<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1997
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.)
20 West Ninth, 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 11, 1997
Common Stock, $1 par value 53,976,055
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Information regarding the consolidated condensed financial statements is
set forth on pages 3 through 17.
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 18 through 26.
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 27 for the results of voting at the Annual Shareholders' meeting
held on May 7, 1997.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits can be found on page 27.
(b) Report on 8-K can be found on page 27.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
QUARTER ENDED JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1997 1996
-------- ------
<S> <C> <C>
Sales $1,550.1 $765.0
Cost of sales 1,333.4 562.6
-------- ------
GROSS PROFIT 216.7 202.4
-------- ------
Operating, administrative and maintenance expense 131.5 133.8
Depreciation, depletion and amortization 31.2 33.5
-------- ------
INCOME FROM OPERATIONS 54.0 35.1
-------- ------
Other income (expense):
Equity in earnings from investments and partnerships 16.2 47.7
Other income 3.3 2.6
Minority interest and other expense (6.3) (4.5)
-------- ------
Total other income 13.2 45.8
-------- ------
EARNINGS BEFORE INTEREST AND TAXES 67.2 80.9
-------- ------
Interest expense:
Interest expense - long-term debt 27.7 30.3
Interest expense - short-term debt 2.3 1.6
Minority interest in income of partnership 2.2 2.2
-------- ------
Total interest expense 32.2 34.1
-------- ------
EARNINGS BEFORE INCOME TAXES 35.0 46.8
Income taxes 14.7 20.5
-------- ------
NET INCOME 20.3 26.3
Preference dividends -- .5
-------- ------
EARNINGS AVAILABLE FOR COMMON SHARES $20.3 $25.8
-------- ------
-------- ------
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
SIX MONTHS ENDED
JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1997 1996
-------- --------
<S> <C> <C>
Sales $3,609.7 $1,849.4
Cost of sales 3,138.8 1,397.3
-------- --------
GROSS PROFIT 470.9 452.1
-------- --------
Operating, administrative and maintenance expense 269.0 264.6
Depreciation, depletion and amortization 63.1 65.4
Provision for asset impairments 26.5 --
-------- --------
INCOME FROM OPERATIONS 112.3 122.1
-------- --------
Other income (expense):
Equity in earnings from investments and partnerships 37.4 60.2
Merger termination fee 53.0 --
Other income 6.5 5.1
Minority interest and other expense (12.6) (11.3)
-------- --------
Total other income 84.3 54.0
-------- --------
EARNINGS BEFORE INTEREST AND TAXES 196.6 176.1
-------- --------
Interest expense:
Interest expense - long-term debt 57.6 55.8
Interest expense - short-term debt 4.2 4.1
Minority interest in income of partnership 4.4 4.4
-------- --------
Total interest expense 66.2 64.3
-------- --------
EARNINGS BEFORE INCOME TAXES 130.4 111.8
Income taxes 52.2 48.2
-------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM 78.2 63.6
Loss on extinguishment of debt (net of income tax of $4.5) 7.2 --
-------- --------
NET INCOME 71.0 63.6
Preference dividends .3 1.0
-------- --------
EARNINGS AVAILABLE FOR COMMON SHARES $70.7 $62.6
-------- --------
-------- --------
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME--UNAUDITED
TWELVE MONTHS ENDED
JUNE 30,
----------------------------
DOLLARS IN MILLIONS 1997 1996
-------- --------
<S> <C> <C>
Sales $6,092.6 $3,320.9
Cost of sales 5,164.0 2,384.8
-------- --------
GROSS PROFIT 928.6 936.1
-------- --------
Operating, administrative and maintenance expense 552.0 532.3
Write-off of deferred merger costs, net 11.0 --
Depreciation, depletion and amortization 125.5 138.9
Provision for asset impairments 26.5 34.6
-------- --------
INCOME FROM OPERATIONS 213.6 230.3
-------- --------
Other income (expense):
Equity in earnings from investments and partnerships 88.3 84.1
Merger termination fee 53.0 --
Other income 16.2 13.0
Minority interest and other expense (28.5) (19.1)
-------- --------
Total other income 129.0 78.0
-------- --------
EARNINGS BEFORE INTEREST AND TAXES 342.6 308.3
-------- --------
Interest expense:
Interest expense - long-term debt 119.8 112.7
Interest expense - short-term debt 8.8 7.6
Minority interest in income of partnership 8.9 8.4
-------- --------
Total interest expense 137.5 128.7
-------- --------
EARNINGS BEFORE INCOME TAXES 205.1 179.6
Income taxes 84.7 75.5
-------- --------
EARNINGS BEFORE EXTRAORDINARY ITEM 120.4 104.1
Loss on extinguishment of debt (net of income tax of $4.5) 7.2 --
-------- --------
NET INCOME 113.2 104.1
Preference dividends 1.4 2.1
-------- --------
EARNINGS AVAILABLE FOR COMMON SHARES $111.8 $102.0
-------- --------
-------- --------
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31,
DOLLARS IN MILLIONS 1997 1996
-------- --------
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 164.0 $ 137.1
Funds on deposit 34.4 56.8
Accounts receivable, net 494.8 811.6
Inventories and supplies, at average cost 99.3 110.9
Price risk management assets 57.1 55.2
Prepayments and other 49.3 32.9
-------- --------
TOTAL CURRENT ASSETS 898.9 1,204.5
Property, plant and equipment, net 2,415.7 2,406.7
Investments in subsidiaries and partnerships 749.9 761.0
Price risk management assets 159.1 154.1
Deferred charges 181.3 178.6
-------- --------
TOTAL ASSETS $4,404.9 $4,704.9
-------- --------
-------- --------
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 163.4 $ 25.7
Short-term debt 253.0 252.0
Accounts payable 722.2 912.9
Accrued liabilities 43.5 50.0
Price risk management liabilities 80.3 71.7
Other 43.1 107.3
-------- --------
TOTAL CURRENT LIABILITIES 1,305.5 1,419.6
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, net 1,255.6 1,470.7
Deferred income taxes and credits 326.6 313.7
Price risk management liabilities 66.6 64.5
Minority interest 59.7 56.9
Other deferred credits 102.4 96.5
-------- --------
TOTAL LONG-TERM LIABILITIES 1,810.9 2,002.3
-------- --------
Company-obligated mandatorily redeemable preferred
securities of partnership 100.0 100.0
Preference stock -- 25.0
Common shareowners' equity 1,188.5 1,158.0
Commitments and contingencies
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $4,404.9 $4,704.9
-------- --------
-------- --------
See accompanying notes to consolidated condensed financial statements
-6-
<PAGE>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF PREFERENCE STOCK
JUNE 30, DECEMBER 31,
DOLLARS IN MILLIONS 1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Preference Stock:
$2.05 series, 1,000,000 shares, redeemed $-- $25.0
----------- ------------
TOTAL PREFERENCE STOCK $-- $25.0
----------- ------------
----------- ------------
CONSOLIDATED CONDENSED STATEMENTS OF COMMON SHAREOWNERS' EQUITY
JUNE 30, DECEMBER 31,
DOLLARS IN MILLIONS 1997 1996
----------- ------------
(Unaudited)
Common Stock: authorized 100,000,000 shares, par value
$1 per share, 53,754,923 shares outstanding (53,293,645
at December 31, 1996 ); authorized 20,000,000 shares of
Class A common stock, par value $1 per share, none issued $ 53.8 $ 53.3
Premium on Capital Stock 1,001.9 991.7
Retained Earnings 147.7 125.3
Treasury Stock, at cost (117,696 and 228,807 shares at
June 30, 1997 and December 31, 1996, respectively) (3.2) (6.4)
