Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report February 18, 2004
(Date of earliest event reported)
MidAmerican Energy Holdings Company
(Exact name of registrant as specified in its charter)
Iowa 0-25551 94-2213782
---- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
666 Grand Avenue, Des Moines, Iowa 50309
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 242-4300
--------------
N/A
------------------------ ----
(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
Cautionary Statements. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"), MidAmerican
Energy Holdings Company (the "Company") is hereby filing cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those expressed or implied by forward-looking statements
of the Company made by or on behalf of the Company, whether oral or written. The
Company wishes to ensure that any forward-looking statements are accompanied by
meaningful cautionary statements in order to maximize to the fullest extent
possible the protections of the safe harbor established in the Reform Act.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the following important factors, among others, that
could cause the Company's actual results to differ materially from those
expressed or implied by forward-looking statements of the Company made by or on
behalf of the Company.
The Company cautions that the following important factors, among others
(including but not limited to factors mentioned from time to time in the
Company's reports filed with the Securities and Exchange Commission), could
affect the Company's actual results and could cause the Company's actual
consolidated results to differ materially from those expressed or implied by any
forward-looking statements of the Company made by or on behalf of the Company.
The factors included here are not exhaustive. Forward-looking statements, by
their nature, are speculative and are based on then current expectations
involving a number of known and unknown risks and uncertainties that could cause
the actual results or performance, expressed or implied, by the forward-looking
statements. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and the Company undertakes no obligation to update
any forward-looking statement or statements to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence or
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
expressed or implied by any forward-looking statements. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results.
Risk Associated with the Company's Corporate and Financial Structure
The Company is a holding company that depends on distributions from its
subsidiaries and joint ventures to meet its needs.
The Company is a holding company and derives substantially all of its income and
cash flow from its subsidiaries and joint ventures. The Company expects that
future development and acquisition efforts will be similarly structured to
involve operating subsidiaries and joint ventures. The Company is dependent on
the earnings and cash flows of, and dividends, loans, advances or other
distributions from, its subsidiaries and joint ventures to generate the funds
necessary to meet its obligations, including the payment of principal of, or
interest and premium, if any, on, its indebtedness. All required payments on
debt and preferred stock at subsidiary levels will be made before funds from its
subsidiaries are available to the Company. The availability of distributions
from such entities is also subject to:
o their earnings and capital requirements,
o the satisfaction of various covenants and conditions contained in
financing documents by which they are bound or in their organizational
documents, and
o in the case of the Company's regulated utility subsidiaries,
regulatory restrictions which restrict their ability to distribute
profits to the Company.
The Company's subsidiaries and joint ventures are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Company's indebtedness or to make any funds available, whether
by dividends, loans or other payments, for payment of the Company's
indebtedness, and do not guarantee the payment of interest or premium, if any,
on or principal of the Company's indebtedness.
The Company is substantially leveraged and its indebtedness is structurally
subordinated to the indebtedness of its subsidiaries.
The Company's substantial leverage level presents the risk that it might not
generate sufficient cash to service its indebtedness or that its leveraged
capital structure could limit its ability to finance future acquisitions,
develop additional projects, compete effectively and operate successfully under
adverse economic conditions.
The terms of the Company's indebtedness do not limit its ability or the ability
of its subsidiaries or joint ventures to incur additional debt or issue
additional preferred stock. Accordingly, the Company or its subsidiaries or
joint ventures could enter into acquisitions, refinancings, recapitalizations or
other highly leveraged transactions that could significantly increase the
Company's or their total amount of outstanding debt. The interest payments
needed to service this increased level of indebtedness could have a material
adverse effect on the Company's or its subsidiaries' operating results. A highly
leveraged capital structure could also impair the Company's or its subsidiaries'
overall credit quality, making it more difficult for it to finance its
operations or issue future indebtedness on reasonable terms, and could result in
a downgrade in the ratings of its indebtedness by credit rating agencies.
