<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-3562
UTILICORP UNITED INC.
(Exact name of registrant as specified in its charter)
Delaware 44-0541877
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Commerce Tower, 911 Main, Kansas City, Missouri 64105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 816-421-6600
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 __
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at August 8, 1996
- ----- -----------------------------
Common Stock, $1 par value 46,962,985
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Information regarding the consolidated condensed financial statements is
set forth on pages 3 through 15.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations can be found on pages 16 through 22.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
See page 23 for the results of voting at the Annual Shareholders'
meeting held on May 22, 1996.
ITEM 5. OTHER INFORMATION
See page 23 for unaudited pro forma financial statements and related
notes for Maxim Energies, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits and reports on Form 8-K can be found on page 28.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
Quarter Ended June 30,
IN MILLIONS EXCEPT PER SHARE 1996 1995
- ---------------------------------------------------------------------------
Sales $765.0 $600.8
Cost of sales 562.6 404.2
- ---------------------------------------------------------------------------
Gross profit 202.4 196.6
- ---------------------------------------------------------------------------
Operating, administrative and maintenance expense 133.8 123.8
Depreciation, depletion and amortization 33.5 37.9
- ---------------------------------------------------------------------------
Income from operations 35.1 34.9
- ---------------------------------------------------------------------------
Interest expense and minority interests:
Interest expense - long-term debt 32.5 25.0
Interest expense - short-term debt and other interest 4.6 7.6
Minority interests 1.5 .8
- ---------------------------------------------------------------------------
Total interest and minority interest expense 38.6 33.4
- ---------------------------------------------------------------------------
Other income:
Equity in earnings of investments and partnerships 47.7 5.8
Interest income 2.6 2.5
- ---------------------------------------------------------------------------
Total other income 50.3 8.3
- ---------------------------------------------------------------------------
Earnings before income taxes 46.8 9.8
- ---------------------------------------------------------------------------
Income taxes 20.5 2.6
- ---------------------------------------------------------------------------
Net income 26.3 7.2
- ---------------------------------------------------------------------------
Preference dividends .5 .5
- ---------------------------------------------------------------------------
Earnings Available for Common Shares $ 25.8 $ 6.7
- ---------------------------------------------------------------------------
Weighted Average Common Shares Outstanding:
Primary 46.70 45.05
Fully diluted 47.03 45.55
- ---------------------------------------------------------------------------
Earnings Per Common Share:
Primary $.55 $.15
Fully Diluted .55 .15
- ---------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
Six Months Ended June 30,
IN MILLIONS EXCEPT PER SHARE 1996 1995
- -------------------------------------------------------------------------------
Sales $1,849.4 $1,327.1
Cost of sales 1,397.3 894.3
- -------------------------------------------------------------------------------
Gross profit 452.1 432.8
- -------------------------------------------------------------------------------
Operating, administrative and maintenance expense 264.6 240.9
Depreciation, depletion and amortization 65.4 75.4
- -------------------------------------------------------------------------------
Income from operations 122.1 116.5
- -------------------------------------------------------------------------------
Interest expense and minority interests:
Interest expense - long-term debt 60.2 49.2
Interest expense - short-term debt and other interest 11.2 14.0
Minority interests 4.2 1.4
- -------------------------------------------------------------------------------
Total interest and minority interest expense 75.6 64.6
- -------------------------------------------------------------------------------
Other income:
Equity in earnings of investments and partnerships 60.2 7.9
Interest income 5.1 4.3
- -------------------------------------------------------------------------------
Total other income 65.3 12.2
- -------------------------------------------------------------------------------
Earnings before income taxes 111.8 64.1
- -------------------------------------------------------------------------------
Income taxes 48.2 24.7
- -------------------------------------------------------------------------------
Net income 63.6 39.4
- -------------------------------------------------------------------------------
Preference dividends 1.0 1.0
- -------------------------------------------------------------------------------
Earnings Available for Common Shares $ 62.6 $ 38.4
- -------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding:
Primary 46.47 44.93
Fully diluted 46.80 45.43
- -------------------------------------------------------------------------------
Earnings Per Common Share:
Primary $1.35 $.85
Fully Diluted 1.34 .85
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
Twelve Months
Ended June 30,
IN MILLIONS EXCEPT PER SHARE 1996 1995
- -------------------------------------------------------------------------------
Sales $3,320.9 $2,435.5
Cost of sales 2,384.8 1,591.2
- -------------------------------------------------------------------------------
Gross profit 936.1 844.3
- -------------------------------------------------------------------------------
Operating, administrative and maintenance expense 535.6 465.8
Depreciation, depletion and amortization 135.4 147.9
Provision for asset impairments 34.6 --
- -------------------------------------------------------------------------------
Income from operations 230.5 230.6
- -------------------------------------------------------------------------------
Interest expense and minority interests:
Interest expense - long-term debt 121.4 94.8
Interest expense - short-term debt and other interest 20.2 21.6
Minority interests 6.3 3.3
- -------------------------------------------------------------------------------
Total interest and minority interest expense 147.9 119.7
- -------------------------------------------------------------------------------
Other income:
Equity in earnings of investments and partnerships 84.1 17.2
Interest income 12.9 8.2
- -------------------------------------------------------------------------------
Total other income 97.0 25.4
- -------------------------------------------------------------------------------
Earnings before income taxes 179.6 136.3
- -------------------------------------------------------------------------------
Income taxes 75.5 48.8
- -------------------------------------------------------------------------------
Net income 104.1 87.5
- -------------------------------------------------------------------------------
Preference dividends 2.1 1.6
- -------------------------------------------------------------------------------
Earnings Available for Common Shares $ 102.0 $ 85.9
- -------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding:
Primary 46.03 45.14
Fully diluted 46.37 45.65
- -------------------------------------------------------------------------------
Earnings Per Common Share:
Primary $2.22 $1.90
Fully Diluted 2.21 1.88
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, December 31,
DOLLARS IN MILLIONS 1996 1995
- -------------------------------------------------------------------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 148.8 $ 110.7
Funds on deposit 30.1 41.2
Accounts receivable, net 260.2 332.2
Inventories and supplies, at average cost 74.6 112.5
Price risk management assets 44.9 26.4
Prepayments and other 53.2 53.0
- -------------------------------------------------------------------------------
Total current assets 611.8 676.0
- -------------------------------------------------------------------------------
Property, plant and equipment, net 2,306.0 2,279.6
- -------------------------------------------------------------------------------
Investments in subsidiaries and partnerships 631.0 574.4
- -------------------------------------------------------------------------------
Price risk management assets 162.1 175.5
- -------------------------------------------------------------------------------