Currency Translation Adjustment (11.7) (5.9)
----------- ------------
TOTAL COMMON SHAREOWNERS' EQUITY $1,188.5 $1,158.0
----------- ------------
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 1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $20.3 $26.3
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 31.2 33.5
Net changes in price risk management assets and liabilities 2.4 (.7)
Deferred income taxes and credits 6.7 9.8
Equity in earnings from investments and partnerships (16.2) (47.7)
Dividends from investments and partnerships 4.0 7.7
Minority interests 1.8 1.5
Changes in certain assets and liabilities:
Accounts receivable, net 122.8 98.4
Accounts receivable sold 50.0 (22.7)
Inventories and supplies (10.8) (4.2)
Prepayments and other (3.9) 6.6
Deferred charges, net 5.5 (22.3)
Accounts payable (30.8) (6.7)
Accrued liabilities (59.3) (20.0)
Other (16.8) (3.9)
------- -------
CASH PROVIDED BY OPERATING ACTIVITIES 106.9 55.6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (38.8) (30.0)
Investments in international businesses (1.1) (27.8)
Investments in energy related properties (4.0) (5.0)
Other (10.3) (9.4)
------- -------
CASH USED FOR INVESTING ACTIVITIES (54.2) (72.2)
------- -------
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED (CONTINUED)
QUARTER ENDED JUNE 30,
DOLLARS IN MILLIONS 1997 1996
- ------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $5.0 $10.4
Treasury stock acquired (2.4) --
Issuance of long-term debt 19.7 14.4
Retirement of long-term debt (11.4) --
Short-term borrowings (repayments), net (49.0) 43.4
Cash dividends paid (23.5) (20.8)
------ ------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (61.6) 47.4
------ ------
Increase (Decrease) in cash and cash equivalents (8.9) 30.8
Cash and cash equivalents at beginning of period 172.9 118.0
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $164.0 $148.8
------ ------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED (CONTINUED)
SIX MONTHS ENDED JUNE 30,
DOLLARS IN MILLIONS 1997 1996
- ------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $71.0 $63.6
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 63.1 65.4
Net changes in price risk management assets and liabilities 3.8 (1.5)
Deferred income taxes and credits 12.9 9.2
Equity in earnings from investments and partnerships (37.4) (60.2)
Dividends from investments and partnerships 10.8 10.5
Minority interests 3.9 4.2
Provision for asset impairments 26.5 --
Loss on extinguishment of debt 7.2 --
Changes in certain assets and liabilities:
Accounts receivable, net 277.0 46.7
Accounts receivable sold 50.0 25.3
Inventories and supplies 11.6 37.9
Prepayments and other (16.4) (.2)
Deferred charges, net 5.2 (23.8)
Accounts payable (190.7) (13.1)
Accrued liabilities, net (2.0) 32.6
Other (59.1) (3.8)
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES 237.4 192.8
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (58.4) (47.9)
Investments in international businesses (3.0) (27.8)
Investments in energy related properties (8.9) (17.0)
Other (7.6) (28.7)
------ ------
CASH USED FOR INVESTING ACTIVITIES (77.9) (121.4)
------ ------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED (CONTINUED)
SIX MONTHS ENDED JUNE 30,
DOLLARS IN MILLIONS 1997 1996
- ------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $10.7 $27.1
Treasury stock sold 3.2 --
Issuance of long-term debt 20.1 25.0
Retirement of long-term debt (94.0) --
Retirement of preference stock (25.0) --
Short-term borrowings (repayments), net 1.0 (43.7)
Cash dividends paid (47.3) (41.7)
Other (1.3) --
------ ------
CASH USED FOR FINANCING ACTIVITIES (132.6) (33.3)
------ ------
Increase in cash and cash equivalents 26.9 38.1
Cash and cash equivalents at beginning of period 137.1 110.7
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $164.0 $148.8
------ ------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED (CONTINUED)
TWELVE MONTHS ENDED JUNE 30,
DOLLARS IN MILLIONS 1997 1996
- ------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $113.2 $ 104.1
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 125.5 138.9
Net changes in price risk management assets and liabilities (28.4) (40.9)
Deferred income taxes and credits 38.2 (25.5)
Equity in earnings from investments and partnerships (88.3) (84.1)
Dividends from investments and partnerships 43.0 24.0
Minority interest 7.7 6.3
Provision for asset impairments 26.5 34.6
Loss on extinguishment of debt 7.2 --
Write-off of deferred merger costs 11.0 --
Changes in certain assets and liabilities:
Accounts receivable, net (275.9) (161.5)
Accounts receivable sold 86.3 82.6
Inventories and supplies (24.7) 24.0
Prepayments and other 3.9 (8.9)
Deferred charges, net 28.0 (15.1)
Accounts payable 301.0 134.9
Accrued liabilities, net (19.4) 39.4
Other (47.4) 96.3
------ ------
CASH PROVIDED BY OPERATING ACTIVITIES 307.4 349.1
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (144.8) (106.9)
Purchase of utility and other businesses (138.1) (5.6)
Investments in international businesses (17.5) (363.9)
Proceeds on sale of oil and gas properties -- 204.5
Investments in energy related properties (18.3) (101.6)
Other (49.4) (75.6)
------ ------
CASH USED FOR INVESTING ACTIVITIES (368.1) (449.1)
------ ------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
UTILICORP UNITED INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS--UNAUDITED (CONTINUED)
TWELVE MONTHS ENDED JUNE 30,
DOLLARS IN MILLIONS 1997 1996
- ------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $182.0 $44.2
Retirements of preference stock (25.0) --
Treasury stock acquired (3.2) --
Issuance of long-term debt 124.8 336.1
Retirement of long-term debt (116.2) (149.0)
Short-term borrowings, net 7.1 36.9
Cash dividends paid (92.3) (82.0)
Other (1.3) --
------ -------
CASH PROVIDED BY FINANCING ACTIVITIES 75.9 186.2
------ -------
Increase in cash and cash equivalents 15.2 86.2
Cash and cash equivalents at beginning of period 148.8 62.6
------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $164.0 $148.8
------ -------
See accompanying notes to consolidated condensed financial statements.
</TABLE>
-13-
<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
1996 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 audited financial statements of UtiliCorp United
Inc. (the company), 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 the company 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 prior year amounts in the consolidated financial statements have been
reclassified where necessary to conform to the 1997 presentation.
FINANCIAL INSTRUMENTS
TRADING OPERATIONS
The company uses a variety of financial instruments in connection with price
risk management services provided by Aquila Energy Corporation, a
wholly-owned subsidiary of the company. These financial instruments include
forward contracts which commit the company to purchase or sell energy in the
future; swap agreements which require payment to (or receipt of payments
from) counterparties based on the differential between specific prices for
the related commodity; futures and options contracts traded on the New York
Mercentile Exchange and other contractual arrangements. The value of all the
financial instruments used for price risk management activities are recorded
at market value with changes in value reflected in the statement of income.
