreements....................... 46,271 48,185
Realty company assets........................ 63,299 51,150
Other assets................................. 55,459 53,876
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Total operating assets....................... 10,314,652 9,502,618
Less accumulated depreciation and
amortization.............................. (3,735,630) (3,650,875)
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Net operating assets......................... 6,579,022 5,851,743
Mineral and gas reserves and
exploration assets, net................... 381,936 387,697
Construction in progress:
Zinc recovery project................... 170,555 163,366
Utility generation and
distribution system.................. 175,146 149,225
Other................................... 4,516 3,940
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Total $7,311,175 $6,555,971
========== ==========
4. Other Investments
On March 27, 2002 the Company invested $275 million in Williams in exchange for
shares of 9-7/8 percent cumulative convertible preferred stock of Williams.
Dividends are scheduled to be received quarterly, commencing July 1, 2002. In
connection with this investment, the Company issued $275 million of no par, zero
coupon convertible preferred stock to Berkshire Hathaway.
5. Accounting Policy Change
Effective January 1, 2001, the Company changed its accounting policy regarding
major maintenance and repairs for nonregulated gas projects, nonregulated plant
overhaul costs and geothermal well rework costs to the direct expense method
from the former policy of monthly 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 for 2001 was $4.6
million, net of taxes of $.7 million.
6. Accounting Pronouncements
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," which dictates the accounting for acquired goodwill and
other intangible assets. SFAS No. 142 requires that amortization of goodwill and
indefinite-lived intangible assets be discontinued and that entities disclose
net income for prior periods adjusted to exclude such amortization and related
income tax effects, as well as a reconciliation from the originally reported net
income to the adjusted net income. The Company's related amortization consists
of goodwill amortization and the related income tax effect. Following is a
reconciliation of net income as originally reported for the quarters ended March
31, 2002 and 2001, to adjusted net income (in thousands):
2002 2001
---- ----
Net income as originally reported............ $64,749 $43,311
Goodwill amortization........................ - 24,954
Income tax benefit........................... - (475)
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Net income as adjusted....................... $64,749 $67,790
======= =======
The Company is continuing to evaluate the other provisions of the standard
including the determination of reporting units, the allocation of corporate
assets and other liabilities, including goodwill, and the impairment testing of
goodwill.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations", which addresses the accounting for legal
obligations associated with the retirement of tangible, long-lived assets, and
the associated asset retirement costs. This pronouncement is effective for years
beginning after June 15, 2002. The Company is evaluating the impact that
adoption of this standard will have on its financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which addresses the financial accounting and
reporting for the impairment or disposal of long-lived assets. The adoption of
SFAS No. 144 on January 1, 2002 did not have any impact on the Company's
financial statements.
7. Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended March 31, 2002 and 2001,
was $43.9 million and $(21.8) million, respectively. The comprehensive loss for
the three months ended March 31, 2001 includes a transition loss of $3.3 million
related to the initial adoption of SFAS 133. Comprehensive income differs from
net income due primarily to foreign currency translation adjustments, unrealized
gains and losses from marketable securities, and fair value adjustments of cash
flow hedges.
8. Commitments and Contingencies
A. Financial Condition of Edison
Southern California Edison Company ("Edison"), a wholly-owned subsidiary of
Edison International, is a public utility primarily engaged in the business of
supplying electric energy to retail customers in Central and Southern
California, excluding Los Angeles. Due to reduced liquidity, Edison failed to
pay approximately $119 million due under the power purchase agreement with CE
Generation affiliates for power delivered in the fourth quarter 2000 and the
first quarter 2001. Due to Edison's failure to pay contractual obligations, the
CE Generation affiliates had established an allowance for doubtful accounts of
approximately $21 million as of December 31, 2001.
On June 20, 2001, the Imperial Valley Projects (excluding Salton Sea Unit V and
CE Turbo) entered into Agreements Addressing Renewable Energy Pricing and
Payment Issues with Edison ("Settlement Agreements"). On June 22, 2001, Edison
made an initial $11.6 million payment to repay the past due balances under the
Power Purchase Agreements (the "stipulated amounts"). On November 30, 2001, the
Settlement Agreements were amended to reflect when Edison would be required to
make the final payment on past due amounts. The final payment of approximately
$104.6 million, representing the remaining stipulated amounts, was received
March 1, 2002. Following the receipt of Edison's final payment of past due
balances, the CE Generation affiliates released the remaining allowance for
doubtful accounts.
B. Casecnan Construction Arbitration
On May 7, 1997, the Company entered into a fixed-price, date certain, turnkey
engineering, procurement and construction contract to complete the construction
of the Casecnan Project (the "Replacement Contract"). The work under the
Replacement Contract was being conducted by a consortium consisting of
Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa.,
working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and
Colenco Power Engineering Ltd. (collectively, the "Contractor").
On November 20, 1999, the Replacement Contract was amended to extend the
Guaranteed Substantial Completion Date for the Casecnan Project to March 31,
2001. This amendment was approved by the lender's independent engineer under the
Casecnan Indenture.
On February 12, 2001, the Contractor filed a Request for Arbitration with the
International Chamber of Commerce seeking an extension of the Guaranteed
Substantial Completion Date by up to 153 days through August 31, 2001 resulting
from various alleged force majeure events. In a March 20, 2001 Supplement to
Request for Arbitration, the Contractor requested compensation for alleged
additional costs of approximately $4 million it incurred from the claimed force
majeure events to the extent it is unable to recover from its insurer. On April
20, 2001, the Contractor filed a further supplement seeking an additional
approximately $62 million in damages for the alleged force majeure event (and
geologic conditions) related to the collapse of the surge shaft. The Contractor
alleged that the circumstances surrounding the placing of the Casecnan Project
into commercial operation on December 11, 2001 amounted to a rescission of the
Replacement Contract and filed a claim for unspecified quantum meruit damages.
CE Casecnan believes such allegations and claims are without merit and is
vigorously defending the Contractor's claims. The arbitration is being conducted
applying New York law and pursuant to the rules of the International Chamber of
Commerce.
On June 25, 2001, the arbitration tribunal temporarily enjoined CE Casecnan from
making calls on the demand guaranty posted by Banca di Roma in support of the
Contractor's obligations to CE Casecnan for delay liquidated damages. Hearings
on the force majeure claims were held in London from July 2 to 14, 2001, and
hearings on the Contractor's April 20, 2001 supplement were held in London from
September 24 to October 3, 2001. Further hearings were held from January 2 to
February 1, 2002 and additional hearings were held from March 14 to 19, 2002.
As of March 31, 2002 the Company has received approximately $6.0 million of
liquidated damages from demands made on the demand guarantees posted by
Commerzbank on behalf of the Contractor. Although the outcome of the arbitration
is difficult to assess, CE Casecnan believes it will prevail and receive
additional liquidated damages in the arbitration.
C. Casecnan Shareholder Issue
Pursuant to the share ownership adjustment mechanism in the Casecnan Shareholder
Agreement, which is based upon pro forma financial projections of the Casecnan
Project at commencement of commercial operations, the Company, through its
indirect wholly owned subsidiary CE Casecnan Ltd., has advised the minority
shareholders that MidAmerican's ownership interest in the Company will increase
to 100%. An initial shareholder has indicated its disagreement with the
ownership adjustment and its right to up to a 15% ownership interest and has
requested certain information with respect to the project's economics that form
the basis for such adjustment.