Deferred charges 204.2 180.4
- -------------------------------------------------------------------------------
Total Assets $3,915.1 $3,885.9
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 15.0 $ 15.1
Short-term debt 244.9 288.6
Accounts payable 421.2 434.3
Accrued liabilities 67.4 34.8
Price risk management liabilities 83.7 67.9
Other 69.9 107.1
- -------------------------------------------------------------------------------
Total current liabilities 902.1 947.8
- -------------------------------------------------------------------------------
Long-term liabilities:
Long-term debt, net 1,380.5 1,355.4
Deferred income taxes and credits 288.4 279.2
Price risk management liabilities 82.4 94.6
Other deferred credits 142.3 137.2
- -------------------------------------------------------------------------------
Total long-term liabilities 1,893.6 1,866.4
- -------------------------------------------------------------------------------
Company-obligated mandatorily redeemable preferred
securities of partnership 100.0 100.0
- -------------------------------------------------------------------------------
Preferred and preference stock 25.4 25.4
- -------------------------------------------------------------------------------
Common shareowners' equity 994.0 946.3
- -------------------------------------------------------------------------------
Commitments and contingencies
- -------------------------------------------------------------------------------
Total Liabilities and Shareowners' Equity $3,915.1 $3,885.9
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements
6
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF PREFERRED AND PREFERENCE STOCK
June 30, December 31,
DOLLARS IN MILLIONS EXCEPT PER SHARE 1996 1995
- -------------------------------------------------------------------------------
Preference Stock, not mandatorily redeemable: (Unaudited)
$2.05 series, 1,000,000 shares $25.0 $25.0
Preferred Stock of subsidiary, retractable .4 .4
- -------------------------------------------------------------------------------
Total Preferred and Preference Stock $25.4 $25.4
- -------------------------------------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
June 30, December 31,
DOLLARS IN MILLIONS 1996 1995
- -------------------------------------------------------------------------------
Common Stock: authorized 100,000,000 shares, (Unaudited)
par value $1 per share, 46,962,985 shares
outstanding (45,965,952 at December 31,
1995) $ 47.0 $ 46.0
Premium on Capital Stock 826.7 800.6
Retained Earnings 128.0 106.2
Currency Translation Adjustment (7.7) (6.5)
- -------------------------------------------------------------------------------
Total Common Shareowners' Equity $994.0 $946.3
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
7
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED
Quarter Ended June 30,
DOLLARS IN MILLIONS 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $26.3 $ 7.2
Adjustments to reconcile net income to net
cash provided:
Depreciation, depletion and amortization 33.5 36.8
Net changes in price risk management assets
and liabilities (.7) (2.9)
Deferred taxes and investment tax credits 9.8 5.7
Equity in earnings from investments and
partnerships (47.7) (5.8)
Dividends from investments and partnerships 7.7 3.5
Changes in certain assets and liabilities,
net of effects of acquisitions and
restructuring --
Accounts receivable and accrued revenues 98.4 84.8
Accounts receivable sold (22.7) (51.3)
Inventories and supplies (4.2) (3.5)
Accounts payable (6.7) (3.6)
Accrued taxes (15.2) (47.4)
Other (22.9) (42.2)
- -------------------------------------------------------------------------------
Cash provided from (used in) operating activities 55.6 (18.7)
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant (30.0) (30.4)
Purchase of utility and other businesses (5.6) --
Investments in international businesses (27.8) (43.2)
Investments in energy related properties (5.0) (56.1)
Investments in non-regulated generating assets -- (59.0)
Other (3.8) .9
- -------------------------------------------------------------------------------
Cash used for investing activities (72.2) (187.8)
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of common stock 10.4 9.7
Treasury stock sold -- 2.3
Issuance of long-term debt, net of premium paid 14.4 104.1
Issuance of company-obligated mandatorily
redeemable preferred securities of partnership -- 100.0
Retirement of long-term debt -- (6.0)
Short-term borrowings (repayments), net 43.4 (21.5)
Cash dividends paid (20.8) (20.0)
- -------------------------------------------------------------------------------
Cash provided from financing activities 47.4 168.6
- -------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 30.8 (37.9)
Cash and cash equivalents at beginning of period 118.0 100.5
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $148.8 $62.6
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
8
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED
Six Months Ended June 30,
DOLLARS IN MILLIONS 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 63.6 $39.4
Adjustments to reconcile net income to
net cash provided:
Depreciation, depletion and amortization 65.4 73.4
Net changes in price risk management
assets and liabilities (1.5) (1.9)
Deferred taxes and investment tax credits 9.2 13.5
Equity in earnings from investments and
partnerships (60.2) (7.9)
Dividends from investments and partnerships 10.5 5.1
Changes in certain assets and liabilities,
net of effects of acquisitions and
restructuring --
Accounts receivable and accrued revenues 46.7 40.8
Accounts receivable sold 25.3 (6.6)
Inventories and supplies 37.9 35.7
Accounts payable (13.1) (54.0)
Accrued taxes 27.7 (16.4)
Other (18.7) (16.2)
- -------------------------------------------------------------------------------
Cash provided from operating activities 192.8 104.9
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant (47.9) (50.4)
Purchase of utility and other businesses (5.6) (100.9)
Investments in international businesses (27.8) (43.2)
Investments in energy related properties (17.0) (59.4)
Investments in non-regulated generating assets -- (59.0)
Other (23.1) 5.7
- -------------------------------------------------------------------------------
Cash used for investing activities (121.4) (307.2)
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of common stock 27.1 12.4
Treasury stock sold -- 6.6
Issuance of long-term debt, net of premium paid 25.0 104.1
Issuance of company-obligated mandatorily
redeemable preferred securities of
partnership -- 100.0
Retirement of long-term debt -- (11.3)
Short-term borrowings (repayments), net (43.7) 25.6
Cash dividends paid (41.7) (39.7)
- -------------------------------------------------------------------------------
Cash (used in) provided from financing activities (33.3) 197.7
- -------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 38.1 (4.6)
Cash and cash equivalents at beginning of period 110.7 67.2
- -------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $148.8 $62.6
- -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
9
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED
Twelve Months
Ended June 30,
DOLLARS IN MILLIONS 1996 1995
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $104.1 $ 87.5
Adjustments to reconcile net income to net cash
provided:
Depreciation, depletion and amortization 147.6 143.5
Provision for asset impairments 34.6 --
Net changes in price risk management assets and
liabilities (39.0) --
Deferred taxes and investment tax credits (25.5) 76.4
Equity in earnings from investments and
partnerships (84.1) (17.2)
Dividends from investments and partnerships 24.0 16.4
Changes in certain assets and liabilities,
net of effects of acquisitions and
restructuring --
Accounts receivable and accrued revenues (161.5) (1.8)
Accounts receivable sold 82.7 (24.7)
Inventories and supplies 24.1 (5.1)
Accounts payable 134.8 (25.0)
Accrued taxes 37.4 (36.7)
Other 69.9 (7.9)
- --------------------------------------------------------------------------------
Cash provided from operating activities 349.1 205.4
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant (106.9) (131.2)
Purchase of utility and other businesses (5.6) (129.1)
Investments in international businesses (363.9) (43.2)
Investments in non-regulated generating assets -- (80.5)
Proceeds on sale of oil and gas properties 204.5 --
Investments in energy related properties (101.6) (133.8)
Other (75.6) (34.6)
- --------------------------------------------------------------------------------
Cash used for investing activities $(449.1) $(552.4)
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements
Statements continued on next page.