Further, if any of the Company's or its subsidiaries' indebtedness is
accelerated due to an event of default under such indebtedness, and such
acceleration results in an event of default under some or all of the Company's
other indebtedness, the Company may not have sufficient funds to repay all of
its accelerated indebtedness simultaneously.
Claims of creditors of the Company's subsidiaries and joint ventures will have
priority over the claims of the holders of the Company's indebtedness with
respect to the assets and earnings of the Company's subsidiaries and joint
ventures. In addition, the stock or assets of substantially all of the Company's
operating subsidiaries and joint ventures is directly or indirectly pledged to
secure their financings and, therefore, may be unavailable as potential sources
of repayment of the Company's indebtedness.
Risks Associated with the Company's Business
The Company's recent growth has been achieved, in part, through strategic
acquisitions, and additional acquisitions may not be successful.
Because the Company's industry is rapidly changing, there are opportunities for
acquisitions of assets and businesses, as well as for business combinations. The
Company investigates opportunities that may increase shareholder value and build
on existing businesses. The Company has participated in the past and its
security holders may assume that at any time the Company may be participating in
bidding or other negotiations for such transactions. This participation may or
may not result in a transaction for the Company. Any transaction that does take
place may involve consideration in the form of cash, debt or equity securities.
Since 2001, the Company has completed several significant acquisitions,
including the acquisitions of Yorkshire Power Group Limited, Kern River Gas
Transmission Company and Northern Natural Gas Company. The Company intends to
continue to actively pursue acquisitions to complement and diversify its
existing business for the foreseeable future.
The successful integration of any businesses the Company may acquire in the
future will entail numerous risks, including, among others, the risk of
diverting management's attention from day-to-day operations, the risk that the
acquired businesses will require substantial capital and financial investments
and the risk that the investments will fail to perform in accordance with
expectations. Any substantial diversion of management attention and any
substantial difficulties encountered in the transition and integration process
could have a material adverse effect on the revenues, levels of expenses and
operating results of the Company.
In addition, it has been publicly reported over the past three years that many
of the participants in the United States energy industry, including the prior
owners of Kern River Gas Transportation Company and Northern Natural Gas Company
and potentially including other industry participants from whom the Company may
choose to purchase additional businesses in the future, have recently had or may
have liquidity, creditworthiness and other financial difficulties. As a
consequence, there can be no assurance that any such sellers will not enter into
bankruptcy or insolvency proceedings or that they will otherwise be able,
required or willing to perform on their indemnification obligations to the
Company if it should elect to pursue any such claims it may have against any of
them under its acquisition agreements in the future. If the Company's due
diligence efforts were or are unsuccessful in identifying and analyzing all
material liabilities relating to acquired companies and if there were to be any
material undisclosed liabilities, or if there were to be other unexpected
consequences from any such bankruptcy or insolvency proceeding, such as a
successful challenge as to whether the prices paid by the Company constituted
reasonably equivalent value within the meaning of the relevant bankruptcy laws,
then any such bankruptcy or insolvency, or failure by any of these sellers to
perform their indemnification obligations to the Company, could have a material
adverse effect on its business, financial condition, results of operations and
the market prices and rates for its securities.
The Company can provide no assurance that future acquisitions, if any, or any
related integration efforts will be successful, or that its ability to repay its
indebtedness will not be adversely affected by any future acquisitions.
The Company is actively pursuing, developing and constructing new or expanded
facilities, the completion and expected cost of which is subject to significant
risk.
Through its subsidiaries, the Company is continuing to develop, construct, own
and operate new or expanded facilities and in the future it expects to pursue
the development, construction, ownership and operation of additional new or
expanded energy projects (including, without limitation, generation,
distribution, transmission, exploration/production, storage and supply projects
and related activities, infrastructure and services), both domestically and
internationally, the completion of any of which, including any future projects,
is subject to substantial risk and may expose the Company to significant costs.
The Company cannot provide assurance that its development or construction
efforts on any particular project, or its efforts generally, will be successful.