NON-TRADING ACTIVITIES FOR COMMODITY OPERATIONS
The company utilizes various exchange-traded and over-the-counter financial
instrument contracts to hedge anticipated purchases and sales of natural gas
and natural gas liquids. The financial instruments used are futures,
options, forward contracts and price and basis swaps. Financial instruments
used for non-trading activities are designated as a hedge at inception where
there is a direct relationship to the price risk associated with the
company's future sales and purchases of commodities used in the company's
operations. Financial instruments used to hedge anticipated transactions are
accounted for under the deferral method with gains and losses on these
transactions recognized in sales when the hedged transaction occurs.
VARIABLE LONG-TERM DEBT SECURITIES
The company has a $100 million interest rate swap agreement whereby the
company exchanges variable Australian dollar debt interest for fixed rate
interest. Changes in the unrealized gains and losses on interest rate swap
contracts do not result in the realization or expenditure of cash
-14-
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
unless the contracts are terminated or the underlying debt is retired. As of
June 30, 1997, the unrealized loss on the interest rate swap was immaterial
to the company's consolidated financial statements.
2. MERGER TERMINATION FEE
On September 17, 1996, Kansas City Power & Light Company (KCPL) terminated
the Amended and Restated Agreement and Plan of Merger (the Agreement) among
KCPL, KC Merger Sub, Inc., the company, and KC United Corp., which would have
provided for the merger of the company and KCPL.
In February 1997, Western Resources Inc. and KCPL signed a definitive
agreement to merge. As a result, KCPL paid the company a $53 million
termination fee which was recorded as a gain in the first quarter of 1997.
3. PROVISION FOR ASSET IMPAIRMENTS
As part of the sale of the company's oil and gas production assets in
September 1995, the company retained a net profits interest in the properties
which was contingent upon the future performance and activities of the oil
and gas properties sold and certain payout criteria related to the sale
transaction. At the time of the sale, the net profits interest was valued at
$22.5 million. Pursuant to the sales agreement, periodic drilling and reserve
updates are provided each year to the company. After receiving the most
recent study in March 1997, the company recorded a $15.5 million first
quarter charge against earnings primarily to reflect the latest estimate of
its net realizable value.
During the first quarter of 1997, the company evaluated some of its
technology related investments and eliminated certain technology related
positions. In light of recent organizational changes at one of the company's
strategic partners and the results to date, the company expensed
approximately $11.0 million consisting of certain contractual and software
rights and severance costs.
4. EXTINGUISHMENT OF DEBT
During the first quarter of 1997, the company retired, at a premium, $69.1
million of its 10.5% Series Senior Notes that were to mature in 2020. The
transaction resulted in an extraordinary loss of $7.2 million, net of an
income tax benefit of $4.5 million. This early retirement is expected to
save $1.2 million per year in interest costs based on current interest rates.
5. REDEMPTION OF PREFERENCE STOCK
On March 1, 1997, the company redeemed its $2.05 Series Preference Stock at
par. This redemption is expected to increase earnings available for common
shares by an estimated $1.1 million per year based on current interest rates.
-15-
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
6. EARNINGS PER SHARE
Primary and fully diluted earnings per share for the three months, six months
and twelve months ending June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED
IN MILLIONS, EXCEPT PER SHARE AMOUNTS JUNE 30, JUNE 30, JUNE 30,
- ------------------------------------- -------------- ---------------- --------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings available for common shares $20.3 $25.8 $70.7 $62.6 $111.8 $102.0
----- ----- ----- ----- ------ ------
Earnings per share:
Primary:
Earnings before extraordinary item $.38 $.55 $1.45 $1.35 $2.35 $2.22
Extraordinary item -- -- (.13) -- (.14) --
----- ----- ----- ----- ------ ------
Earnings available for common $.38 $.55 $1.32 $1.35 $2.21 $2.22
----- ----- ----- ----- ------ ------
----- ----- ----- ----- ------ ------
Fully Diluted:
Earnings before extraordinary item $.38 $.55 $1.45 $1.34 $2.34 $2.21
Extraordinary item -- -- (.13) -- (.14) --
----- ----- ----- ----- ------ ------
Earnings available for common $.38 $.55 $1.32 $1.34 $2.20 $2.21
===== ===== ===== ===== ===== =====
Weighted Average Shares Outstanding:
Primary 53.69 46.70 53.47 46.47 50.68 46.03
Fully Diluted 53.97 47.03 53.76 46.80 50.98 46.37
===== ===== ===== ===== ===== =====
</TABLE>
7. LONG-TERM GAS SUPPLY CONTRACTS
In 1996, the company realigned certain business relationships in the United
Kingdom (UK). Its equity relationships in three retail gas partnerships were
terminated. As part of the termination of one of its equity relationships,
the company 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. Based on management's estimates and available
market data at December 31, 1996, the company carried a $14 million reserve
relating to potential future losses that may have existed within the
portfolio of contracts. The net present value of the range of future losses
was estimated to be between $14 and $23 million.
Due to the continued decline in natural gas prices in the UK since December
31, 1996 and the fact that the purchase price of this gas supply is tied in
part to certain oil based indices which have strengthened, the company
increased its reserve in the first quarter related to its current
-16-
<PAGE>
UTILICORP UNITED INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS--CONTINUED
(UNAUDITED)
portfolio of contracts by $5.0 million to $19 million. As the U.K. natural
gas market does not have liquid long-term pricing, it is difficult to
calculate future profitability of the portfolio. However, management
believes that this reserve is adequate and that any additional increases in
the reserve would not be material.
8. REGULATORY MATTERS
MISSOURI
In the first quarter of 1997, the Staff of the Missouri Public Service
Commission (MPSC) filed a complaint against the company seeking to reduce
annual Missouri electric revenues by $23 million. In a separate filing with
the MPSC, the company requested to increase electric rates by $24.6 million.
The MPSC will review the company's position with the final order to be issued
in March 1998. The primary differences between these two dockets center on
rate of return, capital structure, transition costs, depreciation methods and
corporate allocations.
The company's filing is designed to recover inflationary and other cost
increases which include the investment of approximately $20 million in plant
and facility improvements. The rate increase also reflects the request for a
temporary surcharge of $.0028 per kilowatt-hour to cover cost related to
transitioning to the competitive customer-choice marketplace. In addition,
the filing includes a mechanism to lessen the impact of the surcharge on
consumers, and establishes a $1 million fund to assist low-income customers.
The company expects these regulatory matters to be resolved in March 1998.
MICHIGAN
In March 1997, the Michigan Public Service Commission (MPS) issued an order
on the company's pending gas rate request and granted a $1.7 million annual
revenue increase. In response to the MPS order, the company filed for
reconsideration of certain issues totaling $1.5 million. The MPS has not set
a schedule for the reconsideration filing.