10
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--CONTINUED
Twelve Months
Ended June 30,
DOLLARS IN MILLIONS 1996 1995
- --------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of common stock $ 44.2 $ 14.8
Issuance of company-obligated mandatorily
redeemable preferred securities of partnership -- 100.0
Retirements of preference stock -- (5.9)
Issuance of long-term debt, net of premium paid 336.1 202.3
Retirement of long-term debt (149.0) (1.7)
Short-term borrowings (repayments), net 36.9 97.9
Cash dividends paid (82.0) (78.4)
- --------------------------------------------------------------------------------
Cash provided from financing activities 186.2 329.0
- --------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 86.2 (18.0)
Cash and cash equivalents at beginning of period 62.6 80.6
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $148.8 $62.6
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
11
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with the accounting policies described in the
consolidated financial statements and related notes included in UtiliCorp's
1995 Form 10-K. It is suggested that those consolidated financial statements
be read in conjunction with this report. The year-end financial statements
presented were derived from UtiliCorp's audited financial statements, but do
not include all disclosures required by generally accepted accounting
principles. In the opinion of management, the accompanying consolidated
condensed financial statements reflect all adjustments (which include only
normal recurring adjustments) necessary for a fair representation of the
financial position of UtiliCorp and the results of its operations. Certain
estimates and assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of sales and expenses during the reporting periods shown have been made in
preparing the consolidated condensed financial statements. Actual results
could differ from these estimates. Certain reclassifications have been made
to prior year amounts to conform to the current year's presentation.
2. PROPOSED MERGER--KANSAS CITY POWER & LIGHT COMPANY (KCPL)
UtiliCorp and KCPL have entered into an Amended and Restated Agreement and
Plan of Merger dated as of May 20, 1996 (The Amended Merger Agreement) to
provide a strategic business combination of UtiliCorp and KCPL (the
Transaction). Under this agreement, a new KCPL subsidiary (Sub) will be
created and merged into UtiliCorp. UtiliCorp will then merge with KCPL to
form the combined company. As part of the Transaction, the combined company
will change its name to Maxim Energies, Inc. (Maxim).
Upon the merger of UtiliCorp and Sub, UtiliCorp shareholders will be entitled
to receive one share of KCPL common stock for each share of UtiliCorp common
stock. KCPL shareholders will continue to hold their existing shares of KCPL
common stock. After the combined company changes its name to Maxim, all
outstanding KCPL shares will constitute all of the outstanding shares of
Maxim. Based on the capitalization of KCPL and UtiliCorp on the date of The
Amended Merger Agreement, UtiliCorp shareholders will hold approximately 43%
of the common stock of Maxim and the KCPL shareholders will hold
approximately 57%. The Amended Merger Agreement also includes a provision for
KCPL to call for redemption, before the completion of the merger of UtiliCorp
and Sub, all of its outstanding shares of preferred stock at the applicable
redemption prices, together with all dividends accrued and unpaid through the
applicable redemption dates.
The Transaction is designed to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method, the recorded assets and
liabilities of UtiliCorp and KCPL will be carried forward to the consolidated
balance sheet of Maxim at their recorded amounts. The income of Maxim will
include the combined income of UtiliCorp and KCPL as though the Transaction
occurred at the beginning of the accounting period. Prior period financial
statements will be combined and presented as those of Maxim.
The Transaction will create a diversified energy company serving about
2.5 million customers in the United States, Canada, the United Kingdom, New
Zealand, Australia, China and Jamaica. The business of the combined companies
will consist of electric utility operations, gas utility operations and various
nonutility enterprises including independent power projects, and gas marketing,
gathering and processing operations. See Part II, Item 5 for the pro forma
combined condensed financial statements of Maxim.
12
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
The Special Meeting of UtiliCorp shareholders to consider and vote on the
mergers is scheduled for August 14, 1996. A Special Meeting of KCPL
shareholders to consider and vote on the issuance of up to 54 million
shares of KCPL common stock to be issued in the mergers is scheduled for
August 16, 1996. The Mergers are also subject to approval of a number of
regulatory authorities which are expected by the second quarter of 1997.
KCPL and UtiliCorp have recommended that the board of directors set the
initial annualized dividend rate at $1.85 per common share upon completion of
the transaction.
The Amended Merger Agreement includes termination provisions which may
require certain payments, up to $58 million, to the other party to the
Transaction under certain circumstances, including a payment of $58 million
if the Transaction is terminated by a party and within two and one-half years
following such termination, the terminating party agrees to consummate or
consummates certain business combination transactions with a third party.
Through the second quarter of 1996, $9.3 million of merger-related costs had
been deferred by UtiliCorp for post-merger amortization in accordance with
future regulatory approval.
3. PURCHASE OF AUSTRALIAN ELECTRIC UTILITY INTEREST
On September 6, 1995, Power Partnership Limited (PPL), of which UtiliCorp owns
49.9 percent, acquired United Energy Limited (UE), an Australian electric
distribution utility, from the State of Victoria. As part of the acquisition
UtiliCorp paid approximately $257.9 million for its 49.9 percent ownership
interest primarily financed through Australian-dollar-based debt.
The acquisition was recorded as a purchase and is accounted for using the equity
method of accounting. The equity investment is included in Investments in
subsidiaries and partnerships on the consolidated condensed balance sheets. Pro
forma unaudited results of operations for UtiliCorp, assuming the acquisition
had occurred at the beginning of the period, are shown below.
Six Months Ended
June 30, 1995
------------------------------------------------------
Sales $1,327.1
Income from operations 116.5
Net income 37.1
Earnings available for common shares 36.1
------------------------------------------------------
Primary earnings per share $.80
Fully diluted earnings per share .80
------------------------------------------------------
13
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
4. INVESTMENTS IN SUBSIDIARIES AND PARTNERSHIPS
The table below contains summarized financial information of UtiliCorp's
unconsolidated material equity investments as of June 30, 1996 and December 31,
1995 and for the six months ended June 30, 1996 and 1995.
Dollars in millions June 30, 1996 December 31, 1995
------------------------------------------------------------------------
Assets
Current assets $ 313.7 $ 336.5
Non-current assets 2,936.8 2,785.3
------------------------------------------------------------------------
Total Assets $3,250.5 $3,121.8
------------------------------------------------------------------------
Liabilities and Equity
Current Liabilities $ 292.7 $ 276.5
Non-current liabilities 2,186.0 2,125.6
Equity 771.8 719.7
------------------------------------------------------------------------
Total liabilities and equity $3,250.5 $3,121.8
------------------------------------------------------------------------
Six Months Ended Six Months Ended
Dollars in millions June 30, 1996 December 31, 1995
------------------------------------------------------------------------
Sales $534.9 $334.6
Costs and Expenses 367.9 285.6
------------------------------------------------------------------------
Net Income $167.0 $ 49.0
------------------------------------------------------------------------
5. GAIN ON SALE AND CONTRACT RESTRUCTURING CHARGES
In April 1996 one of the power projects in which UtilCo Group, a subsidiary of
UtiliCorp, holds an ownership interest entered into a long-term lease
arrangement with a third party. This transaction was accounted for as a sale by
the partnership and resulted in the recognition of a gain. UtilCo Group
recorded its share of such gain through equity earnings during the second
quarter. In addition UtilCo Group recorded certain restructuring reserves in
connection with changes in power project agreements and other matters. The net
gain from these items was $11.8 million after tax.