D. Cooper Litigation
On July 23, 1997, NPPD filed a complaint, in the United States District Court
for the District of Nebraska, naming MidAmerican Energy as the defendant and
seeking declaratory judgment as to three issues under the parties' long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
sought a declaratory judgment in the following respects:
(1) that MidAmerican Energy is obligated to pay 50% of all
costs and expenses associated with decommissioning Cooper,
and that in the event NPPD continues to operate Cooper
after expiration of the power purchase agreement
(September 2004), MidAmerican Energy is not entitled to
reimbursement of any decommissioning funds it has paid to
date or will pay in the future;
(2) that the current method of allocating transition costs as
a part of the decommissioning cost is proper under the
power purchase agreement; and
(3) that the current method of investing decommissioning funds
is proper under the power purchase agreement.
In response, MidAmerican Energy filed its answer and counterclaims. In its
answer, MidAmerican Energy denied material allegations in the complaint. In its
counterclaims, MidAmerican Energy sought declaratory judgments opposite to those
that NPPD sought; and in addition, MidAmerican Energy sought declaratory
judgments on earlier contingent versions of MidAmerican Energy's now operative
counterclaims listed below at (1), (2), (4), (5), (6), (7), (8), (10) and (11).
On October 6, 1999, the court rendered summary judgment for the NPPD on the
above-mentioned issue concerning liability for decommissioning (issue (1) in the
first paragraph, above) and the related contingent counterclaims filed by
MidAmerican Energy (earlier versions of counterclaims identified as (1), (2),
(5), and (6), below). The court referred all remaining issues in the case to
mediation, and cancelled the November 1999 trial date.
MidAmerican Energy appealed the court's summary judgment ruling. On December 12,
2000, the United States Court of Appeals for the Eighth Circuit reversed the
ruling of the district court and granted summary judgment in favor of
MidAmerican Energy on the earlier versions of MidAmerican Energy's counterclaims
identified as (1) and (2) listed below; it remanded for trial MidAmerican
Energy's counterclaims identified as (5) and (6), below; it also remanded for
trial the NPPD's issues identified as (2) and (3) in the first paragraph, above,
and on MidAmerican Energy's other undisposed of counterclaims.
After the remand to the District Court from the Eighth Circuit Court of Appeals,
NPPD was granted permission, over MidAmerican Energy's objections, to file a
second amended complaint. The second amended complaint asserted in the first
four "causes of action" that MidAmerican Energy has unconditional liability for
a 50% share of decommissioning costs based on alleged obligations other than
those imposed on MidAmerican Energy by the power purchase agreement as
originally written. NPPD's post-remand contentions in those four "causes of
action" were in summary: (i) the parties, without written formal amendment,
either modified the power purchase agreement or made a separate agreement that
imposes unconditional liability on MidAmerican Energy for decommissioning costs;
(ii) MidAmerican Energy has unconditional liability for a 50% share of
decommissioning costs based on quantum meruit and unjust enrichment; (iii)
MidAmerican Energy has unconditional liability for a 50% share of
decommissioning costs based on promissory estoppel; or (iv) NPPD is entitled to
have the power purchase agreement reformed to provide that MidAmerican Energy
has unconditional liability for a 50% share of decommissioning costs. Also, the
second amended complaint asserted three additional "causes of action" and sought
declaratory judgment(s) that (v) NPPD properly invests revenues from the sale of
Cooper's power and energy under the power purchase agreement and amounts it has
collected for decommissioning costs of Cooper; (vi) absent an unconditional
obligation of MidAmerican Energy to pay decommissioning costs, MidAmerican
Energy is barred from receiving a refund of prepaid estimated decommissioning
costs; and (vii) absent an unconditional obligation of MidAmerican Energy to pay
estimated decommissioning costs, a declaration defining decommissioning costs is
necessary. In response to NPPD's second amended complaint, MidAmerican Energy
filed its first amended answer and third amended counterclaims containing
denials, several affirmative defenses, and the eleven counterclaims summarized
below:
(1) that MidAmerican Energy has no duty under the power
purchase agreement to reimburse or pay 50% of the
decommissioning costs unless conditions to reimburse-
ment occur;
(2) that the term "monthly power costs" as defined in the
power purchase agreement does not include costs and
expenses associated with decommissioning the plant;
(3) that NPPD violated MidAmerican Energy's directions for
application of payments;
(4) that transition costs are not included in any decommis-
sioning costs and are not any kind of costs that
MidAmerican Energy is obligated to pay;
(5) that NPPD has the duty to repay all amounts that
MidAmerican Energy has prefunded for decommissioning in
the event the Nebraska Public Power District operates
the plant after the term of the power purchase
agreement;
(6) that NPPD is equitably estopped from continuing to
operate the plant after the term of the power purchase
agreement so long as NPPD does not repay all amounts
MidAmerican Energy has prefunded for estimated
decommissioning costs together with other amounts in
certain funds and accounts and for so long as NPPD
fails to provide MidAmerican Energy with certain
requested accountings and information;
(7) that certain funds, accounts, and reserves are exces-
sive and are required to be paid to MidAmerican Energy
or credited to MidAmerican Energy's pre-2004 monthly
power costs;
(8) that MidAmerican Energy has no duty to pay for nuclear
fuel, operations and maintenance projects or capital
improvements that have useful lives after the term of
the power purchase agreement;
(9) that NPPD has mismanaged the plant in numerous
described transactions resulting in damage to
MidAmerican Energy;
(10) that NPPD has breached its contractual and other duties
to MidAmerican Energy by not joining certain litigation
and by failing to credit or agree to credit MidAmerican
Energy with any recovery for low-level radioactive
waste; and
(11) that NPPD has breached its duty to MidAmerican Energy
in making investments of decommissioning funds;
In the course of discovery, NPPD has contended that MidAmerican Energy has some
responsibility for some costs of storage of spent fuel resulting form the
operation of the plant during the term of the power purchase agreement.
MidAmerican Energy disputes this.
Subsequent to NPPD's filing of its second amended complaint, MidAmerican Energy
filed a mandamus petition with the Eighth Circuit Court of Appeals seeking an
order of that court directing the District Court not to permit NPPD to pursue,
at trial, the first four "causes of action" in the second amended complaint. The
grounds of MidAmerican Energy's petition were that such four "causes of action"
were foreclosed by the December 12, 2000, Eighth Circuit Court of Appeals
decision. On April 3, 2002, the Eighth Circuit Court of Appeals granted the
relief requested by MidAmerican Energy. Accordingly, NPPD will not be permitted
to pursue the first four "causes of action" in the second amended complaint.