-17-
<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
EXCEPT WHERE NOTED, THE FOLLOWING DISCUSSION REFERS TO THE CONSOLIDATED
ENTITY, UTILICORP UNITED INC., INCLUDING THE FOLLOWING BUSINESSES: UTILICORP
ENERGY DELIVERY (UED), CONSISTING PRIMARILY OF TRANSMISSION AND DISTRIBUTION
UTILITY OPERATIONS; AQUILA ENERGY CORPORATION (AQUILA), CONSISTING PRIMARILY
OF ENERGY MARKETING (BOTH GAS AND ELECTRIC), AND GAS PROCESSING, GATHERING
AND TRANSMISSION; AND GENERATION, CONSISTING OF DOMESTIC ELECTRIC GENERATION
AND INDEPENDENT POWER PROJECTS. THE COMPANY ALSO HAS VARIOUS OPERATIONS THAT
INCLUDE GENERATION, GAS MARKETING, ELECTRIC DISTRIBUTION AND VARIOUS EQUITY
INVESTMENTS THAT ARE DISCUSSED IN THE INTERNATIONAL SECTION OF THIS REPORT.
THE LIQUIDITY AND CAPITAL RESOURCES SECTION IS PREPARED ON A CONSOLIDATED
BASIS.
UTILICORP ENERGY SOLUTIONS (UES), CONSISTING OF RETAIL GAS MARKETING,
APPLIANCE REPAIR AND SERVICE CONTRACTS, WAS REALIGNED DURING THE SECOND
QUARTER OF 1997 INTO THE OPERATIONS OF UED AND AQUILA. THE REALIGNMENT IS
EXPECTED TO BETTER LEVERAGE EXISTING SUPPORT FACILITIES, PROCESSES AND
EXPERTISE.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the company's liquidity and capital resources are
sufficient and provide adequate financial flexibility. The company's
operations have historically generated strong positive cash flow, which,
along with the company's credit lines, accounts receivable sales programs,
common stock offerings and ability to issue public debt, have provided
adequate liquidity to meet the company's short-term and long-term cash
requirements, including requirements for acquisitions.
The company uses its accounts receivable sales programs to efficiently manage
its working capital and provide immediate liquidity. In April 1997, the
company increased one of its accounts receivable sales programs from $100
million to $150 million to keep pace with the company's growing energy
marketing business. At June 30, 1997, these programs were fully utilized. In
addition to the accounts receivable sales program, the company can issue up
to $150 million of commercial paper which is supported by a $250 million
revolving credit agreement. At June 30, 1997, there was $65.0 million in
commercial paper borrowings outstanding.
During the first quarter of 1997, the company redeemed its $2.05 Series
Preference Stock at par ($25 million) and retired $69.1 million of its 10.5%
Series Senior Notes with short-term debt. The company anticipates that it
will permanently refinance these items with long-term debt at interest rates
substantially lower than the coupon rates on the above preference stock and
senior notes.
CONSOLIDATED FINANCIAL CONDITION
Total assets have decreased by $300 million or 6% since December 31, 1996.
This decrease is mainly attributable to decreased accounts receivables of
$316.8 million resulting from seasonal decreases in gas utility sales in June
of 1997 compared to December 1996.
-18-
<PAGE>
Total liabilities have decreased by $305.5 million or 9% since December 31,
1996. The decrease is mainly attributable to a reduction in accounts payable
of $190.7 million and a decrease in other current liabilities and long-term
debt of $64.2 million and $77.4 million, respectively. The decrease in
accounts payable results from seasonal variations as noted above for the
decrease in accounts receivable. The decrease in other current liabilities
reflects purchase gas adjustments for differences in gas prices paid by the
company and gas rates actually billed to the customer. These differences,
which may reflect charges greater or less than amounts actually billed to the
customers, are adjusted periodically so that billing rates will reflect the
actual costs of gas paid by the company. The decrease in long-term debt
mainly reflects the extinguishment of debt as described in Note 4 of the
financial statements.
FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking information. Such information involves
risks and uncertainties and there are certain important factors that could cause
actual results to differ materially from those anticipated. Some of the
important factors which could cause actual results to differ materially from
those anticipated include, but are not limited to, future national and regional
economic and competitive conditions, inflation rates, regulatory changes,
weather conditions, financial market conditions, interest rates, future business
decisions, and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the company.
RESULTS OF OPERATIONS
The results of operations for the 1997 and 1996 periods have been impacted by
several items which do not have a continuing effect on the company's financial
position or results of operations. The consolidated table below summarizes the
impact of the non-recurring items on an earnings before interest and taxes
(EBIT) and earnings per share (EPS) basis.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- --------------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996
- ------------------- -------------- -------------- -------------- --------------
EBIT EPS EBIT EPS EBIT EPS EBIT EPS
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C>
AS REPORTED $67.2 $.38 $80.9 $.55 $196.6 $1.32 $176.1 $1.35
NON-RECURRING ITEMS:
Merger termination fee (Note 2) - - - - (53.0) (.61) - -
Provision for asset impairments (Note 3) - - - - 26.5 .31 - -
Reserve for long-term gas supply
contracts and other reserves (Note 7) - - - - 6.5 .07 - -
Gain on sales lease, net (a) - - (20.9) (.25) - - (20.9) (.26)
Loss on extinguishment of debt (Note 4) - - - - - .13 - -
----- ---- ----- ---- ------ ----- ------ ------
NORMALIZED $67.2 $.38 $60.0 $.30 $176.6 $1.22 $155.2 $1.09
----- ---- ----- ---- ------ ----- ------ ------
----- ---- ----- ---- ------ ----- ------ ------
</TABLE>
a) In 1996, the company recorded a gain from a sales lease on a power project
which was partially offset by certain restructuring reserves in connection
with changes in power project agreements. The result of these items
increased 1996 pre-tax earnings by $20.9 million.
-19-
<PAGE>
Normalized earnings or income are terms used by management to describe the
recurring earnings or income of the company. These terms are not meant to
replace net income or other measures under generally accepted accounting
principles.