14
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
6. STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123). SFAS 123 requires UtiliCorp to either record or disclose pro forma
information on the fair value of certain stock-based programs including stock
options and employee stock purchase plans. UtiliCorp currently provides stock
options to certain employees and has an employee stock purchase program whereby
employees may purchase UtiliCorp common stock at a 15% discount. Under SFAS
123, these plans require either recording compensation expense or pro forma
disclosures of net income and earnings per share as if UtiliCorp elected to
record compensation expense. UtiliCorp will continue to recognize stock-based
compensation under Accounting Principles Board Opinion No. 25 and disclose the
pro forma impact under SFAS 123. For the six month periods ended June 30, 1996
and 1995, compensation expense relating to stock-based compensation plans was
$1.3 million. If UtiliCorp had recorded compensation expense, earnings per
share would have been reduced by $.02 for each six month period ended June 30,
1996 and 1995, respectively.
7. UNITED KINGDOM (UK)
In 1996, UtiliCorp realigned certain of its business relationships in the
United Kingdom (UK). Late in the first quarter UtiliCorp's UK businesses
terminated their equity relationship in the Caledonian Gas Limited and
Midlands Gas Limited (Midlands) joint ventures. As part of the termination
of the equity relationship in Midlands, UtiliCorp assumed an interest in two
long-term gas supply contracts (for deliveries through 2005) that it
assimilated into its existing portfolio of sales and supply contracts. Since
the UK natural gas market currently does not have a long-term forward pricing
curve, a calculation of future profitability of the portfolio is difficult.
Based on management's estimates and available market data at June 30, 1996,
UtiliCorp continued to carry a $14 million reserve relating to future losses
that may exist within the portfolio of contracts. Management believes that
this reserve is adequate and that no additional material amounts will be
needed.
On April 15, 1996, UtiliCorp acquired the 25% interest in UtiliCorp U.K., Inc.,
it did not already own for approximately $12 million. This transaction was
accounted for as a purchase.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
UTILICORP UNITED INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
UTILICORP UNITED INC. (UTILICORP) CONTAINS THREE SEGMENTS: ELECTRIC
OPERATIONS, GAS OPERATIONS AND ENERGY RELATED BUSINESSES. UTILICORP HAS
OTHER OPERATIONS THAT AFFECT SALES AND INCOME FROM OPERATIONS WHICH ARE
DISCUSSED IN THE OTHER BUSINESSES AND EQUITY INVESTMENTS SECTION. EACH
SEGMENT IS DISCUSSED SEPARATELY IN THE RESULTS OF OPERATIONS SECTION. THE
LIQUIDITY AND CAPITAL RESOURCES SECTION IS PREPARED ON A CONSOLIDATED BASIS.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operating activities increased $74.3 million for the quarter
ended June 30, 1996 compared to the same period in 1995. The primary factors
causing the increase relate to increased net income, continued availability and
use of the accounts receivable sales program and the timing of cash payments and
receipts. Available receivables under the program change from month to month as
balances change reflecting the natural seasonality of the utility and energy
businesses. Partially offsetting these favorabilities were increased net equity
earnings stemming from transactions at UtilCo Group discussed on page 21 and
higher earnings from Australia and New Zealand. Cash provided from operating
activities for the six months ended June 30, 1996 was $192.8 million or 84%
higher than in the same period in 1995. The primary reasons are similar to
those for the quarter discussed above.
Cash provided from operating activities for the twelve months ended June 30,
1996 was $143.7 million higher than in 1995. The 1996 twelve-month cash flow
statement reflects a provision for asset impairments and the income effects of a
change in accounting. Neither the provision for asset impairments nor the
change in accounting affect cash flow from operations; however, certain
individual components are affected.
Cash used in investing activities decreased $115.6 million for the quarter ended
June 30, 1996, compared to 1995. Cash used in investing activities varies
depending on the number and magnitude of investment and acquisition
opportunities. In the second quarter of 1995, UtiliCorp acquired a 50% interest
in a power project ($59.0 million), invested $43.2 million in its New Zealand
operations and had pipeline additions related to Aquila's Katy pipeline project.
In 1996, UtiliCorp's investing expenditures primarily related to normal utility
plant additions and international investments.
Cash used in investing activities decreased $185.8 million for the six months
ended June 30, 1996, compared to 1995 which is primarily due to the same reason
discussed for the quarter above plus the six month period in 1995 included
additional acquisitions related to a $78.0 million acquisition of a pipeline and
two gas marketing companies.
Cash used in investing activities for the twelve months ended June 30, 1996
compared to the same period in 1995 decreased by $103.3 million. As with the
three- and six-month periods discussed above, investing activities tend to
fluctuate significantly depending on the timing of acquisition opportunities.
For the twelve-month period ended June 30, 1996, UtiliCorp invested $363.9
million internationally. Partially offsetting this cash outflow were cash
proceeds on the sale of substantially all of the company's oil and gas
production assets for $204.5 million.
To supplement the company's internally generated cash flows, UtiliCorp has
various short-term credit programs. A primary source of cash has been bank
borrowings from uncommitted bank lines. In addition UtiliCorp can issue
commercial paper aggregating $150 million. To support the
16
<PAGE>
commercial paper program, UtiliCorp has a $250 million committed revolving
credit agreement with a consortium of banks.
UtiliCorp also has two accounts receivable sales programs. The level of funding
available from these programs varies depending on the level of eligible accounts
receivable. Under these programs, UtiliCorp may sell another $11.3 million.
On June 27, 1996, UtiliCorp obtained an extended grace period for a long-term
debt to capitalization ratio covenant from its creditor on its 9.21% senior
notes. The grace period extends to June 30, 1997. UtiliCorp continues to
classify this debt as long-term as management believes it is probable that
UtiliCorp will meet the convenant ratio by June 30, 1997 and for foreseeable
future periods.
RESULTS OF OPERATIONS
ELECTRIC OPERATIONS
UTILICORP'S ELECTRIC SEGMENT INCLUDES THE ELECTRIC OPERATIONS OF MISSOURI PUBLIC
SERVICE, WEST KOOTENAY POWER, WEST VIRGINIA POWER, AND WESTPLAINS ENERGY.
Quarter Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
- --------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Sales $145.2 $132.9 $288.3 $262.8 $603.2 $551.9
- --------------------------------------------------------------------------------
Cost of sales-fuel and
purchased power 45.3 43.0 97.9 89.9 201.1 186.9
- --------------------------------------------------------------------------------
Gross Profit 99.9 89.9 190.4 172.9 402.1 365.0
- --------------------------------------------------------------------------------
Expenses:
Other operating 26.9 26.7 54.8 51.4 120.3 103.8
Maintenance 10.5 9.7 20.1 18.8 36.6 37.8
Taxes, other than
income taxes 11.7 11.4 23.2 23.4 51.1 49.3
Depreciation and
amortization 14.4 13.0 28.5 26.0 56.2 51.3
- --------------------------------------------------------------------------------
Total expenses 63.5 60.8 126.6 119.6 264.2 242.2
- --------------------------------------------------------------------------------
Income from operations $36.4 $ 29.1 $ 63.8 $ 53.3 $137.9 $122.8
- --------------------------------------------------------------------------------
QUARTER-TO-QUARTER
Income from operations increased 25% in the 1996 quarter compared to the 1995
quarter. Warm June weather in 1996 and new tariff rates at West Kootenay
Power combined with over 7,153 average additional customers increased sales
and gross profit by $12.3 million and $10.0 million, respectively, in 1996
compared to 1995. Favorable weather and additional customers increased
residential and commercial customer KWH volumes by 15% and 8%, respectively,
while total tariff volumes increased 6% over the 1995 quarter.