However, NPPD has filed a petition, with the Eighth Circuit Court of Appeals,
for rehearing. MidAmerican Energy believes that its counterclaims (1) and (2)
have now been resolved by the Eighth Circuit Court of Appeals. A trial is
scheduled to being on September 9, 2002, to determine: NPPD's three "causes of
action" identified generally above as (v), (vi) and (vii) and MidAmerican
Energy's four counterclaims referenced above in (3), (4), (5) and (6). Current
plans are for MidAmerican Energy's five counterclaims referenced above in (7),
(8), (9), (10) and (11) to be tried at a later time. However, the Court is
currently re-examining such plans.
E. Kvaerner Arbitration
The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc.
("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering,
procure, construct and manage contract (the "Zinc Recovery Project EPC
Contract"). On June 14, 2001, CalEnergy Minerals, LLC issued notices of default,
termination and demand for payment of damages to Kvaerner under the Zinc
Recovery Project EPC Contract due to failure to meet performance obligations. As
a result of Kvaerner's failure to pay monetary obligations under the Zinc
Recovery Project EPC Contract, CalEnergy Minerals, LLC drew $29.6 million under
the EPC Contract Letter of Credit on July 20, 2001. The liquidated damages have
been accounted for as a reduction of the capitalized costs of the project.
CalEnergy Minerals, LLC has entered into a time and materials reimbursable
engineer, procure and construction management contract with AMEC E&C Services,
Inc. to complete the Zinc Recovery Project.
On July 11, 2001, Kvaerner filed an Amended Demand For Arbitration against
CalEnergy Minerals LLC characterizing the nature of the dispute as concerns
regarding change orders and performance penalties. Kvaerner did not state the
amount of its claim.
On August 7, 2001, CalEnergy Minerals LLC filed an Answering Statement and
Counterclaim against Kvaerner. CalEnergy Minerals LLC denied all material
allegations in Kvaerner's Amended Demand for Arbitration, and asserted a
counterclaim against Kvaerner for breach of contract and specific performance.
CalEnergy Minerals LLC alleged that its total estimated damage for Kvaerner's
breach of contract are in excess of approximately $60 million; however,
CalEnergy Minerals LLC has offset approximately $42.5 million of these damages
by exercising its rights under the EPC Contract to claim the retainage and by
drawing on the letter of credit. Therefore, CalEnergy Minerals LLC asked for a
judgment in excess of approximately $20 million. The arbitration is scheduled
for June 2002.
F. Malitbog Arbitration
VGPC and PNOC-EDC have been negotiating with respect to certain disputes
concerning the Malitbog ECA but have been unable to reach a mutually acceptable
resolution. Accordingly, on October 16, 2000, VGPC commenced arbitration against
PNOC-EDC by serving it with a Notice of Arbitration and Statement of Claim (the
"Notice of Arbitration"). In the Notice of Arbitration, VGPC claimed that
PNOC-EDC breached the Malitbog ECA by improperly characterizing certain No Fault
Outages as Forced Outage Hours and then deducting them from the total number of
hours each month. On December 22, 2000, VGPC filed an Amended Statement of Claim
pursuant to which VGPC added a claim that PNOC-EDC breached the Malitbog ECA by
refusing to accept VGPC's specified Nominated Capacity for contract years July
25, 1999 to July 25, 2000, and July 25, 2000 to July 25, 2001. A Second Amended
Statement of Claim was filed on March 9, 2001 to add the Scheduled Maintenance
issue. VGPC intends to vigorously pursue its claims in this proceeding. Hearings
are scheduled for June 24, 2002 to July 5, 2002 in Sydney, Australia.
9. Subsequent Event
On April 11, 2002, CalEnergy Gas, an indirect wholly owned subsidiary of the
Company, announced the sale of several of its U.K. natural gas assets to Gaz de
France. As part of the sale, Gaz de France would acquire four natural
gas-producing fields located in the southern basin of the U.K. North Sea. Those
fields include Anglia, Johnston, Schooner and Windermere. The transaction also
includes the sale of rights in four gas fields (in development/construction) and
three exploration blocks owned by CalEnergy Gas.
The transaction requires regulatory review and approval and is expected to close
in the second quarter.
10. Segment Information
The Company has identified six reportable business segments principally based on
management structure: MidAmerican Energy (domestic utility operations), CE
Electric UK Funding (foreign utility operations), Kern River (domestic natural
gas pipeline operations), CalEnergy Generation-Domestic, CalEnergy
Generation-Foreign (primarily the Philippines), and HomeServices (real estate
operations). Information related to the Company's reportable operating segments
is shown below (in thousands).
Three Months Ended March 31,
----------------------------
2002 2001
Revenue: ---- ----
MidAmerican Energy............................. $ 623,165 $1,000,736
CE Electric UK Funding......................... 218,918 556,817
Kern River..................................... 2,230 -
CalEnergy Generation - Domestic................ 12,468 8,175
CalEnergy Generation - Foreign................. 76,870 52,712
HomeServices................................... 176,464 100,041
---------- ----------
Segment revenue................................ 1,110,115 1,718,481
Corporate...................................... (2,396) (1,932)
---------- ----------
$1,107,719 $1,716,549
========== ==========
Income (loss) on equity investments:
MidAmerican Energy ............................ $ 5,296 $ (159)
CalEnergy Generation - Domestic................ 7,171 7,266
HomeServices................................... 1,653 -
---------- ---------
$ 14,120 $ 7,107
========== =========
Depreciation and amortization:
MidAmerican Energy............................. $ 69,947 $ 83,913
CE Electric UK Funding......................... 30,065 31,576
Kern River..................................... 531 -
CalEnergy Generation - Domestic................ 2,210 557
CalEnergy Generation - Foreign................. 22,396 16,578
HomeServices................................... 6,998 3,079
---------- ---------
Segment depreciation and amortization.......... 132,147 135,703
Corporate...................................... (5,903) 4,613
---------- ---------
$ 126,244 $ 140,316
========== =========
Three Months Ended March 31,
----------------------------
2002 2001
Revenue: ---- ----
Interest expense, net:
MidAmerican Energy............................. $ 28,786 $ 28,002
CE Electric UK Funding......................... 43,782 22,336
Kern River..................................... 514 -
CalEnergy Generation - Domestic................ 5,018 163
CalEnergy Generation - Foreign................. 17,647 9,554
HomeServices................................... 1,234 1,053
--------- ---------
Segment interest expense, net.................. 96,981 61,108
Corporate...................................... 37,672 32,083
--------- ---------
$ 134,653 $ 93,191
========= =========
Income (loss) before provision for income taxes
MidAmerican Energy............................. $ 70,289 $ 77,178
CE Electric UK Funding......................... 60,967 67,444
Kern River..................................... 971 -
CalEnergy Generation - Domestic................ (2,289) 4,374
CalEnergy Generation - Foreign................. 30,693 22,859
HomeServices................................... (129) (3,269)
--------- ---------
Segment income before provision for income taxes 160,502 168,586
Corporate...................................... (40,772) (61,615)
--------- ---------
$ 119,730 $ 106,971
========= =========
Provision (benefit) for income taxes:
MidAmerican Energy............................. $ 29,439 $ 34,571
CE Electric UK Funding......................... 18,632 20,605
Kern River..................................... 369 -
CalEnergy Generation - Domestic................ (3,764) (1,099)
CalEnergy Generation - Foreign................. 5,953 4,833
HomeServices................................... (207) (1,470)
--------- ---------
Segment provision for income taxes............. 50,422 57,440
Corporate...................................... (21,292) (23,095)
--------- ---------
$ 29,130 $ 34,345
========= =========
March 31, December 31,
2002 2001
---------- ------------
Identifiable assets:
MidAmerican Energy............................. $ 5,291,810 $ 5,023,584
CE Electric UK Funding......................... 4,031,820 3,973,457
Kern River..................................... 1,019,846 -
CalEnergy Generation - Domestic................ 729,575 720,293
CalEnergy Generation - Foreign............. 990,857 950,035
HomeServices................................... 328,224 226,588
----------- -----------
Segment identifiable assets.................... 12,392,132 10,893,957
Corporate...................................... 1,995,291 1,721,376
----------- -----------
$14,387,423 $12,615,333
=========== ===========
The remaining differences from the segment amounts to the consolidated amounts
described as "Corporate" relate principally to the corporate functions including
administrative costs, corporate cash and related interest income, unallocated
goodwill and related goodwill amortization in 2001, intersegment eliminations
and fair value adjustments relating to acquisitions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Business of MEHC
MidAmerican Energy Holdings Company (the "Company" or "MEHC"), is a United
States-based privately owned global energy company with publicly traded fixed
income securities that generates, distributes and supplies energy to utilities,
government entities, retail customers and other customers located throughout the
world. Through its subsidiaries, the Company is organized and managed on six
separate platforms: MidAmerican Energy, CE Electric UK Funding, Kern River Gas
Transmission, CalEnergy Generation-Domestic, CalEnergy Generation - Foreign and
HomeServices. These platforms, with the exception of Kern River Gas Transmission
Company, are discussed in detail in the Company's latest Annual Report on Form
10-K.