ENERGY DELIVERY
The table below summarizes the operations of UtiliCorp Energy Delivery for the
following periods:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------- ------------------- --------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996 1997 1996
- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales:
Electric $128.1 $124.2 $250.8 $241.2 $528.9 $511.0
Gas 112.0 117.2 454.5 417.0 765.5 686.9
Other 56.6 26.9 129.3 60.7 193.4 105.3
Purchases from Generation (69.6) (65.3) (142.2) (135.4) (292.1) (275.5)
------ ------ ------ ------ ------- -------
Total net sales 227.1 203.0 692.4 583.5 1,195.7 1,027.7
------ ------ ------ ------ ------- -------
Cost of sales:
Electric 3.2 3.2 7.2 7.6 14.5 14.8
Gas 59.3 67.0 297.1 260.3 490.7 411.4
Other 45.9 18.7 110.7 46.4 150.1 71.8
------ ------ ------ ------ ------- -------
Total cost of sales 108.4 88.9 415.0 314.3 655.3 498.0
------ ------ ------ ------ ------- -------
Gross profit 118.7 114.1 277.4 269.2 540.4 529.7
------ ------ ------ ------ ------- -------
Operating expenses:
Other operating 57.7 53.6 114.5 107.0 236.3 220.8
Maintenance 6.3 6.5 12.6 12.5 26.1 23.7
Taxes, other than income taxes 12.8 12.1 26.8 25.6 52.1 52.0
Depreciation and amortization 17.1 17.6 34.5 35.2 66.2 70.2
------ ------ ------ ------ ------- -------
Total operating expenses 93.9 89.8 188.4 180.3 380.7 366.7
------ ------ ------ ------ ------- -------
Income from operations 24.8 24.3 89.0 88.9 159.7 163.0
Other income 1.7 2.2 3.2 4.0 10.1 7.9
------ ------ ------ ------ ------- -------
EBIT $26.5 $26.5 $92.2 $92.9 $169.8 $170.9
====== ====== ====== ====== ======= =======
</TABLE>
QUARTER-TO-QUARTER
EBIT is the same in 1997 compared to the 1996 quarter, however various
components within the above statement have fluctuated compared to 1996
amounts. Energy Delivery customer growth of 2% for both electric and gas
increased EBIT by $2.4 million over the 1996 quarter, while new gas rates in
Michigan, Nebraska and Kansas favorably impacted the 1997 quarter by
$1.6 million. EBIT in 1997 was also favorably impacted by $1.2 million in
purchased power savings and $1.0 million due to continued growth from certain
gas marketing businesses that were formerly part of UES. These favorable
items were offset by unfavorable weather of $3.7 million compared to 1996.
The unfavorable weather impact on the electric operations resulted from
summer weather being 37% cooler than the prior year and 31% cooler than
normal weather conditions. Increased operating expenses stem from inflation
and the cost associated with additional investment in infrastructure as UED
becomes better prepared to compete in a more competitive environment.
YEAR-TO-DATE
EBIT is about the same in 1997 for the six months ended June 30, as it was
for the same period in 1996. Customer growth of 2% increased EBIT by $8.2
million, while purchased power savings, growth in gas marketing (formerly
part of UES) and gas rate case increases improved
-20-
<PAGE>
EBIT by $1.2 million, $1.1 million and $4.9 million, respectively. These
upsides have been partially offset by unfavorable weather which reduced EBIT
by $9.4 million. Cooler temperatures reduced electric earnings by $6.5
million compared to 1996 due to summer weather being 37% cooler than the
prior year and 31% cooler than normal weather conditions while mild winter
temperatures reduced gas EBIT by $2.9 million. Increased operating expenses
stem from inflation and additional investment in infrastructure.
TWELVE MONTHS ENDED JUNE 30, 1997 TO 1996
EBIT decreased $1.1 million or 1% during the 1997 twelve month period
compared to the 1996 period. The change in EBIT was positively impacted by
several gas rate cases, purchased power savings and growth in the number of
customers, but offset by unfavorable weather as discussed above.
Significantly higher gas prices in 1997 increased both gas costs and sales
(through gas cost balancing accounts), with no net impact on EBIT. In
addition, UED's operating expenses increased 4% in 1997 compared to 1996 due
to the reasons cited above.
GENERATION
The table below summarizes the operations of Generation for the following
periods:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------- ------------------- --------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996 1997 1996
- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales to Energy Delivery $69.6 $65.3 $142.2 $135.4 $292.1 $275.5
Cost of sales 38.7 37.7 78.8 76.9 168.4 159.6
----- ----- ------ ------ ------ ------
Gross profit 30.9 27.6 63.4 58.5 123.7 115.9
----- ----- ------ ------ ------ ------
Operating expenses:
Other operating 12.3 11.9 23.3 23.8 49.5 45.7
Maintenance 3.9 3.9 7.5 7.6 14.6 13.9
Taxes, other than income taxes 1.7 1.8 3.5 3.4 6.6 6.9
Depreciation and amortization 4.4 4.6 7.9 8.9 17.9 18.7
Provision for asset impairment - - - - - 15.4
----- ----- ------ ------ ------ ------
Total operating expenses 22.3 22.2 42.2 43.7 88.6 100.6
----- ----- ------ ------ ------ ------
Income from operations 8.6 5.4 21.2 14.8 35.1 15.3
Equity in earnings of investments
and partnerships 7.6 28.2 15.0 34.4 31.4 48.3
Other income (expense) - .1 .3 .2 (.1) .2
----- ----- ------ ------ ------ ------
EBIT 16.2 33.7 36.5 49.4 66.4 63.8
Non-recurring items:
Provision for asset
impairments (1) - - - - - 15.4
Gain on sales lease of a power
project, net - (20.9) - (20.9) - (20.9)
----- ----- ------ ------ ------ ------
Normalized EBIT $16.2 $12.8 $36.5 $28.5 $66.4 $58.3
===== ===== ====== ====== ====== ======
</TABLE>
(1) In 1995, the company recorded a provision for impaired assets for $15.4
million.
-21-
<PAGE>
QUARTER-TO-QUARTER
Generation's 1997 second quarter normalized EBIT was $16.2 million or 27%
above the 1996 quarter. Both sales and gross profits improved partly due to
additional off-system sales volumes. Increased volumes were due to market
opportunities created by the spring outage season, warm weather in the
Northeast and regional power shortages. Purchased power prices also
contributed to the favorable gross margins as low cost excess hydropower
became available due to high levels of rainfall in the upper Midwest.
Depreciation and amortization amounts decreased in 1997 due to the retirement
of certain computer equipment at the end of 1996.
YEAR-TO-DATE
Generation's 1997 normalized EBIT for the six months ended June 30, was
$36.5 million or 28% above the 1996 period. Both sales and gross profits
improved due to additional off system margins and reductions in purchased
power pricing. EBIT from independent power projects increased $1.5 million
in 1997 compared to 1996 due to the new Jamaica project that began operations
in January 1997 and stronger performance from existing projects.
Depreciation and amortization amounts decreased in 1997 due to the retirement
of certain computer equipment at the end of 1996.
TWELVE MONTHS ENDED JUNE 30, 1997 TO 1996
Generation's normalized EBIT for the 1997 twelve month period compared to the
1996 period increased 14%. The improved results stem from the expansion of
off peak generation sales margins in the 1997 period compared to the 1996
period and increased earnings from independent power projects.