Reduced fuel costs related to lower negotiated coal contracts helped keep fuel
costs about the same as 1995 despite more customers and favorable weather. On
August 1, 1996, UtiliCorp amended an electric supply contract with another
utility that is expected to reduce future fuel costs by $1 million and capacity
costs by $2.9 million on an annual basis. UtiliCorp's customers will share in
the fuel cost savings through a fuel adjustment mechanism. As a result of this
amended supply contract, UtiliCorp secured 168 megawatts of supply through 2001
at lower prices and postponed its planned construction of a generating plant.
17
<PAGE>
YEAR-TO-DATE
Income from operations increased 20% for the six months ended June 30, 1996,
compared to the same period in 1995. Three primary factors contributed to
increased income in 1996 compared to 1995. Those factors are:
- Colder winter and warmer June temperatures combined with 7,482 average
additional customers increased residential, commercial and total tariff
KWH volumes by 16%, 8% and 12%, respectively, over the 1995 periods
- New electric rates at West Kootenay Power effective January 1, 1996
- Reduced fuel costs related to negotiating a coal contract and plant
efficiencies at Sibley generating station
Operating expenses increased 7% in 1996 over 1995 due to sales and marketing
costs related to EnergyOne and payroll and benefit increases.
TWELVE MONTHS ENDED JUNE 30, 1996 TO 1995
Income from operations increased 12% in 1996 compared to 1995. The twelve-month
period in 1996 had increased sales and gross profit of $51.3 million and $37.1
million, respectively, over the same period in 1995. The 1996 period benefited
from a hot summer as well as a colder winter which were primary reasons for
higher sales compared to the 1995 period. Partially offsetting the sales and
gross profit increases were increases in other operating expenses related to
employee severance costs and sales and marketing costs pertaining to EnergyOne
activities.
GAS OPERATIONS
UTILICORP'S GAS SEGMENT INCLUDES GAS OPERATIONS OF MISSOURI PUBLIC SERVICE,
KANSAS PUBLIC SERVICE, PEOPLES NATURAL GAS, NORTHERN MINNESOTA UTILITIES,
MICHIGAN GAS UTILITIES, UTILICORP PIPELINE SYSTEMS AND WEST VIRGINIA POWER.
Quarter Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
- --------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Sales $117.2 $101.3 $417.0 $346.7 $687.1 $583.8
Cost of sales-gas
purchased for resale 67.1 51.4 263.0 203.1 408.8 338.0
- --------------------------------------------------------------------------------
Gross Profit 50.1 49.9 154.0 143.6 278.3 245.8
- --------------------------------------------------------------------------------
Expenses:
Other operating 33.0 32.9 65.6 64.4 131.0 121.8
Maintenance 2.6 2.5 4.9 4.7 9.3 9.1
Taxes, other than
income taxes 5.1 6.0 11.7 13.0 25.1 23.9
Depreciation and
amortization 9.4 8.8 18.8 17.4 35.7 32.6
- --------------------------------------------------------------------------------
Total expenses 50.1 50.2 101.0 99.5 201.1 187.4
- --------------------------------------------------------------------------------
Income (loss) from
operations $-- $ (.3) $ 53.0 $ 44.1 $ 77.2 $ 58.4
- --------------------------------------------------------------------------------
QUARTER-TO-QUARTER
Sales and operating income in the gas utility business are primarily derived
from the winter heating season and are seasonally low during the second and
third quarters. The 1996 quarter operating income and components were about the
same as in 1995. The year-to-date and twelve-month periods discussed below
reflect an entire or partial winter heating season and thus are more reflective
of customer growth and overall trends in this business segment.
18
<PAGE>
YEAR-TO-DATE
Income from operations increased 20% in 1996 compared to the same period in
1995. This past winter was approximately 19% colder than in 1995 and 9% colder
than average winter temperatures. In addition to favorable weather, the average
customer count increased approximately 18,807 over the 1995 period. Favorable
weather and additional customers increased residential, commercial and total
tariff MCF volumes by 20%, 24% and 20%, respectively, over the 1995 period.
These volume increases stemming from colder temperatures and additional
customers resulted in sales and gross profit increases of $70.3 million and
$10.4 million, respectively, over the 1995 periods.
TWELVE MONTHS ENDED JUNE 30, 1996 TO 1995
Income from operations increased 32% in 1996 over the same period in 1995. An
extremely cold winter combined with a mild 1995 first quarter contributed to
sales and gross profit increases of $103.3 million and $32.5 million over 1995
periods. Also contributing to the increase were over 31,610 additional average
customers over the 1995 period. The colder weather and additional customers
resulted in a 9% increase in tariff volumes sold for the 1996 period over 1995.
Partially offsetting the sales and gross profit increases were operating
expense increases of $9.2 million compared to 1995. The increase is due to
employee severance and restructuring activities, additional sales and marketing
costs and payroll and benefit increases.
ENERGY RELATED BUSINESSES
THE ENERGY RELATED BUSINESSES SEGMENT CONSISTS SOLELY OF THE CONSOLIDATED
OPERATIONS OF THE COMPANY'S AQUILA ENERGY SUBSIDIARY, INCLUDING 82%-OWNED AQUILA
GAS PIPELINE (AQP). AQUILA PROVIDES ENERGY MARKETING AND RISK MANAGEMENT
SERVICES AND IS INVOLVED IN THE GATHERING, PROCESSING AND MARKETING OF NATURAL
GAS AND THE SALE OF NATURAL GAS LIQUIDS. ITS AQUILA POWER SUBSIDIARY BEGAN
WHOLESALE MARKETING OF ELECTRICITY IN 1995.
Quarter Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
- --------------------------------------------------------------------------------
DOLLARS IN MILLIONS 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Sales $388.0 $269.3 $863.8 $510.7 $1,524.1 $960.9
- --------------------------------------------------------------------------------
Cost of sales 346.1 225.8 781.0 422.5 1,327.1 781.3
- --------------------------------------------------------------------------------
Gross profit 41.9 43.5 82.8 88.2 197.0 179.6
- --------------------------------------------------------------------------------
Expenses:
Operating and
maintenance 17.4 18.8 34.7 35.8 70.1 70.1
Depreciation,
depletion and
amortization 6.3 14.4 12.5 29.0 33.1 58.1
Provisions for asset
impairments -- -- -- -- 13.2 --
- --------------------------------------------------------------------------------
Total expenses 23.7 33.2 47.2 64.8 116.4 128.2
- --------------------------------------------------------------------------------
Income from operations,
before minority
interests $ 18.2 $ 10.3 $35.6 $ 23.4 $ 80.6 $ 51.4
- --------------------------------------------------------------------------------
QUARTER-TO-QUARTER
Income from operations increased 77% over the 1995 quarter. This increase
resulted from greater operating income from Aquila's gas pipeline and processing
and gas marketing and trading businesses. Gas pipeline and processing unit's
operating income increased 55% to $14.0 million in 1996 due to a 9% increase in
throughput volumes to 533 Mmcf per day, a 33% increase in natural gas liquid
19
<PAGE>
(NGL) production and a 10% increase in NGL prices. The natural gas marketing
and trading operations posted a $6.0 million increase in operating income as
Aquila took advantage of a favorable trading environment stemming from volatile
natural gas prices.