Forward-looking Statements
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including development uncertainty, operating
uncertainty, acquisition uncertainty, uncertainties relating to doing business
outside of the United States, uncertainties relating to geothermal resources,
the financial condition of and relationships with customers and suppliers, the
availability and price of fuel and other inputs, uncertainties relating to
domestic and international economic and political conditions and uncertainties
regarding the impact of regulations, changes in government policy, environmental
policies, industry deregulation and competition. Reference is made to all of the
Company's SEC filings, including the Company's Report on Form 8-K dated March
26, 1999, incorporated herein by reference, for a description of such factors.
The Company assumes no responsibility to update forward-looking information
contained herein.
Critical Accounting Policies
The preparation of financial statements and related documents in conformity with
accounting principles generally accepted in the United States of America
requires management to make judgments, assumptions and estimates that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Note 2 to the consolidated financial statements in the Company's latest
Annual Report on Form 10-K describes the significant accounting policies and
methods used in the preparation of the consolidated financial statements.
Estimates are used for, but not limited to, the accounting for revenue,
contingent liabilities and impairment of long-lived assets. Actual results could
differ from these estimates. The following critical accounting policies are
impacted significantly by judgments, assumptions and estimates used in the
preparation of the consolidated financial statements.
Revenue Recognition
Revenues are recorded based upon services rendered and electricity, gas and
steam delivered, distributed or supplied to the end of the period. Where there
is an over recovery of distribution business revenues against the maximum
regulated amount, revenues are deferred equivalent to the over recovered amount.
The deferred amount is deducted from revenue and included in other liabilities.
Where there is an under recovery, no anticipation of any potential future
recovery is made.
The Company also records unbilled revenues representing 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. Accrued unbilled revenues are
included in accounts receivable on the consolidated balance sheets.
SFAS No. 71 - Accounting for the Effects of Certain Types of Regulation
A possible consequence of deregulation in the utility industry is that Statement
of Financial Accounting Standards ("SFAS") No. 71 may no longer apply. SFAS No.
71 sets forth accounting principles for operations that are regulated and meet
the stated criteria. For operations that meet the criteria, SFAS No. 71 allows,
among other things, the deferral of expense or income that would otherwise be
recognized when incurred. MidAmerican Energy's electric and gas utility
operations currently meet the criteria required by SFAS No. 71, but its
applicability is periodically reexamined. If portions of its utility operations
no longer meet the criteria of SFAS No. 71, MidAmerican Energy 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 are not recovered in transition provisions of any
deregulation legislation.
Impairment of Long-Lived Assets
The Company's long-lived assets consist primarily of property, plant and
equipment, goodwill and intangible assets that were acquired in business
acquisitions. The Company believes the useful lives assigned to the depreciable
assets, which range from 3 to 50 years, are reasonable. The Company evaluates
the long-lived assets for impairment when events or changes in circumstances
indicate, in management's judgment, that the carrying value of such assets may
not be recoverable. These computations utilize judgments and assumptions
inherent in management's estimate of undiscounted future cash flows to determine
recoverability of an asset. If management's assumptions about these assets
change as a result of events or circumstances, and management believes the
assets may have declined in value, then the Company may record impairment
charges, resulting in lower profits.
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets", which dictates the accounting for acquired goodwill and
other intangible assets. SFAS No. 142 requires that amortization of goodwill and
indefinite-lived intangible assets be discontinued. The Company is continuing to
evaluate the other provisions of the standard including the determination of
reporting units, the allocation of corporate assets and other liabilities,
including goodwill, and the impairment testing of goodwill.
Contingent Liabilities
The Company establishes reserves for estimated loss contingencies when it is
management's assessment that a loss is probable and the amount of the loss can
be reasonably estimated. Revisions to contingent liabilities are reflected in
income in the period in which different facts or information become known or
circumstances change that affect the previous assumptions with respect to the
likelihood or amount of loss. Reserves for contingent liabilities are based upon
management's assumptions and estimates, advice of legal counsel or other third
parties regarding the probable outcomes of any matters. Should the outcomes
differ from the assumptions and estimates, revisions to the estimated reserves
for contingent liabilities would be required.
Kern River Gas Transmission
Kern River Gas Transmission Company ("Kern River"), an indirect wholly owned
subsidiary of the Company, owns and operates a 926-mile interstate pipeline
transporting Rocky Mountain and Canadian natural gas to markets in California,
Nevada and Utah. The existing firm Kern River pipeline capacity is 100%
contracted through 2011 and 84% through 2016. Kern River's operations are
regulated by the Federal Energy Regulatory Commission ("FERC").
Gas transported on the Kern River pipeline is used in enhanced oil recovery
operations in the heavy oil fields and other markets in California. Gas is also
transported to other natural gas consumers in Utah, southern Nevada and southern
California for use in the production of electricity, cogeneration of electricity
and steam and other applications.
The Kern River pipeline is comprised of 36-inch and 42-inch diameter steel pipe,
in two parts. The 707-mile section from its terminus in Opal, WY through the
Central Rocky Mountains area into Daggett, CA (the "Mainline") is owned entirely
by Kern River. The 219 mile section of pipeline from Daggett to Bakersfield, CA,
(the "Common Facilities") after including the addition of a 2002 expansion
facilities, will be jointly owned by Kern River (68%) and Mojave Pipeline
Company ("Mojave") (32%) as tenants-in-common. Kern River percentage ownership
will increase pursuant to subsequent agreements in connection with completed and
proposed expansions. Mojave is a wholly-owned subsidiary of El Paso Natural Gas
Company. The Common Facilities has a current capacity of 1.245 billion cubic
feet per day.
