Berkshire Hathaway 2003 Annual Report Download - page 37

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Notes to Consolidated Financial Statements (Continued)
(3) Investments in MidAmerican Energy Holdings Company (Continued)
While the convertible preferred stock does not vote generally with the common stock in the election of directors,
the convertible preferred stock gives Berkshire the right to elect 20% of MidAmerican’ s Board of Directors. The
convertible preferred stock is convertible into common stock only upon the occurrence of specified events, including
modification or elimination of the Public Utility Holding Company Act of 1935 so that holding company registration
would not be triggered by conversion. Additionally, the prior approval of the holders of convertible preferred stock is
required for certain fundamental transactions by MidAmerican. Such transactions include, among others: a) significant
asset sales or dispositions; b) merger transactions; c) significant business acquisitions or capital expenditures; d)
issuances or repurchases of equity securities; and e) the removal or appointment of the Chief Executive Officer. Through
the investments in common and convertible preferred stock of MidAmerican, Berkshire has the ability to exercise
significant influence on the operations of MidAmerican.
MidAmerican’ s Articles of Incorporation further provide that the convertible preferred shares: a) are not
mandatorily redeemable by MidAmerican or at the option of the holder; b) participate in dividends and other
distributions to common shareholders as if they were common shares and otherwise possess no dividend rights; c) are
convertible into common shares on a 1 for 1 basis, as adjusted for splits, combinations, reclassifications and other capital
changes by MidAmerican; and d) upon liquidation, except for a de minimus first priority distribution of $1 per share,
share ratably with the shareholders of common stock. Further, the aforementioned dividend and distribution
arrangements cannot be modified without the positive consent of the preferred shareholders. Accordingly, the
convertible preferred stock is, in substance, a substantially identical subordinate interest to a share of common stock and
economically equivalent to common stock. Therefore, Berkshire accounts for its investments in MidAmerican pursuant
to the equity method.
Condensed consolidated balance sheets of MidAmerican are as follows. Amounts are in millions.
December 31, December 31,
2003 2002
Assets:
Properties, plant, and equipment, net ............................................................................. $11,181 $10,285
Goodwill......................................................................................................................... 4,306 4,258
Other assets .................................................................................................................... 3,681 3,892
$19,168 $18,435
Liabilities and shareholders’ equity:
Debt, except debt owed to Berkshire.............................................................................. $10,296 $10,286
Debt owed to Berkshire.................................................................................................. 1,578 1,728
Other liabilities and minority interests ........................................................................... 4,523 4,127
16,397 16,141
Shareholders’ equity....................................................................................................... 2,771 2,294
$19,168 $18,435
Condensed consolidated statements of earnings of MidAmerican for each of the three years in the period ending
December 31, 2003 are as follows. Amounts are in millions.
2003 2002 2001
Revenues ........................................................................................................... $6,145 $4,968 $4,973
Costs and expenses:
Cost of sales and operating expenses ................................................................ 3,944 3,189 3,522
Depreciation and amortization .......................................................................... 610 526 539
Interest expense – debt held by Berkshire......................................................... 184 118 50
Other interest expense ....................................................................................... 727 640 443
5,465 4,473 4,554
Earnings before taxes ........................................................................................ 680 495 419
Income taxes and minority interests.................................................................. 264 115 276
Net earnings ...................................................................................................... $ 416 $ 380 $ 143