Sales increased $118.7 million in the 1996 quarter over the 1995 quarter.
Natural gas marketing sales increased 55% primarily due to higher average
natural gas prices in 1996. Changes in natural gas market prices can
significantly affect sales in a period without necessarily impacting gross
profit proportionately. Sales were favorably impacted by volumetric and price
factors noted above. Gross profit from Aquila's gas marketing and gas pipeline
and processing businesses increased by $14.3 million due to the volume increases
and commodity price increases discussed above. Gross profit for the 1995
quarter included $15.7 million in gross profit from Aquila's oil and gas
production business.
Depreciation, depletion and amortization expense decreased by $8.1 million in
1996 primarily due to the sale of the oil and gas properties discussed above.
YEAR-TO-DATE
Income from operations increased 52% over the 1995 period. The improved results
are due to significant increases across Aquila's businesses. The primary
factors creating higher operating income are gas volumes sold, gas throughput,
NGL production and NGL prices which are all up over the 1995 period. Aquila's
marketing and trading businesses operating income increased $5.2 million and the
gas pipeline and processing unit's operating income increased $12.9 million.
Partially offsetting these increases was a decline of $1.1 million of operating
income resulting from Aquila's oil and gas production business which was sold in
September 1995.
Sales increased $353.1 million for the six months ended June 30, 1996 compared
to the same period in 1995 primarily due to a 17% increase in gas volumes sold
and a 64% increase in natural gas prices over the 1995 period. Pipeline
throughput increased 14% to 520 Mmcf per day while NGL production increased 33%
over the 1995 period. Gross profit from Aquila's gas marketing and gas pipeline
and processing businesses increased by $27.0 million due to the volume increases
discussed above. Gross profit for the 1995 period included $32.3 million in
gross profit from Aquila's oil and gas production business.
Depreciation, depletion and amortization expense decreased by $16.5 million in
1996 primarily due to the sale of the oil and gas properties discussed above.
TWELVE MONTHS ENDED JUNE 30, 1996 TO 1995
Income from operations increased by 57% in the 1996 period compared to the 1995
period. Income from operations in the 1996 was favorably affected by the change
to the mark-to-market method of accounting for Aquila's natural gas trading
activities ($29.8 million), partially offset by a provision from impaired assets
stemming from early adoption of Statement of Financial Accounting Standards No.
121 ($13.2 million). Excluding these two items, income from operations
increased 25% over 1995.
Sales increased $563.2 million over 1995 as marketing volumes increased 31% to
1.5 Tbtu per day. Pipeline throughput volumes rose 23% and natural gas liquids
production increased 26% over 1995 levels. Average marketing sales prices
increased $.60 per mmbtu over last year. Gross profit was $17.4 million higher
than the prior year stemming from strong volume increases in Aquila's marketing
and pipeline businesses. Together the marketing and pipeline gross profit was
$70.0 million greater than in the prior period. Aquila's oil and gas production
business contributed $49.1 million more in 1995 compared to 1996.
Depreciation, depletion and amortization expense was $25.0 million lower than
last year due to the sale of the oil and gas business.
20
<PAGE>
On July 1, 1996, AQP acquired 15% of the outstanding capital stock of Oasis
Pipeline Company (Oasis) and related transportation rights. Oasis consists of
an approximately 600-mile pipeline system and is in proximity of many of AQP's
existing gathering systems.
OTHER BUSINESSES AND EQUITY INVESTMENTS
Other businesses and equity investments consist primarily of UtilCo Group (a
subsidiary of UtiliCorp), operations in the United Kingdom, various gas
marketing and service contract businesses and equity investments in Australia
and New Zealand. The commentary that follows centers on the major items of
significance affecting these businesses and investments.
UTILCO GROUP
Earnings from UtilCo Group were $13.9 million for the quarter ended June 30,
1996 compared to $2.4 million in last year's quarter. Earnings from UtilCo
Group included an after tax gain of $11.8 million, primarily the result of a
long-term lease arrangement at a power project that was accounted for as a sales
type lease by the partnership. UtilCo Group's results were reduced by various
contract restructuring at two power projects. Earnings for the six months and
twelve months ended June 30, 1996 were $16.1 million and $20.6 million (before a
$9.3 million after tax provision for impaired assets) compared to $4.6 million
and $7.4 million in the prior year periods. Earnings were higher in the six-
and twelve-month periods due to better project performance. The 1996 quarter
earnings, after excluding the $11.8 million net gain, is down slightly from the
1995 quarter.
INTERNATIONAL
UtiliCorp's 49.9% ownership interest in United Energy Limited, an Australian
electric distribution utility acquired in September 1995, contributed $ 3.3
million, $3.5 million and $ 6.4 million in earnings for the three-, six- and
twelve-month periods ended June 30, 1996, respectively. The results for the
1996 quarter are above management's expectations based on its original business
plan. The improved earnings were mainly due to favorable results obtained from
transforming its operations and marketing to a competitive and customer-focused
operation at a much faster pace than anticipated.
UtiliCorp N.Z., Inc. (UNZ), a 79% owned subsidiary, purchased a 27.7% ownership
interest in Power New Zealand Limited (PNZ) primarily in November 1995. In
addition, UNZ has a 39% ownership interest in WEL Energy Group Limited (WEL).
Both PNZ and WEL are electric distribution utilities serving approximately
214,000 and 65,000 customers, respectively, in New Zealand. Earnings from these
investments contributed $1.5 million, $1.7 million and $2.4 million for the
quarter, six-and twelve-month period ended June 30, 1996, respectively.
Increased earnings reflect the benefits received from additional investments
made last November.
In 1996, UtiliCorp realigned certain of its business relationships in the
United Kingdom (UK). Late in the first quarter UtiliCorp's UK businesses
terminated their equity relationship in the Caledonian Gas Limited and
Midlands Gas Limited (Midlands) joint ventures. As part of the termination
of the equity relationship in Midlands, UtiliCorp assumed an interest in two
long-term gas supply contracts (for deliveries through 2005) that it
assimilated into its existing portfolio of sales and supply contracts. Since
the UK natural gas market currently does not have a long-term forward pricing
curve, a calculation of future profitability of the portfolio is difficult.
Based on management's estimates and available market data at June 30, 1996,
UtiliCorp continued to carry a $14 million reserve relating to future losses
that may exist within the portfolio of contracts. Management believes that
this reserve is adequate and that no additional material amounts will be
needed.
21
<PAGE>
Management believes that this reserve is adequate and that no additional
material amounts will be needed.