Also, a proposed expansion or new project may cost more than planned to
complete, and such excess costs, if related to a regulated asset and found to be
imprudent, may not be recoverable in rates. The inability to successfully and
timely complete a project or avoid unexpected costs may require the Company to
perform under guarantees, and the inability to avoid unsuccessful projects or to
recover any excess costs may materially affect its ability to service its debt
obligations.
The Company's subsidiaries are subject to certain operating uncertainties which
may adversely affect its financial position, results of operation and ability to
service its debt obligations.
The operation of complex electric and gas utility (including transmission and
distribution systems), pipeline or power generating facilities involves many
risks associated with operating uncertainties and events beyond the Company's
control. These risks include the breakdown or failure of power generation
equipment, compressors, pipelines, transmission and distribution lines or other
equipment or processes, fuel interruption, performance below expected levels of
output, capacity or efficiency, operator error and catastrophic events such as
severe storms, fires, earthquakes or explosions. A casualty occurrence might
result in injury or loss of life, extensive property damage or environmental
damage. The realization of any of these risks could significantly reduce or
eliminate the Company's affiliates' revenues or significantly increase its
affiliates' expenses, thereby adversely affecting the ability to receive
distributions from subsidiaries and joint ventures. For example, if the
Company's affiliates cannot operate their electric or natural gas facilities at
full capacity due to restrictions imposed by environmental regulations, their
revenues could decrease due to decreased wholesale sales and their expenses
could increase due to the need to obtain energy from higher cost sources. Any
reduction of revenues for such reason, or any other reduction of the Company's
affiliates' revenues or increase in their expenses resulting from the risks
described above, could decrease the Company's net cash flow and provide it with
less funds with which to service its debt obligations.
Further, the Company cannot provide assurance that its current and future
insurance coverage will be sufficient to replace lost revenue or cover repair
and replacement costs, especially in light of the changes in the insurance
markets following the September 11, 2001 terrorist attacks that make it more
difficult or costly to obtain certain types of insurance.
Acts of sabotage and terrorism aimed at the Company's facilities, the facilities
of its fuel suppliers or customers, or at regional transmission facilities could
adversely affect its business.
Since the September 11, 2001 terrorist attacks, the United States government has
issued warnings that energy assets, specifically the nation's pipeline and
electric utility infrastructure, may be the future targets of terrorist
organizations. These developments have subjected the Company's operations to
increased risks. Damage to the assets of the Company's fuel suppliers, the
assets of its customers or its own assets or at regional transmission facilities
inflicted by terrorist groups or saboteurs could result in a significant
decrease in revenues and significant repair costs, force the Company to increase
security measures, cause changes in the insurance markets and cause disruptions
of fuel supplies, energy consumption and markets, particularly with respect to
natural gas and electric energy. Any of these consequences of acts of terrorism
could materially affect the Company's results of operations and decrease the
amount of funds it has available to make payments on its indebtedness.
Instability in the financial markets as a result of terrorism or war could also
materially adversely affect the Company's ability to raise capital.
The Company is subject to comprehensive energy regulation and changes in
regulation and rates may adversely affect its business, financial condition,
results of operations and ability to service its debt obligations.
The Company is subject to comprehensive governmental regulation, including
regulation in the United States by various federal, state and local regulatory
agencies, regulation in the United Kingdom and regulation in the Philippines,
all of which significantly influences its operating environment, its rates, its
capital structure, its costs and its ability to recover its costs from
customers. These regulatory agencies include, among others, the Federal Energy
Regulatory Commission ("FERC"), the Environmental Protection Agency, the Nuclear
Regulatory Commission ("NRC"), the United States Department of Transportation,
the Iowa Utilities Board, the Illinois Commerce Commission, other state utility
boards, numerous local agencies, the Gas and Electricity Markets Authority,
which in discharging certain of its powers acts through its staff within the
Office of Gas and Electricity Markets, in the United Kingdom, and various other
governmental agencies in the United States, United Kingdom and the Philippines.