Construction of the existing pipeline began on January 2, 1991 and was completed
in early 1992. Natural gas transportation began on February 15, 1992. Initial
Mainline design capacity was 700 MMcf/d, although the pipeline has operated in
excess of that level every year since 1993. Following the completion of several
recent expansion projects, the design capacity of the pipeline is currently 845
MMcf/d.
The existing Kern River pipeline incorporates eight compressor stations,
including five on the Mainline and one on the common facilities and two supply
area stations, and 62 metering stations, including 30 on the Mainline and 32 as
part of the Common Facilities.
Results of Operations for the Three Months ended March 31, 2002 and 2001:
Operating revenue for the three months ended March 31, 2002 was $1,079.9 million
compared with $1,698.9 million for the same period in 2001, a decrease of 36.4%.
MidAmerican Energy operating revenue decreased for the three months ended March
31, 2002 to $613.2 million from $993.2 million for the same period in 2001,
primarily due to lower volumes and rates in regulated and non-regulated gas. CE
Electric UK Funding operating revenue decreased for the three months ended March
31, 2002 to $213.9 million from $556.0 million for the same period in 2001,
primarily due to the sale of Northern Supply in September 2001, partially offset
by Yorkshire distribution revenue. The remaining increase primarily relates to
the increase of revenue at HomeServices due to acquisitions in 2002 and late
2001.
The following data represents sales from MidAmerican Energy:
Three Months
Ended March 31,
--------------------------
2002 2001
------ ------
Electricity Retail Sales (GWh)............. 3,959 4,021
Electricity Sales for Resale (GWh)......... 2,824 2,501
Regulated and Non-Regulated Gas Supplied
(Thousands of MMBtus)...................... 77,844 82,414
MidAmerican Energy electric retail sales decreased for the three months ended
March 31, 2002 from the same period in 2001 due to warmer temperatures partially
offset by an increase in non-weather related sales. Electric sales for resale
increased for the three months ended March 31, 2002 from the same period in 2001
due to improved availability in 2002 of MidAmerican Energy's base load plants.
Retail gas supplied decreased due to warmer temperatures for the three months
ended March 31, 2002 compared to the same period in 2001, resulting in less
heating load.
CE Electric UK Funding distributed 11,281 GWh of electricity in the three months
ended March 31, 2002 compared with 4,508 GWh of electricity in the same period
in 2001. The increase in electricity distributed for the three months ended
March 31, 2002 is primarily due to the acquisition of Yorkshire distribution.
Income on equity investments for the three months ended March 31, 2002 was $14.1
million compared with $7.1 million for the same period in 2001. The increase
was primarily due to a common stock distribution from an energy investment fund.
Interest and other income for the three months ended March 31, 2002 was $13.7
million compared with $10.6 million for the same period in 2001. The increase
was primarily due to a fee received for the purchase of certain securities.
Cost of sales for the three months ended March 31, 2002 was $447.4 million
compared with $1,109.6 million for the same period in 2001, a decrease of 59.7%.
The decrease relates primarily to the sale of Northern Supply business and
decreased gas revenue at MidAmerican Energy.
Operating expenses for the three months ended March 31, 2002 were $279.7 million
compared with $266.5 million for the same period in 2001. The increase was due
to higher costs at HomeServices as a result of acquisitions, partially offset
by lower costs at CE Electric UK Funding.
Depreciation and amortization for the three months ended March 31, 2002 was
$126.2 million compared with $140.3 million for the same period in 2001. This
decrease was primarily due to discontinuance of amortizing goodwill beginning
January 1, 2002, partially offset by the commencement of commercial operations
at Cordova and Casecnan and intangible assets amortization related to the
HomeServices acquisitions.
Interest expense, less amounts capitalized, for the three months ended March 31,
2002 was $134.7 million compared with $93.2 million for the same period in
2001, an increase of 44.5%. This increase was due to increased interest
expense at CE Electric UK Funding related to the Yorkshire acquisition and the
discontinuance of capitalizing interest related to the Casecnan and Cordova
Projects.
Tax expense for the three months ended March 31, 2002 was $29.1 million compared
with $34.3 million for the same period in 2001. The decrease in the effective
tax rate is due primarily to the discontinuance of nondeductible goodwill
amortization.
Minority interest for the three months ended March 31, 2002 was $25.9
million compared with $24.7 million for the same period in 2001. Minority
interest includes the dividends on the Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts.
Effective January 1, 2001, the Company changed its accounting policy
regarding major maintenance and repairs for nonregulated gas projects,
nonregulated plant overhaul costs and geothermal well rework costs to the direct
expense method from the former policy of monthly 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 for
2001 was $4.6 million, net of taxes of $.7 million.
Net income for the three months ended March 31, 2002 and 2001 was $64.7
million and $43.3 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has available a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, construction expenditures, debt retirement and other
capital requirements. The Company may from time to time seek to retire its
outstanding debt through cash purchases in the open market, privately negotiated
transactions or otherwise. Such repurchases or exchanges, if any, will depend on
prevailing market conditions, the Company's liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material.
The Company's cash and cash equivalents were $705.5 million at March 31, 2002
compared to $386.7 million at December 31, 2001. The increase is primarily due
to the issuances of convertible preferred stock, trust preferred securities
and medium term notes, partially offset by the acquisition of Kern River and
purchase of convertible preferred securities. In addition, the Company recorded
separately restricted cash and investments of $72.4 million and $54.8 million at
March 31, 2002 and December 31, 2001, respectively. The restricted cash balance
as of March 31, 2002 is comprised primarily of amounts deposited in restricted
accounts from which the Company will fund the various projects under
construction. Additionally, the Leyte Projects', and a portion of Casecnan's and
Cordova's restricted cash is reserved for the service of debt obligations.
Kern River Acquisition
On March 27, 2002, the Company closed on a definitive agreement with The
Williams Companies, Inc. ("Williams") to acquire Williams' Kern River Gas
Transmission Company ("Kern River"), a 926-mile interstate pipeline transporting
Rocky Mountain and Canadian natural gas to markets in California, Nevada and
Utah. The purchase price was $955 million, including $505 million of assumed
debt.
In connection with the acquisition of Kern River, the Company issued $323
million of 11% Company-obligated mandatorily redeemable preferred securities of
subsidiary trust due March 12, 2012 and $127 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 Company's
Amended and Restated Articles of Incorporation.
Other Investments
On March 27, 2002 the Company invested $275 million in Williams, in
exchange for shares of 9-7/8 percent cumulative convertible preferred stock of
Williams. Dividends are scheduled to be received quarterly, commencing July 1,
2002. In connection with this investment, the Company issued $275 million of
no par, zero coupon convertible preferred stock to Berkshire Hathaway.
Debt issuance and redemptions
On February 8, 2002, MidAmerican Energy issued $400 million of 6.75%
medium-term notes due in 2031. The proceeds are being used to refinance existing
debt and preferred securities and for other corporate purposes. On March 11,
2002 MidAmerican Energy redeemed all $100 million of its 7.98%
MidAmerican-obligated preferred securities of subsidiary trust at 100% of the
principal amount plus accrued interest.