-22-
<PAGE>
AQUILA ENERGY
The table below summarizes the operations of Aquila Energy, which includes a
portion of the newly realigned retail operations of UES for the following
periods:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------- ------------------ --------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996 1997 1996
- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales:
Energy marketing $1,104.2 $350.3 $2,422.9 $794.3 $3,917.6 $1,369.4
Gas sales, transmission and processing 90.7 97.1 193.7 189.1 380.6 338.5
Oil and gas production - - - - - 17.8
-------- ------ -------- ------ -------- --------
Total sales 1,194.9 447.4 2,616.6 983.4 4,298.2 1,725.7
-------- ------ -------- ------ -------- --------
Cost of sales:
Cost of energy marketing 1,082.2 332.7 2,375.6 761.0 3,891.8 1,354.7
Cost of gas gathering and processing 63.5 68.3 138.9 133.4 207.2 164.6
-------- ------ -------- ------ -------- --------
Total cost of sales 1,145.7 401.0 2,514.5 894.4 4,099.0 1,519.3
-------- ------ -------- ------ -------- --------
Gross profit 49.2 46.4 102.1 89.0 199.2 206.4
-------- ------ -------- ------ -------- --------
Operating expenses:
Operating and maintenance 25.8 21.4 50.7 41.5 107.5 81.5
Depreciation, depletion and amortization 7.0 6.7 12.9 13.1 28.6 33.7
Provision for asset impairments - - 15.5 - 15.5 13.2
-------- ------ -------- ------ -------- --------
Total operating expenses 32.8 28.1 79.1 54.6 151.6 128.4
-------- ------ -------- ------ -------- --------
Income from operations 16.4 18.3 23.0 34.4 47.6 78.0
Minority interest expense and other 2.8 1.9 5.2 4.8 10.4 4.7
-------- ------ -------- ------ -------- --------
EBIT 13.6 16.4 17.8 29.6 37.2 73.3
Non-recurring items:
Change to mark-to-market method of
accounting (1) - - - - - (29.8)
Oil and gas operating income (2) - - - - - (1.1)
Provision for asset impairments (3) - - 15.5 - 15.5 13.2
-------- ------ -------- ------ -------- --------
Normalized EBIT $13.6 $16.4 $33.3 $29.6 $52.7 $55.6
======== ====== ======== ====== ======== ========
</TABLE>
(1) In 1995, the company changed its method of accounting for domestic natural
gas trading operations to the mark-to-market method. This change resulted
in a $29.8 million increase to sales in the twelve month 1996 period.
(2) In 1995, the company sold substantially all of its oil and gas production
assets at book value for $204.5 million. This normalizing adjustment
represents the EBIT from this business for the three months ending
September 30, 1995.
(3) In 1995, the company recorded a provision for impaired assets for $13.2
million.
QUARTER-TO-QUARTER
The 1997 normalized EBIT decreased $2.8 million versus the comparable quarter
in 1996. The primary reason for this decrease is due to retail gas marketing
being down $4.1 million for the quarter. Although sales have increased,
retail gas marketing EBIT decreased due to increased competition and high
supporting service cost. The retail gas marketing businesses are primarily
the result of the realignment of UES into the operations of Aquila during the
second quarter. The company expects the realignment to improve overall
retail earnings as those operations become assimilated into Aquila. Aquila
expects to better leverage existing support facilities,
-23-
<PAGE>
processes and expertise that will improve the realigned operations. Lower
EBIT from retail gas marketing was partially offset by margins generated from
the wholesale energy marketing businesses as the company continued to
capitalize upon favorable market trading conditions. Wholesale gas marketing
volumes sold grew 243% compared to the 1996 quarter, which helped contribute
$2.8 million to EBIT. The wholesale electricity marketing business has also
experienced significant volume growth, but downward pressures on margin
continue in the market place. Volume increases in energy marketing results
from the continued pursuit of an aggressive expansion strategy and successful
startup of a wholesale Canadian gas marketing operation late in 1996. The
increased gas and electricity volumes marketed in 1997 have significantly
increased sales and cost of sales compared to 1996. The increase in
operating expenses is primarily the result of hiring additional traders and
support staff to implement the growth strategy.
In the 1997 second quarter, total EBIT from its gas processing business was
$11.7 million or $.5 million less than 1996 amounts. The decrease is due to
a 5% decrease in natural gas liquids (NGL) production volumes and a 6%
decrease in pricing compared to the 1996 quarter. Based on current drilling
activity, projected throughput volume for the remainder of the year is
expected to be lower than 1996 volumes. In addition, projected earnings from
this segment are expected to be unfavorably impacted by the relatively low
price differential between the Katy Hub (located in East Texas) and the Waha
Hub (located in West Texas), which significantly reduces gas marketing
opportunities resulting from the company's interest in the Oasis Pipeline
Company. The company is currently developing a recovery plan to minimize the
future impact from this situation with initiatives within wholesale energy
marketing and other business units.
YEAR-TO-DATE
The 1997 year-to-date normalized EBIT increased $3.7 million over 1996. A
significant portion of the increase is related to wholesale energy marketing
as volumes increased by 200% over 1996, which improved overall EBIT by $8.5
million. This improvement was partially offset by a $5.0 million decrease in
the retail gas marketing businesses. The increase in gas and electricity
volumes marketed has significantly increased sales and cost of sales in 1997
compared to 1996. The increase in operating expenses is primarily the result
of hiring additional traders and support staff to implement the growth
strategy.
For the six months ended June 30, total system throughput from the gas
processing business was down 5% in 1997 compared to the 1996 period. This
drop in throughput decreased EBIT by $6.6 million, but was more than offset
by a 13% increase in the price of NGL's, which increased EBIT by $7.1 million
compared to the 1996 period.
TWELVE MONTHS ENDED JUNE 30, 1997 TO 1996
Normalized EBIT for the 1997 twelve month period decreased 5% over the 1996
twelve month period. This decrease was mainly due to a $11.5 million decline
in the retail gas marketing business. This decrease was partially offset due
to the aggressive market share growth strategy mentioned above and volatile
gas prices which provided trading opportunities during the period. Gas
marketing volumes rose 142% to 3.6 Bcf per day in the 1997 twelve month
period. The NGL processing businesses benefited from a 26% increase in NGL
prices and an 8% increase in NGL production while throughput declined by 9%.
These factors increased pipeline and processing EBIT by $.6 million.
-24-
<PAGE>
INTERNATIONAL
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30,
------------------- ------------------- --------------------
DOLLARS IN MILLIONS 1997 1996 1997 1996 1997 1996
- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales:
Electric (Canada) $19.9 $21.0 $46.2 $47.1 $92.0 $92.3
Gas Marketing (primarily United Kingdom) 37.0 28.0 109.8 99.4 209.7 193.0
----- ----- ------ ----- ------ ------
Total Sales 56.9 49.0 156.0 146.5 301.7 285.3
----- ----- ------ ----- ------ ------
Cost of Sales:
Cost of fuel and purchased power (Canada) 5.6 5.0 14.6 14.4 30.0 28.0
Cost of gas marketing (United Kingdom) 35.4 28.3 113.4 95.1 205.8 176.1
----- ----- ------ ----- ------ ------
Total Cost of sales 41.0 33.3 128.0 109.5 235.8 204.1
----- ----- ------ ----- ------ ------
Gross Profit 15.9 15.7 28.0 37.0 65.9 81.2
----- ----- ------ ----- ------ ------
Operating expenses:
Other operating 4.3 5.6 9.9 11.4 23.4 34.2
Maintenance 2.8 2.7 5.2 4.9 9.4 8.4
Taxes, other than income taxes 2.8 3.1 5.7 6.2 11.6 12.8
Depreciation and amortization 1.5 3.2 5.6 5.5 12.7 9.2
----- ----- ------ ----- ------ ------
Total Expense 11.4 14.6 26.4 28.0 57.1 64.6
----- ----- ------ ----- ------ ------
Income (loss) from operations 4.5 1.1 1.6 9.0 8.8 16.6
Equity earnings in subsidiaries
and partnerships 9.1 17.2 22.8 23.0 58.4 32.8
Other income and (expense) .8 1.0 1.5 .4 4.4 3.7
----- ----- ------ ----- ------ ------
EBIT 14.4 19.3 25.9 32.4 71.6 53.1
Non-recurring item :
UK gas contracts reserve (1) - - 5.0 - 5.0 11.0
----- ----- ------ ----- ------ ------
Normalized EBIT $14.4 $19.3 $30.9 $32.4 $76.6 $64.1
===== ===== ====== ===== ====== ======
</TABLE>
(1) In December 1995, the company recorded a $11.0 million reserve in other
operating expense for unfavorable gas supply contracts in the UK.