The Company is currently exempt from the requirement to register with the
Securities and Exchange Commission ("SEC"), under the Public Utility Holding
Company Act of 1935, as amended ("PUHCA"), but if it were to cease to be exempt
or if it were to become a subsidiary of a non-exempt holding company, it would
become subject to additional regulation by the SEC under PUHCA. Under PUHCA,
registered holding companies and their subsidiaries are subject to regulation
and restrictions with respect to certain of their activities, including
securities issuances, acquisitions, investments and affiliate transactions. The
Company is unable to predict the impact on its operating results of the actions
or policies of any of these agencies or the SEC under PUHCA. Changes in
regulations or the imposition of additional regulations by any of these entities
could have a material adverse impact on the Company's results of operations. For
example, such changes could result in increased retail competition in
MidAmerican Energy Company's service territory, the acquisition by a
municipality (by negotiation or condemnation) of the Company's distribution
facilities or a negative impact on its current transportation and cost recovery
arrangements.
The structure of federal and state energy regulation is currently undergoing
change and has in the past, and may in the future, be the subject of various
challenges, initiatives and restructuring proposals by policy makers, utilities
and other industry participants. Following the cascading blackouts that occurred
in parts of the Midwest and Northeast United States and Eastern Canada on August
14, 2003, federal, state and Canadian officials, as well as non-governmental
organizations charged with electric reliability responsibilities, are
considering measures designed to promote the reliability of electric
transmission and distribution systems. The implementation of regulatory changes
in response to such challenges, initiatives and restructuring proposals could
result in the imposition of more comprehensive or stringent requirements on the
Company or its subsidiaries or other industry participants, which would result
in increased compliance costs and could have a material adverse effect on its
business, financial condition, results of operations and ability to service its
debt obligations.
The Company is subject to environmental, health, safety and other laws and
regulations which may adversely impact it.
Through its subsidiaries and joint ventures, the Company is subject to a number
of environmental, health, safety and other laws and regulations affecting many
aspects of its present and future operations, both domestic and foreign,
including air emissions, water quality, wastewater discharges, solid wastes,
hazardous substances and safety matters. The Company may incur substantial costs
and liabilities in connection with its operations as a result of these
regulations. In particular, the cost of future compliance with federal, state
and local clean air laws, such as those that require certain generators,
including some of the Company's subsidiaries' electric generating facilities, to
limit nitrogen oxide emissions, mercury emissions and other potential
pollutants, may require it to make significant capital expenditures which may
not be recoverable through future rates. In addition, these costs and
liabilities may include those relating to claims for damages to property and
persons resulting from the Company's operations. The implementation of
regulatory changes imposing more comprehensive or stringent requirements on the
Company, to the extent such changes would result in increased compliance costs
or additional operating restrictions, could have a material adverse effect on
its business, financial condition, results of operations and ability to service
its debt obligations.
In addition, regulatory compliance for existing facilities and the construction
of new facilities is a costly and time-consuming process, and intricate and
rapidly changing environmental regulations may require major expenditures for
permitting and create the risk of expensive delays or material impairment of
value if projects cannot function as planned due to changing regulatory
requirements or local opposition.
The Pipeline Safety Improvement Act and the new rule that became effective under
the Act on February 14, 2004, together with other potential pipeline safety
legislation and an increase in public expectations on pipeline safety, may also
require replacement of some of the Company's pipeline segments, addition of
monitoring equipment, and more frequent inspection or testing of its pipeline
facilities. These requirements coupled with increases in state and federal
agency oversight, if adopted, would necessitate additional testing and reporting
which may result in higher operating costs and capital costs. The Company's
FERC-approved tariffs or competition from other natural gas sources may not
allow it to recover these increased costs of compliance.
In addition to operational standards, environmental laws also impose obligations
to clean up or remediate contaminated properties or to pay for the cost of such
remediation, often upon parties that did not actually cause the contamination.
Accordingly, the Company may become liable, either contractually or by operation
of law, for remediation costs even if the contaminated property is not presently
owned or operated by it, or if the contamination was caused by third parties
during or prior to its ownership or operation of the property. Given the nature
of the past industrial operations conducted by the Company and others at its
properties, there can be no assurance that all potential instances of soil or
groundwater contamination have been identified, even for those properties where
an environmental site assessment or other investigation has been conducted.