On May 1, 2002, MidAmerican Energy reacquired all $26.7 million of its $7.80
series of preferred securities. The first $13.3 million of preferred
securities were redeemed at 100% of the principal amount plus accrued dividends,
and the remaining $13.4 million was redeemed at 103.9% of the principal amount
plus accrued dividends.
Prudential California Acquisition
In February 2002, HomeServices completed its purchase of a majority interest in
Prudential California Realty. The cash purchase price of Prudential California
Realty was approximately $71 million net of cash acquired, with an option to
purchase the remaining interests. Additionally, HomeServices is obligated to
pay a maximum earnout of $18.5 million calculated based on certain 2002
financial performance measures. The purchase price was financed using the
Company's corporate revolver for $40 million which was contributed to
HomeServices as equity and the remaining funds were borrowed from available
credit under the HomeServices's $65 million revolving credit facility. It is
anticipated that the borrowings in connection with this acquisition will be
repaid from HomeServices' generated funds. The Company is in the process of
completing the allocation of the purchase price to the assets and liabilities
acquired. On May 1, 2002, HomeServices acquired a 50% interest in Prudential
California Realty's mortgage operations.
Subsequent Event
On April 11, 2002, CalEnergy Gas, an indirect wholly owned subsidiary of the
Company, announced the sale of several of its U.K. natural gas assets to Gaz
de France. As part of the sale, Gaz de France would acquire four natural
gas-producing fields located in the southern basin of the U.K. North Sea. Those
fields include Anglia, Johnston, Schooner and Windermere. The transaction also
includes the sale of rights in four gas fields (in development/construction) and
three exploration blocks owned by CalEnergy Gas.
The transaction requires regulatory review and approval and is expected to
close in the next several weeks.
Accounts Receivable Sold
In 1997, MidAmerican Energy entered into a revolving agreement, which expires in
October 2002, to sell all of its right, title and interest in the majority of
its billed accounts receivable to MidAmerican Energy Funding Corporation,
a special purpose entity established to purchase accounts receivable from
MidAmerican Energy. MidAmerican Energy Funding Corporation in turn sells
receivable interests to outside investors. In consideration for the sale,
MidAmerican Energy received cash and a subordinated note, bearing interest at
8%, from MidAmerican Energy Funding Corporation. As of March 31, 2002, the
revolving cash balance was $36 million and the amount outstanding under the
subordinated note was $55.6 million. The agreement is structured as a true sale,
under which the creditors of MidAmerican Energy Funding Corporation will be
entitled to be satisfied out of the assets of MidAmerican Energy Funding
Corporation prior to any value being returned to MidAmerican Energy or its
creditors. Therefore, the accounts receivable sold are not reflected on
MidAmerican Energy's or MidAmerican Funding's Consolidated Balance Sheets. As of
March 31, 2002, $90.7 million of accounts receivable, net of reserves, were sold
under the agreement.
Construction
Zinc Recovery Project
CalEnergy Minerals LLC is constructing the Zinc Recovery Project. The Zinc
Recovery Project is designed to have a capacity of approximately 30,000 metric
tons per year and is scheduled to commence commercial operations in 2002. Total
project costs of the Zinc Recovery Project are expected to be approximately
$224.9 million, net of damages, which is being funded by $140.5 million of debt
and the balance from funds provided by the parent company. The Zinc Recovery
Project has incurred $170.6 million, net of damages, of such costs through March
31, 2002.
MidAmerican Energy
MidAmerican Energy's primary need for capital is utility construction
expenditures. For the first three months of 2002, utility construction
expenditures totaled $62 million, including allowance for funds used during
construction, or capitalized financing costs, and Quad Cities Station nuclear
fuel purchases. All such expenditures were met with cash generated from utility
operations, net of dividends.
Forecasted utility construction expenditures, including allowances for funds
used during construction are $382 million for 2002 and $1.614 billion for 2003
through 2006. Capital expenditure needs are reviewed regularly by management and
may change significantly as a result of such reviews. Through 2007, MidAmerican
Energy plans to develop and construct two electric generating plants in Iowa,
requiring an investment of approximately $1.8 billion. Participation by others
in a portion of the second plant is being discussed. The two plants will provide
approximately 1,400 megawatts of generating capacity. The first project is a
500-megawatt natural gas-fired combined cycle unit with an estimated cost of
$416 million. MidAmerican Energy has received a certificate from the Iowa
Utilities Board allowing it to construct the 500-megawatt gas unit. In
accordance with an Iowa law passed in 2001, MidAmerican Energy has sought
Iowa Utilities Board approval for the ratemaking principles that will govern
cost recovery for the gas plant. A ruling is expected late in the second
quarter or early in the third quarter. That ruling will impact whether
MidAmerican Energy continues with the project. Assuming favorable regulatory
treatment is obtained for the ratemaking principles proceeding, it is
anticipated that the first phase of the project will be completed by 2003 with
the remainder being completed in 2005. MidAmerican Energy has incurred
preliminary costs on the first project. MidAmerican Energy expects to make
filing for a certificate and approval of ratemaking principles for the second
project during the third quarter of 2002. MidAmerican Energy presently expects
that all utility construction expenditures for the next five years will be met
with the issuance of long-term debt and cash generated from utility operations,
net of dividends. The actual level of cash generated from utility operations is
affected by, among other things, economic conditions in the utility service
territory, weather and federal and state regulatory actions.
Kern River Expansion
On August 1, 2001, Kern River filed an application with FERC requesting
authorization to construct, own and operate a major expansion to its pipeline
system. Kern River proposed to loop most of its existing mainline, construct
three new compressor stations and upgrade or modify its six existing compressor
stations. The proposed facilities will increase Kern River's capacity by
approximately 900 MMcf per day. Construction is expected to commence in August
2002, subject to receipt of the final FERC certificates, and the expansion is
expected to be completed and operational by May 2003. Service will be provided
under long-term contracts subject to incremental rates. The estimated cost of
the expansion is approximately $1.2 billion.
Domestic Rate Matters: Electric
On March 15, 2002, MidAmerican Energy made a filing with the Iowa Utilities
Board requesting an increase in rates of approximately $26.6 million for its
Iowa retail natural gas customers. As part of the filing, MidAmerican Energy
requested an interim rate increase of approximately $20.4 million annually. The
Iowa Utilities Board may adjust the requested interim amount and delay its
implementation for up to ninety days. MidAmerican Energy expects the final
rates, which may differ from the requested amount, to be implemented in early
2003.
Domestic Rate Matters: Gas Transmission
The FERC regulates Kern River under the Natural Gas Act, the Natural Gas Policy
Act of 1978 and other applicable FERC regulations. The FERC has jurisdiction
over Kern River with respect to virtually all aspects of its business. Kern
River holds certificates of public convenience and necessity issued by the FERC
covering its facilities, activities and services.
Kern River's rates and transportation charges are regulated by the FERC.