QUARTER-TO-QUARTER
International normalized EBIT decreased $4.9 million or 25% in 1997 compared
to 1996. This was primarily due to an EBIT decrease of $2.2 million and $1.9
million from the Australian and New Zealand operations, respectively. The
1997 decrease in Australian EBIT results from the timing of certain
management incentive fees related to its management agreement with United
Energy, Ltd. (UEL) when compared to 1996. The $1.9 million decrease in New
Zealand's EBIT is mainly due to decreased equity earnings of $2.4 million for
the quarter as a result of an earnings adjustment in the second quarter of
1996.
YEAR-TO-DATE
International normalized EBIT decreased $1.5 million or 5% in 1997 compared
to 1996. This decrease was primarily due to a $3.7 million decrease in
operations in the United Kingdom (UK) which was primarily offset by a $3.3
million increase in EBIT from the Australian operations. The $3.7 million
decrease in UK EBIT mainly reflects the realization of unfavorable
long-term gas supply contracts that did not become effective until late 1996.
The $3.3 million increase in EBIT reflects the avoidance of certain initial
start-up costs that were incurred in 1996 when operations were in the
formative stage, as well as the benefits received from changes made in
transforming UEL to a competitive and customer-focused operation.
-25-
<PAGE>
TWELVE MONTHS ENDED JUNE 30, 1997 TO 1996
International normalized EBIT increased $12.5 million or 19% in 1997
compared to 1996. On a normalized basis, the increase in EBIT is mainly due
to increased equity earnings in both Australia and New Zealand, which are
partially offset by lower EBIT in the UK. Increased equity earnings in
Australia reflect the timing of the Australian acquisition, which occurred in
September 1995, thus only nine months of operations are included in the
twelve months ended June 30, 1996. Other factors affecting Australian EBIT
are the avoidance of certain initial start-up costs that were incurred in the
twelve months ended June 30, 1996 due to operations being in the formative
stage and the benefits received from transforming UEL into a competitive and
customer-focused operation. Equity earnings in New Zealand increased due to
a significant amount of Power New Zealand Ltd. (PNZ) shares being purchased
in November 1995, thus yielding only seven months of earnings during the
twelve months ended June 30, 1996. The company also benefited from the
additional earnings in 1997 that were attached to shares purchased throughout
1996 from both investments as well as the additional earnings at the
underlying electric distribution companies.
The UK's normalized EBIT for the twelve months ended June 30,
1997 dropped primarily due to the changing price of natural gas and its
impact on the portfolio of sales and supply contracts.
NEW ENERGYONE PARTNERSHIP
The company and PECO Energy Company announced in June 1997 the establishment
of EnergyOne, L.L.C., the industry's first nationwide branded energy
marketing company designed to speed the benefits of competition to other
utilities and consumers. EnergyOne serves as the management clearing house
responsible for developing relationships with suppliers, evaluating and
selecting new products and services, and establishing wholesale pricing
mechanisms. Participating utilities serve as retail distributors of the
products, drawing upon EnergyOne's national marketing identity and support.
Both the company and PECO Energy hold a 50 percent equity interest in
EnergyOne and are the initial retail distributors. EnergyOne obtains
revenues from franchise, royalty and transaction fees from participating
distributors and suppliers.
NEW ZEALAND JOINT VENTURE
Mercury Energy and UtiliCorp N.Z., Inc. (a 79% owned subsidiary of the
company) announced a proposal in May 1997 to establish a 50-50 joint venture
whereby their existing shareholdings of PNZ will be placed in a new holding
company which will have effective control (64 percent) of PNZ's capital. The
holding company will offer minority shareholders $6 NZ a share with the
intention of acquiring 100 percent of PNZ. As a result of their controlling
position, the partners will move quickly to capture the savings available
from a cooperative approach to running the businesses of Mercury Energy and
PNZ. The proposal is conditional on Overseas Investment Commission approval.
NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. This statement focuses on disclosure and will
result in the company displaying a separate financial statement illustrating
the movements and components of comprehensive income. SFAS 130 is required
to be adopted in fiscal years beginning after December 15, 1997.
-26-
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The company held its annual meeting of shareholders on May 7, 1997. At the
meeting, the following matters were voted on by the shareholders:
1. Election of Directors:
DIRECTOR TERM FOR AGAINST WITHHELD
- -------- ---- --- ------- --------
Richard C. Green, Jr. 3 years 47,352,158 -- 1,050,100
Avis G. Tucker 3 years 47,212,066 -- 1,190,192
L. Patton Kline 3 years 47,314,414 -- 1,087,844
ITEM 6. EXHIBITS
(a) List of Exhibits
10 Transition agreement between a former executive and the company effective
May 19, 1997.
11 Statement regarding Computation of Per Share Earnings.
27 Financial Data Schedule--For the six months ended June 30, 1997.
(b) Report on Form 8-K
A current report on Form 8-K dated June 24, 1997, with respect to item 5
was filed with the Securities and Exchange Commission by the Registrant.
-27-
<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 14, 1997
By: /s/ James S. Brook
-------------------------------------
James S. Brook
Vice President and Controller
Date: August 14, 1997
-28-
<PAGE>
TRANSITION AGREEMENT
UtiliCorp United Inc., and its subsidiaries and affiliates (collectively
referred to as "The Company") and Terry Westbrook ("You") agree as follows:
1. Except as otherwise provided in this Agreement, Your employment
status, pay, and benefits with The Company will end on May 19, 1997, but You
may or may not be required to perform services for The Company after May 19,
1997. The Company will notify You in writing if You are needed to perform
additional services at any time after May 19, 1997, and such additional
services will not interfere with other employment You may obtain. If You are
so notified, You agree to: a.) cooperate and assist UtiliCorp in the orderly
transition of management, and b.) cooperate and assist UtiliCorp in the
investigation and handling of any actual or threatened court action,
arbitration, or administrative proceeding involving any matter that arose
during Your employment (including, but not limited to, testifying in
deposition and/or court and providing information to UtiliCorp).
2. For the purposes of determining benefits, You shall be deemed to
have voluntarily resigned from Your position. Responses to prospective
employment inquiries made to The Company and any public announcement or
comment by The Company concerning Your separation of employment will
generally be limited to a statement that You voluntarily resigned from Your
position.
3. You are not otherwise entitled to any benefits under any policy or
practice of The Company. However, in exchange for You entering into this
Agreement, The Company agrees to provide You with a total severance payment
of $252,281 (two hundred fifty-two thousand, two hundred eighty-one dollars),
representing nine months of your regular salary. This amount, less the sum
of $38,812.51 You have received from May, 19, 1997, to the date of this
Agreement, will be paid commencing on the first payroll following the 8th day
after You sign this Agreement and continuing thereafter until paid in full.