Although the Company has accrued reserves for its known remediation liabilities,
future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to additional remediation liabilities which may be material. Any failure to
recover increased environmental, health or safety costs incurred by the Company
may have a material adverse effect on its business, financial condition, results
of operations and ability to service its debt obligations.
One of the Company's wholly owned subsidiaries, MidAmerican Energy Company, is
subject to the unique risks associated with nuclear generation.
The risks of nuclear generation include the potential harmful effects on the
environment and human health resulting from the operation of nuclear facilities
and the storage, handling and disposal of radioactive materials, limitations on
the amounts and types of insurance commercially available to cover losses that
might arise in connection with nuclear operations and uncertainties with respect
to the technological and financial aspects of decommissioning nuclear plants at
the end of their licensed lives.
The NRC has broad authority under federal law to impose licensing and
safety-related requirements for the operation of nuclear generating facilities.
In the event of non-compliance, the NRC has the authority to impose fines or
shut down a unit, or both, depending upon its assessment of the severity of the
situation, until compliance is achieved. Revised safety requirements promulgated
by the NRC have, in the past, necessitated substantial capital expenditures at
nuclear plants, including the facility in which the Company has an ownership
interest, and additional expenditures could be required in the future. In
addition, although the Company has no reason to anticipate a serious nuclear
incident at the facility in which it has an interest, if an incident did occur,
it could have a material but presently undeterminable adverse effect on its
financial position, results of operations and ability to service its debt
obligations.
Increased competition resulting from legislative, regulatory and restructuring
efforts could have a significant financial impact on the Company and its utility
subsidiaries and consequently decrease its revenue.
In recent years, some state legislative and regulatory authorities have
implemented measures to establish a competitive energy market. The move towards
a competitive environment could result in the emergence of numerous strong and
capable competitors, many of which may have more extensive operating experience
and greater financial resources than the Company and its subsidiaries. Retail
competition and the unbundling of regulated energy and gas service could have a
significant adverse financial impact on the Company and its subsidiaries due to
an impairment of assets, a loss of customers, lower profit margins and increased
costs of capital. The total impacts of restructuring may have a significant
effect on the Company's financial position, results of operations and cash
flows. The Company cannot predict if and when it will be subject to changes in
legislation or regulation, nor can it predict the impacts of these changes on
its financial position, results of operations or cash flows.
The wholesale generation segment of the electric industry has been and will
continue to be significantly impacted by competition. Competition in the
wholesale market has resulted in a proliferation of power marketers and a
substantial increase in market activity. Many of these marketers have
experienced financial difficulties and the market continues to be volatile.
Margins from wholesale electric transactions have a material impact on the
Company's results of operations. Accordingly, significant changes in the
wholesale electric markets could have a material adverse effect on the Company's
financial position, results of operations and the ability to service its debt
obligations.
As a result of the FERC orders, including Order 636, the FERC's policies
favoring competition in gas markets, the expansion of existing pipelines and the
construction of new pipelines, the interstate pipeline industry has begun to
experience some failure to renew, or turn back, of firm capacity, as existing
transportation service agreements expire and are terminated. Local distribution
companies and end-use customers have more choices in the new, more competitive
environment and may be able to obtain service from more than one pipeline to
fulfill their natural gas delivery requirements. If a pipeline experiences
capacity turn back and is unable to remarket the capacity, the pipeline or its
remaining customers may have to bear the costs associated with the capacity that
is turned back. Any new pipelines that are constructed could compete with the
Company's pipeline subsidiaries for customers' service needs. Increased
competition could reduce the volumes of gas transported by the Company's
pipeline subsidiaries or, in cases where they do not have long-term fixed rate
contracts, could force its pipeline subsidiaries to lower their rates to meet
competition. This could adversely affect its pipeline subsidiaries' financial
results.