FERC regulations and Kern River's tariff allow Kern River to recover all
operations and maintenance costs, taxes, interest, depreciation and amortization
and a regulated return on equity. Natural gas transportation companies may not
grant any undue preference to any shipper, or maintain any unreasonable
difference in their rates or other terms of service.
Kern River's rates are set using a "levelized cost-of-service" methodology so
that the rate is constant over the contract period. This is achieved by using
a FERC-approved depreciation schedule in which depreciation increases as
interest expense decreases.
When Kern River commenced service in 1992, shippers signed 15-year long-term
firm transportation contracts that were to expire in 2007. Under terms of a 1995
rate settlement, Kern River agreed that new rates would be filed by May 1,
1999. Instead of filing a rate case, Kern River negotiated a
"pre-settlement" of the rate case with its shippers. This was approved by the
FERC (the "1999 Settlement"), which included an agreement for a moratorium on
rate cases until May 1, 2002 under which Kern River may be required to file a
rate case by May 1, 2004.
In order to reduce transportation rates further and extend contract terms
beyond 2007, Kern River initiated an open season in October 1998 to measure
interest in lower, extended term rates ("ET Rates") for extended term contracts.
Shippers were offered the choice of new 10- or 15-year contracts (4-9 year
extensions of their existing contracts) with both options starting on October 1,
2001 and expiring on either September 30, 2011 or September 30, 2016. On
February 8, 2001 the FERC approved implementation of the ET Rates. All existing
shippers have signed up under the ET Rates program. All of the pipeline's
existing firm capacity will continue to be contractually committed under the ET
Rates contracts until September 2011. Approximately 84% of the existing firm
pipeline volume is contracted until September 2016.
Environmental Matters: Domestic
The U.S. Environmental Protection Agency, or EPA, and 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 these contaminants are in sufficient quantities and at sufficient
concentrations as to warrant remedial action.
MidAmerican Energy has evaluated or is evaluating 27 properties which 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 an environmental
or health risk, and whether MidAmerican Energy has any responsibility for
remedial action. Investigations of the sites are at various stages, and
MidAmerican Energy has conducted ten removal actions to date. MidAmerican Energy
is continuing to evaluate several of the sites to determine the appropriate site
remedies, if any, necessary to obtain site closure from the agencies.
MidAmerican Energy estimates the range of possible costs for investigation,
remediation and monitoring for the sites discussed above to be $21 million to
$68 million. MidAmerican Energy's estimate of the probable cost for these sites
as of March 31, 2002 was $21 million. The estimate consists of $2 million for
investigation costs, $6 million for remediation costs, $11 million for ground
water treatment and monitoring costs and $2 million for closure and
administrative costs. This estimate has been recorded as a liability and a
regulatory asset for future recovery. MidAmerican Energy projects that these
amounts will be paid or incurred over the next 5 years.
The estimate of probable remediation costs is established on a site-specific
basis. Initially, a determination is made as to whether MidAmerican Energy has
potential remedial liability for the site and whether information exists to
indicate that contaminated wastes remain at the site. When a potential remedial
liability exists, the best estimate of projected site closure costs are
accrued. The estimates are evaluated and revised quarterly as appropriate based
on additional information obtained during investigation and remedial activities.
The estimated recorded liabilities for these properties include incremental
direct costs of the remediation effort and oversight by the appropriate
regulatory authority, costs for future monitoring at sites and costs of compen-
sation to employees for time expected to be spent directly on the remediation
effort. The estimated recorded liability 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 Iowa Utilities Board, and are
recorded as a regulatory liability. Additionally, as viable potentially
responsible parties are identified, those parties are evaluated for potential
contributions, and cost recovery is pursued when appropriate.
The Illinois Commerce Commission has approved the use of a tariff rider that
permits recovery of the actual costs of litigation, investigation and
remediation relating to decommissioned manufactured gas plant sites. MidAmerican
Energy's present rates in Iowa provide for a fixed annual recovery of
manufactured gas plant costs.
Although the timing of potential incurred costs and recovery of 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 the Company's financial position or results of operations.
In July 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards for ozone and a new standard for fine particulate matter. In February
2001, United States Supreme Court upheld the constitutionality of the standards,
through remanding the issue of implementation of the ozone standard to the EPA.
The impact of the new standards on MidAmerican Energy is currently unknown.
MidAmerican Energy's generating stations may be subject to emission reductions
if the stations are located in nonattainment areas or contribute to
nonattainment areas in other states. As part of an overall state plan to achieve
attainment of the standards, MidAmerican Energy could be required to install
control equipment on its generating stations or decrease the number of hours
during which these stations operate.
In 2001, the state of Iowa passed legislation that, in part, requires
rate-regulated utilities to develop a multi-year plan and budget for managing
regulated emissions from their generating facilities in a cost-effective manner.
MidAmerican Energy's proposed plan and associated budget (the Plan) was filed
with the Iowa Utilities Board on April 1, 2002, in accordance with state law.
Following a contested case proceeding, the Iowa Utilities Board is required to
rule on the prudence of the Plan. MidAmerican Energy is required to file Plan
updates at least every two years.
The Plan provides MidAmerican Energy's projected air emission reductions
considering current proposals being debated at the federal level and describes a
coordinated long-range plan to achieve these air emission reductions. The Plan
provides specific actions to be taken at each coal-fired generating
facility and related costs and timing for each action.
The Plan outlines $732.0 million in environmental investments to existing
coal-fired generating units, some of which are jointly owned, over a nine-year
period from 2002 through 2010. MidAmerican Energy's share of these investments
is $546.6 million, $67.9 million of which is projected to be incurred during the
2002-2005 rate freeze period. The Plan also identifies expenses that will be
incurred at the generating facilities to operate and maintain the environmental
equipment installed as a result of the Plan.
Following the expiration of the 2001 settlement agreement on December 31,
2005, MidAmerican Energy proposes the use of an adjustment mechanism for
recovery of Plan costs, similar to the tracker mechanisms for cost recovery for
Cooper Nuclear Station, renewable energy and energy efficiency expenditures that
are presently part of MidAmerican Energy's electric regulated rates.
Environmental Matters: U.K.
The U.K. Government introduced new contaminated land legislation in April
2000 that requires companies to:
o put in place a program for investigating the company's history to
identify problem sites for which it is responsible;
o make a clear commitment to meeting responsibilities for cleaning up
those sites;
o provide funding to make sure that this can happen; and
o make commitments public.
CE Electric UK Funding is in the process of completing the evaluation work
on the three sites that may be subject to the legislation. Exploratory work with
an environmental remediation company is in progress on these sites.
The Environmental Protection Act (Disposal of PCB's and other Dangerous
Substances) Regulations 2001 were introduced on May 5, 2000. The regulations
required that transformers containing over 50 parts per million (PPM) be
registered with the Environment Agency by July 31, 2000. Transformers containing
500 PPM must be de-contaminated by December 31, 2000. CE Electric UK Funding has
registered 140 items above 50 PPM on 74 sites, decontaminated 18 items and
informed the Environment Agency that it is continuing with its sampling,
labeling and registration program.