Further, You and The Company agree The Company will deduct only required
federal, state, FICA taxes, and other authorized deductions.
The Company also agrees to pay your next financial planning bill. Your
current benefit coverage will terminate on May 19, 1997, except that full
health coverage will continue as if you remained employed through the entire
period you receive severance payments as set out herein. Your stocks options
are not currently vested, therefore, they are hereby forfeited. In addition,
you will receive executive level outplacement services through D.P. Baiocchi
& Associates, Inc. with a maximum fee of $50,000, as well as any unused
accrued vacation.
4. In exchange for this Agreement, You (on behalf of You and anyone
claiming through or on behalf of You), release The Company, and its
successors and assigns, and all employees and agents from any and all claims,
-1-
<PAGE>
demands, and causes of action You have or may have had against any of them
prior to the date You sign this Agreement, to the maximum extent permitted by
law. This release includes, but is not limited to, any and all claims,
demands, and causes of action which are related to or concern: Your
employment and Your termination of employment; discrimination under local,
state, or federal law; Title VII of the Civil Rights Act of 1964; the Civil
Rights Act of 1991; the Americans with Disabilities Act; the Age
Discrimination in Employment Act; the Employee Retirement Income Security
Act; the Family and Medical Leave Act; and the Missouri Service Letter
Statute..
5. This Agreement is not admission of wrongdoing or liability by You,
The Company, or any of the individuals or entities set forth in paragraph 4
above. Any and all such wrongdoing or liability is expressly denied.
6. You represent that You have returned all The Company's files,
records, documents, plans, drawings, specifications, equipment, software,
pictures, videotapes, or any property or other items of The Company or
concerning the business of The Company, whether prepared by You or otherwise
coming into Your possession or control.
7. You agree that You shall not at any time, except as authorized by
The Company, communicate, divulge, or use for Your own benefit or for the
benefit of any other person, firm, or corporation, any confidential or
proprietary information concerning the Company's business, including but not
limited to The Company's operations, services, materials, policies, and the
manner in which they are developed, marketed, and provided, attorney-client
privileged information, attorney work product-privileged information, and
such other information regarded as trade secrets or confidential or
proprietary information under any applicable law, regulation, rule, and/or
ethical guidelines. You further agree that Your divulging any such
information to competitors or other persons not in the employ of The Company
would be damaging to the business and business prospects of The Company and
would constitute a material breach of this Agreement.
8. The content of this Agreement, and Your discussions with The
Company pertaining to it, are confidential. You will not communicate or
allow the communication in any manner with respect to the content of this
Agreement, and the discussions pertaining to it, except that the Agreement
may be disclosed by You to Your immediate family members, Your attorney and
accountant, or to governmental taxing authorities, pursuant to an order of a
court of competent Jurisdiction, or if required by applicable laws.
9. You received this Agreement on May 19, 1997. You have twenty-one
(21) calendar days, after the date You receive this Agreement, within which
to consider this Agreement. The Company has advised You that You may consult
-2-
<PAGE>
with an attorney prior to signing this Agreement. You may revoke this
Agreement within seven (7) calendar days after You sign it. The Agreement is
effective and enforceable on the eighth (8th) calendar day following the date
You sign the Agreement.
10. You acknowledge that no representations have been made to You by
The Company, or their agents or legal counsel regarding the tax implication
of any payments made pursuant to this Agreement. All liability for federal,
state, and local taxes (including FICA) remains with You, unless otherwise
agreed to in writing by The Company, and The Company shall deduct all
required withholding from the consideration payable under this Agreement.
11. This Agreement shall be subject to and construed in accordance with
the laws of the State of Missouri.
12. This Agreement contains the entire Agreement of the parties with
respect to the matters contemplated by this Agreement. No change,
modification, or waiver of any provision of the Agreement will be valid
unless in writing and signed by the parties to be bound.
13. You represent and agree that You freely and voluntarily executed
this Agreement, that You have had the opportunity to consult with an
attorney, and that no promise, inducement, or Agreement not expressed in this
Agreement has been made to You by The Company.
14. If You breach any provision of this Agreement, or if one or more
provisions of paragraph 4 of this Agreement is ever determined by a court to
be unenforceable, The Company, at its option, will be entitled to recover
from you the entire cash portion of the severance payment previously made to
You by The Company, plus The Company's costs and attorney's fees. The
Company may also pursue any other available remedies. Any such legal action
by The Company shall not be considered by You to be retaliatory.
15. This Agreement is binding on and insures to the benefit of The
Company's successors and assigns and Your heirs and assigns.
7/18/97 /s/ Terry Westbrook
____________________ ___________________________________
Date Terry Westbrook
For The Company:
7/31/97 /s/ Leo Morton
____________________ By: _______________________________
Date Leo Morton
Human Resource Representative
-3-
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
UTILICORP UNITED INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months
(In thousands except per share amounts) Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
------- ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings Available for Common Shares:
(a) Income before extraordinary item $20,306 $25,809 $77,873 $62,608 $118,970 $101,959
(b) Extraordinary item - - (7,184) - (7,184) -
------- ------- ------ ------- -------- --------
(c) Primary Earnings Available 20,306 25,809 70,689 62,608 111,786 101,959
Elimination of interest on convertible
subordinated debenture, net of tax 68 82 138 166 296 343
(d) Fully Diluted Earnings Available $20,374 $25,891 70,827 $62,774 $112,082 $102,302
------- ------- ------ ------- -------- --------
------- ------- ------ ------- -------- --------
Weighted Average Common Shares Outstanding:
(e) Primary weighted average shares outstanding
as reported 53,688 46,701 53,467 46,467 50,679 46,030
Assumed conversion of convertible
subordinated debenture 282 324 289 329 300 338
------- ------- ------ ------- -------- --------
(f) Fully Diluted Weighted Average Shares
Outstanding 53,970 47,025 53,756 46,796 50,979 46,368
------- ------- ------ ------- -------- --------
------- ------- ------ ------- -------- --------
Earnings Per Common Share:
Income before extraordinary item (a/e) $.38 $.55 $1.45 $1.35 $2.35 $2.22
Extraordinary item (b/e) - - (.13) - (.14) -
------- ------- ------ ------- -------- --------
Primary Earnings Available $.38 $.55 $1.32 $1.35 $2.21 $2.22
Fully Diluted (d/f) $.38 $.55 $1.32 $1.34 $2.20 $2.21
------- ------- ------ ------- -------- --------
------- ------- ------ ------- -------- --------
</TABLE>
-29-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR THE QUARTER ENDING
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 164
<SECURITIES> 0
<RECEIVABLES> 495
<ALLOWANCES> 0
<INVENTORY> 99
<CURRENT-ASSETS> 899
<PP&E> 2,416
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,405
<CURRENT-LIABILITIES> 1,306
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 1,135
<TOTAL-LIABILITY-AND-EQUITY> 4,405
<SALES> 1,550
<TOTAL-REVENUES> 1,550
<CGS> 1,333
<TOTAL-COSTS> 1,496
<OTHER-EXPENSES> 6
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 35
<INCOME-TAX> 15
<INCOME-CONTINUING> 20
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