A significant decrease in demand for natural gas in the markets served by the
Company's subsidiaries' pipeline and distribution systems would significantly
decrease its revenue and thereby adversely affect its business, financial
condition, results of operations and ability to service its debt obligations.
A sustained decrease in demand for natural gas in the markets served by the
Company's subsidiaries' pipeline and distribution systems would significantly
reduce its revenues. Factors that could lead to a decrease in market demand
include:
o a recession or other adverse economic condition that results in a
lower level of economic activity or reduced spending by consumers
on natural gas;
o an increase in the market price of natural gas or a decrease in
the price of other competing forms of energy, including electri-
city, coal and fuel oil;
o higher fuel taxes or other governmental or regulatory actions that
increase, directly or indirectly, the cost of natural gas or that
limit the use of natural gas;
o a shift by consumers to more fuel-efficient or alternative fuel
machinery or an improvement in fuel economy, whether as a result
of technological advances by manufacturers, pending legislation
proposing to mandate higher fuel economy, or otherwise; and
o a shift by the Company's pipeline and distribution customers to
the use of alternate fuels, such as fuel oil, due to price
differentials or other incentives.
Cyclical fluctuations in the residential real estate brokerage and mortgage
businesses could adversely affect HomeServices.
The Company's subsidiary, HomeServices of America, Inc. ("HomeServices"), has
experienced strong revenue growth and increases in net income in each of the
years ended December 31, 2003 and 2002. The residential real estate brokerage
and mortgage industries tend to experience cycles of greater and lesser activity
and profitability and are typically affected by changes in economic conditions
which are beyond HomeServices' control. Any of the following could have a
material adverse effect on HomeServices' businesses by causing a general decline
in the number of home sales, sale prices or the number of home financings which,
in turn, would adversely affect revenues and profitability:
o rising interest rates or unemployment rates;
o periods of economic slowdown or recession;
o decreasing home ownership rates; and
o declining demand for real estate.
Failure of the Company's significant power purchasers, pipeline customers and
United Kingdom distribution customers to pay amounts due under their contracts
could reduce its revenues materially.
The Company's subsidiaries' non-utility generating facilities and both of its
pipeline subsidiaries are dependent upon a relatively small number of customers
for a significant portion of their revenues. In addition, the Company's United
Kingdom utility distribution businesses are dependent upon a relatively small
number of retail suppliers, including one retail supplier who represents
approximately 50% of the total revenues of the Company's United Kingdom utility
distribution businesses. As a result, the Company's profitability and ability to
make payments on its debt obligations generally will depend in part upon the
continued financial performance and creditworthiness of these customers.
Accordingly, failure of one or more of the Company's most significant customers
to pay for contracted electric generating capacity, pipeline capacity
reservation charges or distribution system use charges, as applicable, for
reasons related to financial distress or otherwise, could reduce the Company's
revenues materially if it were not able to make adequate alternate arrangements
on a timely basis, such as adequate replacement contracts. The replacement of
any of the Company's existing long-term contracts or its United Kingdom retail
suppliers, should it become necessary, will depend on a number of factors beyond
its control, including:
o the availability of economically deliverable natural gas for transport
through the Company's pipeline system, including in particular
continued availability of adequate supplies from the Rocky Mountains,
Hugoton, Permian, Anadarko and Western Canadian supply basins currently
accessible to its pipeline subsidiaries;
o existing competition to deliver natural gas to the upper Midwest and
southern California;
o new pipelines or expansions potentially serving the same markets as the
Company's pipelines;
o the growth in demand for natural gas in the upper Midwest, southern
California, Nevada and Utah;
o whether transportation of natural gas pursuant to long-term contracts
continues to be market practice;
o the actions of regulators, including the United Kingdom electricity
regulator;
o the availability and financial condition of replacement United Kingdom
retail suppliers; and
o whether the Company's business strategy, including its expansion
strategy, continues to be successful.
Any failure to replace a significant portion of these contracts on adequate
terms or to make other adequate alternate arrangements, should it become
necessary, may have a material adverse effect on the Company's business,
financial condition, results of operations and ability to service its debt
obligations.