On April 15, 1996, UtiliCorp acquired the 25% interest in UtiliCorp U.K., Inc.,
it did not already own for approximately $12 million. This transaction was
accounted for as a purchase.
INTEREST EXPENSE
Total interest expense increased $4.5 million, $8.2 million and $25.2 million
for the three-, six- and twelve-month periods ended June 30, 1996 compared to
the prior year periods. This increase is primarily due to additional long-term
borrowings issued late in the second quarter of 1995, in part, due to certain
acquisitions discussed on page 16 and new Australian and New Zealand dollar
borrowings issued in the third and fourth quarters of 1995 to fund those
acquisitions discussed above.
NEW ACCOUNTING STANDARD
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (SFAS 125). SFAS 125
changes the criteria for accounting for a sale of a financial asset among other
matters relating to financial assets and liabilities. UtiliCorp currently
records sales under its accounts receivable financing program as a sale.
However, under SFAS 125, given current agreement provisions, these transactions
will not meet the criteria of a sale. UtiliCorp anticipates that its accounts
receivable sales program agreement will be changed to meet the new criteria in
SFAS 125. SFAS 125 is required to be adopted in fiscal years beginning after
December 15, 1996, and cannot be adopted early or retroactively.
22
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
UtiliCorp held its annual meeting of shareholders on May 22, 1996. At the
meeting the following matters were voted on by the shareholders.
1. Election of Directors
For Against Withheld
--- ------- --------
Robert F. Jackson 40,168,112 -- 836,017
Herman Cain " " "
Robert K. Green " " "
2. Approval of UtiliCorp's Amended and Restated 1986 Stock Incentive Plan
with a vote of 29,813,423 for, 4,496,992 against, and 6,693,714 withheld.
ITEM 5. OTHER MATTERS
AGREEMENT AND PLAN OF MERGER WITH KANSAS CITY POWER & LIGHT -- UNAUDITED
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the
historical consolidated balance sheets and statements of income of Kansas
City Power & Light Company (KCPL) and UtiliCorp United Inc. (UtiliCorp),
including their respective subsidiaries, after giving effect to the
Transaction. Further information concerning The Amended Merger Agreement and
proposed merger Transaction is included in Note 2 to the Consolidated
Condensed Financial Statements in Part I of this report. The unaudited pro
forma combined condensed balance sheet at June 30, 1996, gives effect to the
Transaction as if it had occurred at June 30, 1996. The unaudited pro forma
combined condensed statements of income for the three and six months ended
June 30, 1996, and 1995, give effect to the Transaction as if it had occurred
at the beginning of those periods. These statements are prepared on a basis
consistent with generally accepted accounting principles. In addition, the
statements are prepared on the basis of accounting for the Transaction as a
pooling of interests and are based on the assumptions set forth in the notes
thereto.
The following pro forma condensed financial information has been prepared
from, and should be read in connection with, the historical consolidated
financial statements and related notes of KCPL and UtiliCorp. The following
information is not necessarily indicative of the financial position or
operating results that would have occurred had the Transaction been
consummated on the date, or at the beginning of the periods, for which the
Transaction is being given effect nor is it necessarily indicative of future
operating results or financial position.
23
<PAGE>
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
(THOUSANDS)
UtiliCorp KCPL Pro Forma
(as reported) (as reported) Combined
- ------------------------------------------------------------------------------
Utility plant in service $2,722,991 $3,417,505 $6,140,496
Accumulated depreciation 1,046,647 1,194,321 2,240,968
---------- ---------- ----------
Net utility plant in service 1,676,344 2,223,184 3,899,528
Construction work in progress and
nuclear fuel, net 80,193 134,081 214,274
---------- ---------- ----------
Total utility plant, net 1,756,537 2,357,265 4,113,802
Other property and investments 1,180,457 190,006 1,370,463
Current assets 611,716 165,584 777,300
Deferred charges and other assets 366,352 186,817 553,169
---------- ---------- ----------
Total assets $3,915,062 $2,899,672 $6,814,734
- ------------------------------------------------------------------------------
Capitalization:
Common stock and premium on
common stock (Note 1) $ 873,711 $ 449,697 $1,323,408
Retained earnings 128,042 451,980 580,022
Other stockholders' equity (7,735) (1,714) (9,449)
---------- ---------- ----------
Total common equity 994,018 899,963 1,893,981
Preferred and preference stock
(Note 4) 25,356 90,276 115,632
Company-obligated mandatorily
redeemable preferred securities
of partnership 100,000 -- 100,000
Long-term debt, net 1,380,495 829,136 2,209,631
---------- ---------- ----------
Total capitalization 2,499,869 1,819,375 4,319,244
Current liabilities 902,133 267,343 1,169,476
Deferred income taxes 269,082 651,365 920,447
Other deferred liabilities 243,978 161,589 405,567
---------- ---------- ----------
Total capitalization and liabilities $3,915,062 $2,899,672 $6,814,734
- ------------------------------------------------------------------------------
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
24
<PAGE>
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED JUNE 30
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
UtiliCorp KCPL Pro Forma UtiliCorp KCPL Pro Forma Increase
(as reported) (as reported) Combined (as reported) (as reported) Combined (decrease)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $764,997 $226,205 $991,202 $600,766 $205,305 $806,071 $185,131
Operating expenses 729,814 164,780 894,594 565,812 162,341 728,153 166,441
-------------------------------------- --------------------------------------------------
Operating income before
income taxes 35,183 61,425 96,608 34,954 42,964 77,918 18,690
Interest charges 37,957 14,546 52,503 33,003 13,503 46,506 5,997
Other income (deductions), net 49,635 (8,523) 41,112 7,911 (2,952) 4,959 36,153
-------------------------------------- --------------------------------------------------
Income before income taxes 46,861 38,356 85,217 9,862 26,509 36,371 48,846
Income taxes 20,540 10,682 31,222 2,627 7,813 10,440 20,782
-------------------------------------- --------------------------------------------------
Net income 26,321 27,674 53,995 7,235 18,696 25,931 28,064
Preference and preferred stock
dividend requirements (Note 4) 512 935 1,447 512 1,022 1,534 (87)
-------------------------------------- --------------------------------------------------
Earnings available for
common shares $ 25,809 $ 26,739 $ 52,548 $ 6,723 $ 17,674 $ 24,397 $ 28,151
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding (Note 1)
- Primary 46,701 61,902 108,603 45,052 61,902 106,954 1,649
- Fully diluted (Note 5) 47,025 61,902 108,927 45,548 61,902 107,450 1,477
Earnings per share
- Primary $0.55 $0.43 $0.48 $0.15 $0.29 $0.23 $0.25
- Fully diluted (Note 5) $0.55 $0.43 $0.48 $0.15 $0.29 $0.23 $0.25
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
25
<PAGE>
MAXIM ENERGIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30
(THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
UtiliCorp KCPL Pro Forma UtiliCorp KCPL Pro Forma Increase
(as reported) (as reported) Combined (as reported) (as reported) Combined (decrease)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $1,849,431 $432,829 $2,282,260 $1,327,069 $404,211 $1,731,280 $550,980
Operating expenses 1,727,333 323,047 2,050,380 1,210,630 320,187 1,530,817 519,563
---------------------------------------- --------------------------------------------------
Operating income before
income taxes 122,098 109,782 231,880 116,439 84,024 200,463 31,417
Interest charges 72,873 28,804 101,677 63,885 26,526 90,411 11,266
Other (income) deductions, net 62,607 (10,907) 51,700 11,582 3,851 15,433 36,267
---------------------------------------- --------------------------------------------------
Income before income taxes 111,832 70,071 181,903 64,136 61,349 125,485 56,418
Income taxes 48,199 17,874 66,073 24,735 19,766 44,501 21,572
---------------------------------------- --------------------------------------------------
Net income 63,633 52,197 115,830 39,401 41,583 80,984 34,846
Preference and preferred stock
dividend requirements (Note 4) 1,025 1,892 2,917 1,025 2,048 3,073 (156)
---------------------------------------- --------------------------------------------------
Earnings available for common
shares $ 62,608 $ 50,305 $ 112,913 $ 38,376 $ 39,535 $ 77,911 $ 35,002
- ------------------------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding (Note 1)
- Primary 46,467 61,902 108,369 44,928 61,902 106,830 1,539
- Fully diluted (Note 5) 46,796 61,902 108,698 45,426 61,902 107,328 1,370
Earnings per share
- Primary $1.35 $0.81 $1.04 $0.85 $0.64 $0.73 $0.31
- Fully diluted (Note 5) $1.34 $0.81 $1.04 $0.85 $0.64 $0.73 $0.31
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
26
<PAGE>
MAXIM ENERGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. The pro forma combined financial statements are presented as if the
companies were combined during all periods included herein. No pro
forma adjustments were necessary.