The Groundwater Regulations seek to prevent List I and List II substances
entering groundwater and strengthens the UK Environment Agencies powers to
require additional protective measures, especially in areas of important
groundwater supplies. Mineral oils and hydrocarbons are included in the more
tightly controlled List I substances. This affects the high voltage fluid filled
electricity cable network incorporating an insulating fluid currently in the
List I category. Further research may result in recategorization because of the
biodegradable qualities of the cable fluid. The existing voluntary Operating
Code of Practice, as agreed between the Agency and the Electricity Supply
Industries, is undergoing revision through the services of the Electricity
Association to address the regulatory changes. Helpful discussions with the
Environment Agency continue.
The Oil Storage Regulations come into force in 2002 and requires the
introduction of secondary containment measures (bunding) for all above ground
oil storage locations where the capacity is more than 200 litres. The primary
containers must be in sound condition, leak free, and positioned away from
vehicle traffic routes. The secondary containment must be impermeable to water
and oil (without drainage valve) and be subject to routine maintenance. The
capacity of the bund must be sufficient to hold up to 110% of the largest stored
vessel or 25% of the maximum stored capacity, whichever is the greater. The full
impact of the regulations will be phased in over the next three years. The
Regulations come into effect as follows:
o March 1, 2002 for all new oil stores.
o September 1, 2003 for existing stores at "significant risk" (i.e.
within 10 meters of a water course).
o September 1, 2005 for all remaining stores.
A detailed study of the impacts has been carried out and a plan of action
prepared to ensure compliance.
Nuclear Decommissioning
Each licensee of a nuclear facility is required to provide financial
assurance for the cost of decommissioning its licensed nuclear facility. In
general, decommissioning of a nuclear facility means to safely remove the
facility from service and restore the property to a condition allowing
unrestricted use by the operator. Based on information presently available, the
Company expects to contribute approximately $41 million during the period 2002
through 2006 to an external trust established for the investment of funds for
decommissioning Quad Cities Station. Approximately 60% of the fair value of the
trust's funds are now invested in domestic corporate debt and common equity
securities. The remainder is invested in investment grade municipal and U.S.
Treasury bonds.
Based on information presently available and assuming a September 2004
shutdown of Cooper, MidAmerican Energy expects to accrue approximately $54
million for Cooper decommissioning during the period 2002 through 2004.
MidAmerican Energy's obligation, if any, for Cooper decommissioning will be
affected by the actual plant shutdown date. In July 1997, the Nebraska Public
Power District ("NPPD") filed a lawsuit in United States District Court for the
District of Nebraska naming MidAmerican Energy as the defendant and seeking a
declaration of MidAmerican Energy's rights and obligations in connection with
Cooper nuclear decommissioning funding. See discussion in Note 8 in the notes to
the consolidated financial statements.
Cooper and Quad Cities Station decommissioning costs charged to Iowa
customers are included in base rates, and recovery of increases in those amounts
must be sought through the normal ratemaking process. Cooper decommissioning
costs charged to Illinois customers are recovered through a rate rider on
customer billings.
Cooper Nuclear Station
Under a long-term power purchase contract with NPPD, MidAmerican Energy
purchases one-half of the output of Cooper. On April 1, 2002, the Nuclear
Regulatory Commission ("NRC") placed Cooper in its "Multiple Repetitive Degraded
Cornerstone" category of the NRC's Reactor Oversight Process Action Matrix. As a
result, the NRC will conduct extensive diagnostic inspections at Cooper, which
are currently anticipated to be completed during the month of June 2002.
MidAmerican Energy cannot, at this time, predict the outcome of the NRC
inspections and their impact on the operation of Cooper. NPPD has informed
MidAmerican Energy that it is currently developing an improvement plan which it
believes will address the issues that caused Cooper to be placed into this
category.
Development Activity
The Company is actively seeking to develop, construct, own and operate new
energy projects, both domestically and internationally, the completion of any of
which is subject to substantial risk. Development can require the Company to
expend significant sums for preliminary engineering, permitting, fuel supply,
resource exploration, legal and other expenses in preparation for competitive
bids which the Company may not win or before it can be determined whether a
project is feasible, economically attractive or capable of being financed.
Successful development and construction is contingent upon, among other things,
negotiation on terms satisfactory to the Company of engineering, construction,
fuel supply and sales contracts with other project participants, receipt of
required governmental permits and consents and timely implementation of
construction. There can be no assurance that development efforts on any
particular project, or the Company's development efforts generally, will be
successful.
The financing, construction and development of projects outside the United
States entail significant political and financial risks (including, without
limitation, uncertainties associated with first time privatization efforts in
the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, political instability, civil unrest and
expropriation) and other structuring issues that have the potential to cause
substantial delays or material impairment of the value of the project being
developed, which the Company may not be fully capable of insuring against. The
uncertainty of the legal environment in certain foreign countries in which the
Company may develop or acquire projects could make it more difficult for the
Company to enforce its rights under agreements relating to such projects. In
addition, the laws and regulations of certain countries may limit the ability of
the Company to hold a majority interest in some of the projects that it may
develop or acquire. The Company's international projects may, in certain cases,
be terminated by a government. Projects in operation, construction and
development are subject to a number of uncertainties more specifically described
in the Company's Form 8-K, dated March 26, 1999, filed with the Securities and
Exchange Commission.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which addresses the accounting for legal obligations associated
with the retirement of tangible, long-lived assets, and the associated asset
retirement costs. This pronouncement is effective for years beginning after June
15, 2002. The Company is evaluating the impact that adoption of this standard
will have on its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk, including charges in the market
price of certain commodities and interest rates. To manage the price volatility
relating to these exposures, the Company enters into various financial
derivative instruments. Senior management provides the overall direction,
structure, conduct and control of the Company's risk management activities,
including the use of financial derivative instruments, authorization and
communication of risk management policies and procedures, strategic hedging
program guidelines, appropriate market and credit risk limits, and appropriate
systems for recording, monitoring and reporting the results of transactional and
risk management activities.
Refer to Note 16 in Notes to Consolidated Financial Statements in the
Annual Report on Form 10-K for the year ended December 31, 2001 for discussion
on derivatives used to hedge price risk. The Company's exposure to commodity
price risk and interest rate risk did not change materially from December 31,
2001.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
In addition to the proceedings described in Note 8 in the notes to the
consolidated financial statements, the Company and its subsidiaries are
currently parties to various minor items of litigation or arbitration, none of
which, if determined adversely, would have a material adverse effect on the
Company.
Item 2 Changes in Securities and Use of Proceeds.
Not applicable.
Item 3 Defaults on Senior Securities.
Not applicable.
Item 4 Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5 Other Information.
Not applicable.
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
On March 8, 2002, the Company filed a Form 8-K, dated March 8, 2002,
stating it had reached a definitive agreement with The Williams Companies, Inc.
to acquire William's Kern River Gas Transmission Company.
On March 28, 2002, the Company filed a Form 8-K, dated March 28, 2002,
stating it had completed its acquisition of Kern River Gas Transmission from The
Williams Companies, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
-----------------------------------
(Registrant)
Date: May 15, 2002 /s/ Patrick J. Goodman
-----------------------------------
Patrick J. Goodman
Senior Vice President & Chief
Financial Officer