The Company's utility and non-utility energy businesses are subject to power and
fuel price fluctuations and other commodity price risks and credit risks that
could adversely affect its results of operations.
The Company is exposed to commodity price risks, energy transmission price risks
and credit risks in its subsidiaries' generation, retail distribution and
pipeline operations. Specifically, such risks include commodity price changes,
market supply shortages, interest rate changes and counterparty default, all of
which could have an adverse effect on the Company's financial condition, results
of operations and ability to service its debt obligations. For example, the sale
of electric power and natural gas is generally a seasonal business, which
seasonality results in competitive price fluctuations. The Company's revenues
are negatively impacted by low commodity prices resulting from low demand for
electricity. Demand for electricity often peaks during the hottest summer months
and coldest winter months and declines during the other months. As a result of
these variations in demand and resulting price fluctuations, the Company's
overall operating results in the future may fluctuate substantially on a
seasonal basis. The Company has historically earned less income when weather
conditions are milder. The Company's expects that unusually mild weather in the
future could decrease its revenues and provide it with less funds available to
service its debt obligations.
Also, in Iowa, MidAmerican Energy Company does not have an ability to pass
through electric fuel price increases in its rates (an energy adjustment
clause), so any significant increase in electric fuel costs or purchased power
costs for electricity generation could have a negative impact on MidAmerican
Energy Company. The impact of these risks could result in the Company's
inability to fulfill contractual obligations and significantly higher energy or
fuel costs relative to corresponding sales contracts. Any of these consequences
could decrease the Company's net cash flow and impair its ability to make
payments on its indebtedness.
The Company has significant operations outside the United States which may be
subject to increased risk because of the economic or political conditions of the
country in which they operate.
The Company has a number of operations outside of the United States. The
acquisition, ownership and operation of businesses outside the United States
entail significant political and financial risks (including, without limitation,
uncertainties associated with privatization efforts, inflation, currency
exchange rate fluctuations, currency repatriation restrictions, changes in law
or regulation, changes in government policy, political instability, civil unrest
and expropriation) and other risk/structuring issues that have the potential to
cause material impairment of the value of the business being operated, which the
Company may not be capable of fully insuring against. The risk of doing business
outside of the United States could be greater than in the United States because
of specific economic or political conditions of each country. The uncertainty of
the legal environment in certain foreign countries in which the Company operates
or may acquire projects or businesses could make it more difficult for it to
enforce its rights under agreements relating to such projects or businesses. The
Company's international projects may be subject to the risk of being delayed,
suspended or terminated by the applicable foreign governments or may be subject
to the risk of contract abrogation, expropriations or other uncertainties
resulting from changes in government policy or personnel or changes in general
political or economic conditions affecting the country or otherwise. In
addition, the laws and regulations of certain countries may limit the Company's
ability to hold a majority interest in some of the projects or businesses that
it may acquire. Furthermore, the central bank of any such country may have the
authority in certain circumstances to suspend, restrict or otherwise impose
conditions on foreign exchange transactions or to restrict distributions to
foreign investors. Although the Company may structure certain project revenue
and other agreements to provide for payments to be made in, or indexed to,
United States dollars or a currency freely convertible into United States
dollars, there can be no assurance that it will be able to obtain sufficient
dollars or other hard currency or that available dollars will be allocated to
pay such obligations.
The Company faces exchange rate risk.
Payments from some of the Company's foreign investments, including without
limitation Northern Electric plc and Yorkshire Electricity plc, are made in a
foreign currency and any dividends or distributions of earnings in respect of
such investments may be significantly affected by fluctuations in the exchange
rate between the United States dollar and the British pound or other applicable
foreign currency. Although the Company may enter into certain transactions to
hedge risks associated with exchange rate fluctuations, there can be no
assurance that such transactions will be successful in reducing such risks.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
None
SIGNATURE
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 hereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
/s/ Paul J. Leighton
Paul J. Leighton
Vice President, Assistant General
Counsel and Assistant Secretary
Date: February 18, 2004