2. The allocation between KCPL and UtiliCorp and their customers of about $600
million in net estimated cost savings over the ten-year period following the
Transaction, less transaction costs, will be subject to regulatory review and
approval. Transaction costs, currently estimated to be about $40 million
(including fees for financial advisors, attorneys, accountants, consultants,
filings and printing), are being deferred for post-merger amortization in
accordance with future regulatory approval. As of June 30, 1996, $11.7 and
$9.3 million in merger-related costs had been deferred by KCPL and UtiliCorp,
respectively.
The net estimated costs savings and transactions costs do not reflect certain
other costs that could be incurred by Maxim, such as increases or decreases
in costs caused by the provisions of the employment agreements with Messrs.
Jennings and Green, severance agreements with certain executives and the
Maxim management incentive compensation plans.
The net estimated cost savings, transaction costs and certain other costs
have not been reflected in the pro forma combined financial statements
because of the inability to predict regulatory treatment or estimate the
amount of such costs that would impact any one period.
3. Intercompany transactions (including purchased and exchanged power
transactions) between KCPL and UtiliCorp during the periods presented
were not material and, accordingly, no pro forma adjustments were made
to eliminate the transactions. All financial statement presentation and
accounting policy differences are immaterial and have not been adjusted
in the pro forma combined financial statements.
4. Prior to the consummation of the Transaction, KCPL and UtiliCorp must redeem
their preferred stock outstanding as provided in the Merger Agreement.
Because the basis of accounting for the merger is a pooling of interests, the
effect of these redemptions is not required to be reflected in the pro forma
combined financial statements. The only redemption premium, as of December
31, 1995, is $755,000 applicable to the KCPL preferred stock. The on-going
effect of these redemptions is expected to be immaterial.
5. The fully diluted earnings per common share was determined assuming
UtiliCorp's outstanding convertible subordinated debentures were converted
into UtiliCorp common stock at the beginning of the periods presented. In
calculating fully diluted earnings per share, earnings available for common
shares were adjusted to eliminate interest expense, net of tax.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
*2 Amended and Restated Agreement and Plan of Merger, dated as of January 19,
1996 and amended and restated as of May 20, 1996, among Kansas City Power and
Light Company, KC Merger Sub, Inc., UtiliCorp United Inc., and KC United Corp.
(Exhibit 2-1 to UtiliCorp's current report on Form 8-K dated May 28, 1996).
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule--For the six months ended June 30, 1996.
(b) Reports on Form 8-K
A current report on Form 8-K dated May 20, 1996, with respect to Item 5 was
filed with the Securities and Exchange Commission by the Registrant.
A current report on Form 8-K dated May 28, 1996, with respect to Item 5 was
filed with the Securities and Exchange Commission by the Registrant.
* Exhibits marked with an asterisk are incorporated by reference pursuant to
Rule 12(b)-23.
28
<PAGE>
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.
UTILICORP UNITED INC.
By: /s/ Richard C. Green, Jr.
---------------------------
Richard C. Green, Jr.
Chairman of the Board and Chief Executive Officer
Date: August 13, 1996
By: /s/ Terry G. Westbrook
-----------------------------
Terry G. Westbrook
Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)
Date: August 13, 1996
By: /s/ James S. Brook
-----------------------------
James S. Brook
Vice President
Date: August 13, 1996
29
<PAGE>
UTILICORP UNITED INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Six Months Ended Ended
June 30, June 30, June 30,
(In thousands except per share amounts) 1996 1995 1996 1995 1996 1995
Line No. ---------------------------------------------------
- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings Available for Common Shares:
(a) Earnings available for common shares
as reported $25,809 $6,723 $62,608 $38,376 $101,959 $85,851
(b) Elimination of interest on
convertible subordinated
debenture, net of tax 82 100 166 224 343 486
(c) Elimination of dividends on
cumulative convertible preference
stock -- -- -- -- -- (426)
------------------------------------------------------
(d) Fully Diluted Earnings Available $25,891 $6,823 $62,774 $38,600 $102,302 $85,911
------------------------------------------------------
------------------------------------------------------
Weighted Average Common Shares
Outstanding:
(e) Primary weighted average shares
outstanding as reported 46,701 45,052 46,467 44,928 46,030 45,137
(f) Assumed conversion of convertible
subordinated debenture 324 496 329 498 338 516
(g) Assumed conversion of cumulative
convertible preference shares -- -- -- -- -- --
------------------------------------------------------
(h) Fully Diluted Weighted Average
Shares Outstanding 47,025 45,548 46,796 45,426 46,368 45,653
------------------------------------------------------
------------------------------------------------------
Earnings Per Common Share:
Primary (a/e) $.55 $.15 $1.35 $.85 $2.22 $1.90
Fully Diluted (d/h) .55 .15 1.34 .85 2.21 $1.88
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 149
<SECURITIES> 0
<RECEIVABLES> 260
<ALLOWANCES> 0
<INVENTORY> 75
<CURRENT-ASSETS> 612
<PP&E> 2306
<DEPRECIATION> 0
<TOTAL-ASSETS> 3915
<CURRENT-LIABILITIES> 902
<BONDS> 0
0
25
<COMMON> 47
<OTHER-SE> 947
<TOTAL-LIABILITY-AND-EQUITY> 3915
<SALES> 1849
<TOTAL-REVENUES> 1849
<CGS> 1397
<TOTAL-COSTS> 1397
<OTHER-EXPENSES> 330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 112
<INCOME-TAX> 48
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.34
</TABLE>
